The Problem of Earnings Management and the Differences in the Degree of Impact That Earnings Management Causes in the United States and South Korea

Open Access
Author:
Baek, Soo Ryeon
Area of Honors:
Accounting
Degree:
Bachelor of Science
Document Type:
Thesis
Thesis Supervisors:
  • Orie Edwin Barron, Thesis Supervisor
  • Henock Louis, Honors Advisor
Keywords:
  • accounting transparency; earnings management; independence;
Abstract:
Companies engage in earnings management, the deliberate manipulation of financial statements, to enhance the financial position of the company. While there are a considerable number of problems arising from this earnings management all around the world, there is a noticeable difference in the degree of seriousness in terms of the earnings management in the United States and South Korea. On the other hand, since the early in 2000s, the United States has actively placed and implemented regulations on auditing standards. As a result of the efforts in the enactment of new regulation and serious repercussions of financial scandals such as publication of the scandals along with the severe punishments, accounting transparency has significantly improved in past years. On the other hand, the accounting transparency in South Korea has worsened despite intensified accounting regulations in 2006. In this paper, I present a comparison of the United States and South Korea’s cultural differences, accounting regulations, fraudulent earnings management cases, and public perceptions of accounting transparency. In addition to the academic literature review, I also conducted a survey of professional auditors in both countries to assess the audit quality, effective communication methods, and ethical standards.