Dr. Imran Ahmad Khan, International Journal of Research in Management, Economics and Commerce, ISSN 2250-057X, Impact Factor: 6.384, Volume 08 Issue 3, March 2018, Page 1-8 http://indusedu.org Page 1 This work is licensed under a Creative Commons Attribution 4.0 International License The Timing of Asset Sales and Earnings Manipulation: An Empirical Analysis Dr. Imran Ahmad Khan (Assistant Professor, College of Administrative and Financial Sciences, Saudi Electronic University, Dammam, Saudi Arabia) Abstract: The study examined accounting manipulations using timing of assets (independent variable) and firm’s financial performance (dependent variable) using Return on assets, Return on Equity and Earnings per share based on Secondary data obtained from National stock exchange and tries to ascertain whether firms use TAT to manipulate financial results. TATs were subjected to Hausmann test and also regressed against performance variable. Findings indicate that TAT has significant relationships with ROA, ROE and EPS implying it could be used for accounting manipulations. The study confirmed a positive relationship of TAT with ROA and EPS and we conclude that an increase in TAT increases ROA and EPS. Conversely, TAT also has a negative relationship with ROE confirming that a decrease in TAT increases ROE and vice versa. Managers can deploy TAT for economic or accounting manipulation incentives. Managers can use TAT to smooth earnings for bonus compensation, for debt covenants and for political costs reasons in line with the various hypothesis stated in the theoretical framework. Keywords: Timing of Asset Sales, Return on Asset, Return on Equity, Earnings per Share. I. INTRODUCTION Financial accounting conveys information to various stakeholders which include shareholders, creditors, regulators, employees, analysts etc. However, despite the role of regulators and auditors a lot of firms that have reported profits went into bankruptcy. This anomaly generated interests amongst standard setters, regulators, accounting practitioners and other users of accounting information as how to mitigate these problems. The underlying reason for these failures were identified as the latitude given managers to choose accounting methods, internal control weakness and weak corporate governance mechanisms. Managers are given the liberty by accounting rules to choose a particular method and set accounting policies for the firm. The self-interested motive of these managers sometimes influences the choice. It is widely espoused in accounting literature that managers act in this manner to increase bonus compensation accrued in their favor, to meet debt covenant, to present a positive impression of the firm to investors and influence market price, to stabilize fluctuating earnings, to reduce tax and for political cost reasons. These dimensions are perceived as conflict of interest as they may not be in congruent with the shareholders interest while some argue that sometimes their actions may be beneficial to the firm. Many methods are deployed by managers to achieve this. First income can be increased through premature sales recognition, increase of interest receivables, and treat loan as sales and swaps. Secondly through decreasing expenses by bogus provision, reduction of tax provisioning, excessive write off or big bath accounting. Thirdly, through increases in assets such as increase closing inventory, capitalization of expenses, lengthen depreciation lives, generous bad debt, enhancement of goodwill, enhancement of brands and intangibles and revaluation of assets. Fourthly, it may be achieved through decreasing liabilities such as off statement of financial position financing and reclassifying debt as equity. Accounting manipulation is the deliberate alteration and falsification of financial information to satisfy the whims and caprices of preparers with the intent to deceive users either by creating plausible outlook of the firm to outsiders or satisfying the expectation of owners or the agent. Accounting Manipulation can be divided into two separate groups which are Creative Accounting which means keeping the accounting practices into the limits of legality (Earnings Management) and Accounting Fraud which means violating the accounting rules and principles (Earnings Manipulation). The problems created by accounting manipulations are myriad. It creates distorted financial information which affects accounting quality and decision making. It leads to wrong tax assessment, poor credit decisions, wrong share pricing, payment of unmerited amounts as compensation and wrong dividend decisions as dividend may be paid out of capital. Regulators responded to this anomaly by tightening of standards, Security and exchange rules. The aim of the study is to ascertain if managers of manufacturing firms manipulate earnings through the timing of income recognition from disposal of long-lived assets and investments. This is essential because managers can select which asset to be disposed, the time to sale and the price to sale thus having the liberty of choice enhances actualization of self-motive. Furthermore, the historical cost convention requires that assets be valued at historical cost of acquisition and carried in the books