Earnings Management and Accruals Process

The main aim of this paper is to approach the theoretical background of earnings management in connection with the detection of accruals. Earnings management is legal management of profit within the legal framework, but it should be noted that earnings management involves creative accounting techniques, the use of which may call into question the true and fair view of the financial performance of the business. In practice, there may be opportunities to influence accounting information through the use of different methods and techniques, as a result of which the financial statements lose their function and thus misrepresent the accounting data. Because accruals are used as a key indicator that shows the performance of a business, it can be used to make the business performance look different from the actual position of managers. If there is a discrepancy between the timing of cash flows and accounting recognition of the transaction, accruals are increased. In this paper we specify the theoretical background of earnings management in connection with the detection of accruals, where we use the method of description and classification of scientific terms. We illustrate the accruals in connection with earnings management through an example focused on revenues recognition and total accurate balance.