Ethical Implications of Deceptive Earnings Management Practices

Abstract

This study is devoted to the analysis of the consequences of using deceptive methods of income management and the justification of the importance of observing ethical standards in financial reporting to ensure the sustainable development of companies. The purpose of the study is to evaluate existing revenue management practices from the point of view of their compliance with ethical standards of business conduct. Based on a critical review of the literature on income management, it was concluded that the use of fraudulent methods, especially in the preparation of financial statements, reduces the integrity and reliability of information used by interested parties in making management decisions, distorts the distribution of resources, hinders the efficient functioning of capital markets and endangers the stable functioning of the economy. Based on the results of the study, it was concluded that transparency, honesty and accountability in financial activities play an important role in creating a business environment that encourages fair and honest behavior. This contributes to the preservation of the interests of interested parties and the sustainable growth of the economy due to the observance of ethical standards in the field of business. Based on the analysis of existing revenue management practices, it has been proven that the artificial increase in share prices, the use of shadow financial transactions, and the reduction of the workforce contribute to the growth of companies' profits, due to the dismissal of experienced employees and, possibly, the reduction of its future competitiveness. The study theoretically proves the need for organizations to find a balance between financial activities and their compliance with ethical norms, taking into account that short-term profits achieved through questionable activities can ultimately lead to a decrease in trust in companies and serve as a threat to their long-term viability. The results of the study can be useful for managers of enterprises, shareholders and subjects of the financial system as a whole from the point of view of a deeper understanding of ethical problems related to income management and ways to increase the transparency and reliability of information displayed in financial statements of companies.

Keywords

• earnings management
• deception
• ethical implications
• financial reporting
• stakeholders