15
So far, no definitive measure or appropriate to measure the quality of earnings of a financial statement, only an approach that is being used to proxy the
quality of earnings. Therefore, earnings quality measure used by the researchers could be different with other researchers Surifah, 2010. This research will use
earnings management through discretionary accruals as the proxy of earnings quality.
2.6 Positive Accounting Theory
Based on Scott 2009, for the purpose, the term “positive” refers to a theory that attempts to make good predictions of real-world events. Thus, positive
accounting theory is concerned with predicting such actions as the choices of accounting policies by firm’s managers and how managers will respond to
proposed new accounting standards. Positive accounting theory takes the view that firms organize themselves in the most efficient manner, so as to maximize
their prospects for survival. Positive accounting theory has three hypotheses: 1. Bonus plan hypothesis
Bonus plan hypothesis talks about managers of company with bonus plans are more likely to choose accounting procedures that shift reported
earnings from future periods to the current period. 2. Debt covenant hypothesis
Debt covenant hypothesis talks about the closer a company is to violation of accounting-based debt covenants, the more likely the
company manager is to select accounting procedures that shift reported earnings from future periods to the current period.
could be different with other r
re re
s searchers
S S
ur ur
ifah, 2010. This research will use earnings managemen
en t
t through discretionary accruals a
a s the proxy of earnings
quality.
2.6 Po o
sitive Acc c
ount t
in ing
g T
T heory
Ba Base
sed d
on S S
c co
tt 2009, for the purpose, t he
t t
er er
m “p pos
os it
itiv iv
e” refer rs
s to a
theory ry
t th
hat atte te
mp ts to
ma ke good pr
ed ictions of rea
l- world
ev v
en e
ts. Th Th
us u
, positi tive
ac ac
co co
un u
ting ng
theory is con ce
rn ed with
pr edicting such actions
as the
e cho
ho ic
ic es o
f f
ac ac
co c
unti ti
ng p
ol icies by firm’
s mana
ge rs and how mana
ge rs
w il
l l
l resp
sp on
on d to
to propos
s ed
new accou nt
ing standa
rd s.
P os
itiv e
ac co
unti ng theory ta
ke kes the vi
iew w
th that fir
ir ms
organize themselv es
in the most eff icient manner, so as
t o
o ma a
x ximiz
ze their prospe
ct s
s fo
for r
su su
rv rv
iv iv
al al
. Po
Po siti
ti v
ve accou u
n ntin
n g
g th
th eo
eo ry
ry h
h as
as t
t hr
hr ee
e h
yp otheses:
1. Bonus plan hypothesis Bo
Bo nu
nu s
s pl
plan an
h h
yp yp
ot ot
he he
si si
s s ta
talk lk
s ab abou
out t
ma ma
na na
ge ge
rs rs
o of
f co
co mp
mp an
an y
y wi
with th
b b
onus pl
pl an
ans are e
m more likely to
o choose ac
c c
counting pro o
ce ce
du du
re s
s th
th at
at shi hi
ft ft reported
earnings from future pe eriods to the
e current period. 2. Debt covenant hypothes
sis i
Debt covenant hypothesis s
tal alks about the closer a company is to
16
3. Political cost hypothesis Political cost hypothesis talks about the greater the political cost faced
by a firm, the more likely the manager is to choose accounting procedures that defer reported earnings from current to future periods.
From those hypotheses, we can know that the existence of positive accounting theory is the door way of earnings management practices.
2.7 Earnings Management
