FRAUD AND EARNING MANAGEMENT: THEORY, DIFFERENCES AND APPLICATIONS

This work wants to increase the knowledge about two issues affecting the management of financial reporting and to help in understanding the difference between earnings management and financial reporting fraud. In order to reach the goal, different papers and books have been consulted. This paper provides different definitions in order to provide a whole point of view of the topics highlighting reasons, techniques and contexts in which earnings management and fraud are likely to be applied. In particular, it wants to underline that at the basis of fraudulent activities there are management's interests.
Two real cases (Enron and Parmalat) are reported and analysed in order to contextualise the theory and to show how these issues influence the life of the company and the economic system in general. Taking this into account, it is possible to state that corporate governance has significant influence in decisions taken in a company. Understanding how corporate governance thinks and operates is a powerful signal of occurrence of earnings management or fraud.