Research Journal of Finance and Accounting www.iiste.org ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online) Vol.6, No.8, 2015 159 The Influence of Leverage and Its Size on the Earnings Management Aries Veronica Faculty of Economics, University Tamansiswa Palembang veronica_aries18@yahoo.co.id Abstract This study aimed to determine the effect of leverage and firm size on earnings management. Sampling was done by purposive sampling method with the criteria listed in the Indonesia Stock Exchange and has a complete set of financial statements. The study sample consisted of 30 manufacturing companies, used multiple regression analysis techniques and to test the research hypothesis, F test and t test.From the results of calculations using SPSS for Windows version 20, showed that: 1) The value of operating leverage coefficient of 0.215, significant operating leverage affect earnings management by 21.5%; 2) financial leverage coefficient of 0.505, meaning financial leverage affect earnings management by 50.5%; 3) The size of the company coefficient of 0.417, meaning the size of the company affect earnings management of 41.7%.Rated R square (R2) of 0.603, illustrates that earnings management (Y), can be explained by the operating leverage, financial leverage, and the size of the company amounted to 60.3%, while the remaining 39.7%, can be explained by other factors, which are not included in this study.From the results of hypothesis testing F, obtained value of F (2,082) <F table (2.769), this means that there is no effect of operating leverage, financial leverage, and the size of the companies jointly to earnings management. While the results of hypothesis testing t, obtained the following results: 1) tcount (-0.537) <t table (1.672) which means that there is no effect of operating leverage on earnings management; 2) tcount (- 0.153) <t table (1.672) which means that there is no financial leverage effect on earnings management; 3) tcount (0.686) <t table (1.672) which means that there is no effect of firm size on earnings management. Keywords: operating leverage, financial leverage, firm size, earnings management 1. Introduction The financial statements are the source of information used to assess the financial position and performance of the company consisting of balance sheet, income statement, statement of changes in equity and cash flow statement (IAS No.1,2015). Managers may modify the financial statements prepared to produce the desired amount of profit. The management of a company's financial statements prepared using different ways with the aim of their respective companies. The financial statements must comply with financial accounting standards when it published for others, such as shareholders creditors, employees and the general public so as to give managers the flexibility to choose the method of accounting in preparing the financial statements. Earnings management is to intervene in the management of external financial reporting process in order to favor a particular party destination. Add to earnings management bias in the financial statements and may interfere with the statement users trust the figures modified as earnings figures without engineering. (Setiawati and Naim, 2000). Earnings management is also a controversial and important area in financial accounting. Earnings management is not always interpreted as a negative action since it does not profit-oriented management of earnings manipulation. Earnings management is not always associated with an attempt to manipulate the data or accounting information, but more inclined to be associated with the selection of accounting methods that are deliberately chosen by the management for specific purposes within the limits of the General Accepted Accounting Principles (GAAP). If in a condition where the management did not reach the profit target is specified, then the management will take advantage of the flexibility allowed under the accounting standards in preparing financial statements to modify the reported earnings. Management motivated to show good performance in generating value or the maximum profit for the company so that management tends to select and apply accounting methods that can provide better income information. According to Scott (2003), the motivation of earnings management includes a bonus plan, debt covenants, and political costs. The detection of the possibility of earnings management in the financial statements examined using the estimated total accruals. According to Scott (2003) total accruals are reflected in the calculation of income which consists of discretionary accrual and non-discretionary accrual. Non-discretionary accrual is an accrual components that occur naturally in line with the change of the activity of the company. Instead discretionary accrual is derived from the accrual component of earnings engineering managers do. Leverage can be defined as the ability of the company to use the assets or funds that have a fixed load to increase the level of income for the owner of the company (Syamsudin, 2001). Leverage is used to determine the amount of financial resources needed to consider the composition of the financial company that