A systematic literature review on earnings management in the public sector
DOI:
https://doi.org/10.11606/issn.1982-6486.rco.2025.230144Keywords:
Accountability, Transparency, ManipulationAbstract
The present study aimed to conduct a systematic review of the literature on earnings management (EM) in the public sector. The justification for this research lies in the need to understand the consequences of implementing the Accruals Accounting Regime (AAR) in the public sector. The AAR increases the level of professional judgment and discretion, thereby creating opportunities for EM and negatively impacting government transparency and accountability. The methodology consisted of a systematic review across the Scopus and Web of Science databases, using keywords related to "earnings management" and "public sector." Area filters were applied, followed by a reading and screening process, which culminated in the analysis of 72 relevant articles, categorized according to the framework proposed by Bisogno and Donatella (2022). The main results confirm the ubiquity of EM across all public sector levels (central, regional, local governments, and state-owned enterprises), primarily driven by political and fiscal incentives. At the macro level (central governments), the use of real operations (e.g., stock-flow adjustments) to meet international targets predominates. However, at the micro level, particularly in local governments, EM is mainly exercised through discretionary accruals (e.g., depreciation) with the intent of reporting small surpluses, a practice strongly associated with political-budgetary cycles and electoral competition. The literature indicates that this manipulation distorts financial statements, undermining public accountability.
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