Assessing the Risk of Earnings Management Through the Lens of Individual Moral Philosophy: Insights from Accounting Professionals

This study explores how individual moral philosophies influence accountants’ ethical perceptions of earnings management risk, addressing the broader question of how moral reasoning interacts with the cultural environment in shaping financial reporting decisions. Although accounting standards such as IFRS/IAS aim to harmonize reporting, cultural, and institutional factors can lead professionals to interpret and apply them differently, making ethical perceptions context-dependent. Building on positive accounting theory and Forsyth’s model of personal moral philosophy, we conducted a scenario-based survey among Polish accounting professionals, using an extended set of earnings management scenarios developed by Bruns and Merchant and modified by Jooste. Our results indicate that subjectivists demonstrate greater ethical sensitivity to earnings-altering behavior, while absolutists exhibit the least. We also examined ethical evaluations across different types of earnings management practices, including income-increasing versus income-decreasing, accrual-based versus real earnings management, and multi-year versus single-year manipulations. Understanding how different moral orientations influence the perception of managerial interventions in reported figures can help executives foster an organizational culture that promotes the provision of reliable and accurate information to stakeholders. Study limitations include sample size and scope, suggesting the need for future research incorporating broader demographics and contextual variables.