Earnings management as an ethical issue in view of Kohlberg’s theory of moral reasoning
| DOI | https://doi.org/10.1108/JFC-11-2019-0138 |
| Published date | 18 March 2020 |
| Date | 18 March 2020 |
| Pages | 522-535 |
| Subject Matter | Accounting & Finance,Financial risk/company failure,Financial crime |
| Author | Abdulfatah Ali Belgasem-Hussain,Yousof Ibrahim Hussaien |
Earnings management as an
ethical issue in view of Kohlberg’s
theory of moral reasoning
Abdulfatah Ali Belgasem-Hussain
Department of Finance, Gharian University, Gharian, Libya, and
Yousof Ibrahim Hussaien
Department of Accounting, University of Subrata, Subrata, Libya
Abstract
Purpose –The purpose of this paperis to shed light on and introduce the ethics of earnings management
(EM) to researchersand students in the academic community in lightof Kohlberg’s theory.
Design/methodology/approach –The paper contextualises and analyses the relevant literature to
provide insights around the key concepts of the issue of ethics of EM. Therefore, theoretical approach has
been adopted by reviewing the literature using a descriptive method. The study suggests relevance of the
theory of moral developmentand reasoning by Kohlberg (1969) as an approachin the process of exploring the
background and the reasons behind ethics of managers regarding EM. This theory helps to explain how
individualsdemonstrate and justify a sense of right or wrong. Thus, the paperis a literature review concluded
with a proposedconceptual framework.
Findings –The paper provides conceptualinsights about the ethics of EM, and it proposes a link between
manager’s ethics regarding the phenomenon of EM and the framework of moral reasoning theory by
Kohlberg(1969).
Originality/value –The importanceand implications of Kohlberg’s theory, in terms of EM, resideswithin
the fact that the theory is concernedwith questions about how one ought to act –being as it acknowledges the
well-knownethical theories. The work of Kohlberg can be classified as a descriptiveanalysis to the extent that
it attempts to describe individuals’moraldevelopment. This integration of normative and descriptive ethics,
in turn, enablesthe theory to be used to explore managers’moral reasoningin a more helpful way.
Keywords Earnings management, Ethics, Kohlberg’s theory of moral reasoning
Paper type General review
1. Introduction
The problem of earnings management (EM) is a worldwide phenomenon and has become
one of the important ethical issues facing reliabilityof financial information. The greyareas
in accounting standards and the great deal of subjective judgment open a space for
opportunistic accounting, where managers improve positions, and the earnings reports do
not necessarily reflect the underlying financial performance of the company. The manager
as the decision-maker therefore directs every part of the organisation and his role in
© Abdulfatah Ali Belgasem-Hussain and Yousof Ibrahim Hussaien. Published by Emerald
Publishing Limited. This article is published under the Creative Commons Attribution (CC BY 4.0)
licence. Anyone may reproduce, distribute, translate and create derivative works of this article (for
both commercial and non-commercial purposes), subject to full attribution to the original publication
and authors. The full terms of this licence may be seen at http://creativecommons.org/licences/by/4.0/
legalcode
JFC
30,2
522
Journalof Financial Crime
Vol.30 No. 2, 2023
pp. 522-535
EmeraldPublishing Limited
1359-0790
DOI 10.1108/JFC-11-2019-0138
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