The Influence Of Deferred Tax Liabilities, Deferred Tax Assets And Accruals On Earnings Management In Manufacturing Companies Listed On The Indonesia Stock Exchange

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The Influence of Deferred Tax Liabilities, Deferred Tax Assets, and Accruals on Earnings Management in Manufacturing Companies Listed on the Indonesia Stock Exchange

Abstract

Earnings management is a crucial aspect of financial reporting, and various factors can influence it. This study examines the impact of deferred tax liabilities, deferred tax assets, and accruals on earnings management in manufacturing companies listed on the Indonesia Stock Exchange (IDX). The population consisted of 143 manufacturing companies listed on the IDX in the 2013 to 2014 period, with 20 sample companies and 40 units of analysis. Multiple regression analysis was employed to analyze the data. The results showed that simultaneously, deferred tax liabilities, deferred tax assets, and accruals had no significant effect on earnings management. The partial analysis also revealed that each factor did not have a significant effect on earnings management.

Introduction

Earnings management is a critical aspect of financial reporting, and various factors can influence it. The Indonesia Stock Exchange (IDX) is one of the largest stock exchanges in Southeast Asia, with numerous manufacturing companies listed on it. The manufacturing sector is a significant contributor to the country's economy, and the financial performance of these companies can have a substantial impact on the overall economy. This study aims to examine the influence of deferred tax liabilities, deferred tax assets, and accruals on earnings management in manufacturing companies listed on the IDX.

Literature Review

Earnings management is a process of manipulating financial reports to achieve specific goals, such as increasing earnings or reducing losses. Various factors can influence earnings management, including accounting policies, internal control systems, and external factors such as market conditions and regulatory requirements. Deferred tax liabilities and assets are accounting items that can affect earnings management. Deferred tax liabilities arise when a company recognizes income but has not yet paid taxes on it, while deferred tax assets arise when a company has tax losses or credits that can be used to reduce future tax liabilities.

Accruals are also an important factor in earnings management. Accruals are the process of recording income and costs that have not been received or incurred but have been recognized in the current period. Accruals can be used to manipulate earnings by recognizing income or costs that have not yet been received or incurred.

Methodology

The population of this study consisted of 143 manufacturing companies listed on the IDX in the 2013 to 2014 period. Purposive sampling was employed to select 20 sample companies, resulting in 40 units of analysis. Multiple regression analysis was used to analyze the data.

Results

The results of this study showed that simultaneously, deferred tax liabilities, deferred tax assets, and accruals had no significant effect on earnings management. The partial analysis also revealed that each factor did not have a significant effect on earnings management.

Discussion

The results of this study can be interpreted as follows:

  • Deferred tax liabilities: Deferred tax liabilities are the obligation to pay for future taxes on recognized income but have not been taxed. Although manufacturing companies on the IDX may have deferred tax liabilities, this factor did not significantly affect their efforts to manage profits. This can be interpreted that the company may have managed deferred tax liabilities in an insignificant way to affect net profit.
  • Deferred tax assets: Deferred tax assets are the right to reduce tax in the future of expenditure that has been deducted from income but has not been deducted from income tax. The results showed that deferred tax assets also did not significantly affect earnings management. This might indicate that the company does not use deferred tax assets as a tool to manipulate net profit.
  • Accrual: Accrual is a process of recording income and costs that have not been received or incurred, but have been recognized in the current period. Although accrual is one of the tools commonly used for earnings management, this study shows that accruals have no significant influence on earnings management on manufacturing companies on the IDX. This may occur because the company has implemented a good accounting system and internal control system, thereby reducing the potential for accrual manipulation for earnings management purposes.

Implications

This study has important implications for stakeholders, including investors, creditors, and regulators. The results showed that the factors studied in this study had no significant influence on earnings management. This can be an indication that manufacturing companies on the IDX have implemented good accounting and internal control practices, thereby reducing the potential of profit manipulation.

However, it should be noted that this research has several limitations, such as a relatively short research period and a limited number of samples. Further research with a longer research period and a larger sample is needed to strengthen the conclusions of this study.

Conclusion

This study shows that deferred tax liabilities, deferred tax assets, and accruals do not have a significant effect on earnings management on manufacturing companies on the IDX. These results can be an indication that the company has implemented good accounting and internal control practices. It is essential for stakeholders to understand the factors that influence earnings management and to continue to monitor accounting and internal control practices in manufacturing companies on the IDX.

