This study examines the association between the three components of the financial reporting control system (auditors, corporate governance, and enforcement) and both accrual (AEM) and real (REM) earnings management across listed companies in 17 EU countries over the period 2012–2018. Our results show that these controls play complementary roles in constraining earnings manipulations. Auditors constrain AEM, independent directors seem to mitigate REM, and enforcement constrains only income-increasing AEM. These findings have policy implications and extend the earnings management literature by providing new insights into the complex relationship between controls and earnings management. Overall, they emphasize the need to adopt a comprehensive view of the system of financial reporting controls and consider its effectiveness with respect to different forms of earnings manipulation.

The role of financial reporting controls in constraining earnings management: European evidence / Avallone, Francesco; Quagli, Alberto; Ramassa, Paola; Simoni, Lorenzo. - In: JOURNAL OF INTERNATIONAL ACCOUNTING AUDITING & TAXATION. - ISSN 1061-9518. - ELETTRONICO. - (2026), pp. 1-54. [10.1016/j.intaccaudtax.2026.100761]

The role of financial reporting controls in constraining earnings management: European evidence

Ramassa, Paola;Simoni, Lorenzo
2026

Abstract

This study examines the association between the three components of the financial reporting control system (auditors, corporate governance, and enforcement) and both accrual (AEM) and real (REM) earnings management across listed companies in 17 EU countries over the period 2012–2018. Our results show that these controls play complementary roles in constraining earnings manipulations. Auditors constrain AEM, independent directors seem to mitigate REM, and enforcement constrains only income-increasing AEM. These findings have policy implications and extend the earnings management literature by providing new insights into the complex relationship between controls and earnings management. Overall, they emphasize the need to adopt a comprehensive view of the system of financial reporting controls and consider its effectiveness with respect to different forms of earnings manipulation.
2026
1
54
Avallone, Francesco; Quagli, Alberto; Ramassa, Paola; Simoni, Lorenzo
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Utilizza questo identificatore per citare o creare un link a questa risorsa: https://hdl.handle.net/2158/1455956
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