Benford law is applied to expose income- smoothing practices when measuring at fair value and its reflection on the company’s value
“An analytical study of a selected sample of Iraqi banks”
A Thesis Submitted to
The Council of the College of Administration and
Economics – Karbala University ,as Partial Fulfillment of Requirements for the Degree of Master
in Accounting
By
Rehab Salih Mogams
Supervised by
Prof. Dr. Haydar Ali Jarad AL- Massoodi
Income Smoothing practices are among the practices that achieve a kind of stability in net income and financial investments, which works to generate appropriate accounting information that reflects the desire of decision-makers for the reality of the business of the economic unit, so it is necessary to follow certain methods to reach the achievement of goals that financial management seeks in light of the measurement methods Accounting permitted and in accordance with international financial reporting standards.
In order to keep Income Smoothing practices in light of the usual, the application of the Benford Law in the field of accounting and auditing came to reveal the possibility of tampering with accounting information and departing from certain standard possibilities. Assuming that the research sample companies can take advantage of the shift to measure at fair value and apply them to make certain adjustments to their financial statements, and to achieve this goal the financial statements were chosen for a time series consisting of two parts of (2013-2015) as the companies were applying the measurement at historical cost and from (2015 -2017) As these companies turned into a fair value measurement, and in light of this the research reached a set of conclusions, the most important of which are: –
1. There are practices to pave the income in companies listed on the Iraq Stock Exchange, which were discovered when implementing the Benford Law, resulting from companies manipulating their net income and financial investments, which in turn is reflected in changing the real performance of companies.
2. The Income Smoothing practices are neither dependent nor based on the accounting method used.
3. The phenomenon of introducing income does not clearly affect the value of shares of pioneering companies, and as a result does not affect the value of the company. According to the findings, a set of recommendations was reached, the most important of which are:
1. Working to broaden the users ’understanding and awareness of the Income Smoothing practices and their effect in distorting the financial statements.
2. Urging the accountants and auditors to follow the supervisory methods to ensure the safety and correctness of the accounting work, and to provide guidelines for the relevant authorities and to guide them in their duties.
