Earnings Management by Non‐profit Organisations: Evidence from UK Charities

Thanh Tam Nguyen-Huu and Teerooven Soobaroyen

Australian Accounting Review, 2019, vol. 29, issue 1, 124-142

Abstract: Informed by stakeholder theory and resource dependence theory, this paper investigates whether UK charities are engaged in earnings management practices. Based on a sample of 1414 charities over a five‐year period (2008–2012) the study firstly finds that UK charities use discretionary accruals to drive their financial results towards a zero surplus/deficit; this result also reveals that the distribution of reported earnings around zero is prevalent amongst UK charities. In addition, in contrast to prior findings, the empirical results point to a significant association between leverage and earnings management behaviour by charities. Lastly, this study finds that the practice of earnings management is influenced by non‐profit organisational size.

Date: 2019
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