Creative Accounting in Spain. Some Evidence from Spanish Quoted Companies Oriol Amat 1 , Catherine Gowthorpe 2 , Jordi Perramon 3 Abstract The nature and incidence of earnings management practices have been examined in many re- search studies, especially in the United States. Research into such practices in Europe, and specifically in Spain has been less common. This paper makes a contribution to the existing liter- ature by offering an analysis of certain features of Spanish accounting that can be classified as earnings management. The population of companies under review comprises those included in the IBEX-35 index, and so includes the largest companies in Spain. The effects upon earnings of four commonly encountered features in Spanish accounting practice are examined and quanti- fied: audit report qualifications, special authorisations to override accounting regulation, changes in accounting policy and extraordinary items. The results of the analysis show that net earnings are affected to a significant extent by these items. The paper concludes that these rela- tively overt forms of earnings management are employed in the financial statements of several leading Spanish companies. While a reduction in the level of options offered by accounting regu- lation may help to reduce the incidence of earnings management, it is noted that a tightening of standards in one area tends to simply shift the location of earnings management. Remedial mea- sures should, therefore, also include improvements in supervision. Keywords: Earnings management, financial reporting, Spain, IBEX-35 Introduction This paper examines the incidence of overt earnings management in larger Spanish listed companies. The population of companies selected for analysis comprises the IBEX-35 compa- nies listed on the Madrid Stock Exchange. (The IBEX-35 is an index calculated using the share price variations of the 35 largest Spanish companies). These companies are highly significant players in the Spanish economy and, in consequence, they can be expected to be subject to quite detailed scrutiny by the principal groups of users of financial statements. The analysis reported has been performed on publicly available information contained in the annual reports of the com- panies under review. There might seem little point in attempting to adjust the earnings of promi- nent companies by the use of relatively overt methods; the level of scrutiny to which they are nat- urally exposed should mean that any unusual features would be identified and absorbed by the market without delay. Nevertheless, this paper will show that several major Spanish companies do appear to manipulate their reported earnings by quite overt means. The degree to which users 93 1. Professor of Accounting, Universitat Pompeu Fabra, Barcelona. 2. Research Fellow in Accounting, Oxford Brookes University. 3. Lecturer in Accounting, Universitat Pompeu Fabra, Barcelona.