Structural Framework of Islamic Aqidah on the Practice of Earning Management

Abstract: There is growing concern among the users of financial statements about the level of frauds occurring in the business organization. The unexpected collapse of corporate giants such as Enron and WorldCom has driven those interested to pay more attention to the unethical practices in accounting systems. The phenomenon of Earnings Management (EM) is seen as one of the most problematic issues facing the accounting profession during the last few decades. It has been argued that EM misleads the users of financial statements. This is because when the managers alter earnings, the financial statements do not accurately reflect the economic wealth of the company, which ultimately leads to the gross violation of stakeholders' trust. The objective of this paper is firstly to address the ethical issue of EM and evaluate the progress of research in dealing with this issue where Islamic Structural Framework, based on Islamic creed (aqidah), can provide some insights into the behavioral pattern and actions that could be undertaken to reduce or eliminate the practice of EM. Hence, the paper proposes a structural framework of Islamic Aqidah and the practice of EM that functions as a guidance to direct the intentions as well as behaviors of managers towards a proper manner (derived from the Quran and Sunna).