Recommendations

Based on the findings of this study, the following recommendations are made:

  • Manufacturing companies on the IDX: Manufacturing companies on the IDX should continue to implement good accounting and internal control practices to reduce the potential of profit manipulation.
  • Regulators: Regulators should continue to monitor accounting and internal control practices in manufacturing companies on the IDX to ensure that they are in compliance with regulatory requirements.
  • Investors and creditors: Investors and creditors should continue to monitor the financial performance of manufacturing companies on the IDX to ensure that they are making informed investment and lending decisions.

Limitations

This study has several limitations, including:

  • Relatively short research period: The research period of this study was relatively short, which may limit the generalizability of the findings.
  • Limited number of samples: The number of samples used in this study was limited, which may affect the reliability of the findings.

Future Research Directions

Future research should aim to address the limitations of this study by:

  • Increasing the research period: Future research should aim to increase the research period to strengthen the conclusions of the study.
  • Increasing the number of samples: Future research should aim to increase the number of samples to improve the reliability of the findings.
  • Examining other factors: Future research should aim to examine other factors that may influence earnings management in manufacturing companies on the IDX.
    Q&A: The Influence of Deferred Tax Liabilities, Deferred Tax Assets, and Accruals on Earnings Management in Manufacturing Companies Listed on the Indonesia Stock Exchange

Frequently Asked Questions

Q: What is earnings management, and why is it important?

A: Earnings management is the process of manipulating financial reports to achieve specific goals, such as increasing earnings or reducing losses. It is an important aspect of financial reporting, as it can affect the financial performance and stability of companies.

Q: What are deferred tax liabilities and assets, and how do they affect earnings management?

A: Deferred tax liabilities arise when a company recognizes income but has not yet paid taxes on it, while deferred tax assets arise when a company has tax losses or credits that can be used to reduce future tax liabilities. These items can affect earnings management, as they can be used to manipulate net profit.

Q: What is accrual, and how does it affect earnings management?

A: Accrual is the process of recording income and costs that have not been received or incurred, but have been recognized in the current period. Accruals can be used to manipulate earnings by recognizing income or costs that have not yet been received or incurred.

Q: What are the implications of this study for stakeholders, including investors, creditors, and regulators?

A: The results of this study show that deferred tax liabilities, deferred tax assets, and accruals do not have a significant effect on earnings management in manufacturing companies listed on the Indonesia Stock Exchange. This can be an indication that these companies have implemented good accounting and internal control practices, thereby reducing the potential of profit manipulation.

Q: What are the limitations of this study, and what are the recommendations for future research?

A: The limitations of this study include a relatively short research period and a limited number of samples. Future research should aim to increase the research period and the number of samples to strengthen the conclusions of the study. Additionally, future research should aim to examine other factors that may influence earnings management in manufacturing companies listed on the Indonesia Stock Exchange.

Q: What are the implications of this study for manufacturing companies listed on the Indonesia Stock Exchange?

A: The results of this study suggest that manufacturing companies listed on the Indonesia Stock Exchange should continue to implement good accounting and internal control practices to reduce the potential of profit manipulation.

Q: What are the implications of this study for regulators?

A: The results of this study suggest that regulators should continue to monitor accounting and internal control practices in manufacturing companies listed on the Indonesia Stock Exchange to ensure that they are in compliance with regulatory requirements.

Q: What are the implications of this study for investors and creditors?

A: The results of this study suggest that investors and creditors should continue to monitor the financial performance of manufacturing companies listed on the Indonesia Stock Exchange to ensure that they are making informed investment and lending decisions.

Additional Questions and Answers

Q: What is the significance of this study in the context of earnings management?

A: This study contributes to the existing literature on earnings management by examining the influence of deferred tax liabilities, deferred tax assets, and accruals on earnings management in manufacturing companies listed on the Indonesia Stock Exchange.

Q: What are the potential applications of this study?

A: The findings of this study can be applied in various contexts, including financial reporting, auditing, and regulatory practices.

Q: What are the potential limitations of this study?

A: The limitations of this study include a relatively short research period and a limited number of samples.

Q: What are the potential avenues for future research?

A: Future research should aim to examine other factors that may influence earnings management in manufacturing companies listed on the Indonesia Stock Exchange.

Conclusion

This Q&A article provides additional insights into the influence of deferred tax liabilities, deferred tax assets, and accruals on earnings management in manufacturing companies listed on the Indonesia Stock Exchange. The results of this study have important implications for stakeholders, including investors, creditors, and regulators, and highlight the need for continued research in this area.