Company Characteristics and the Use of SFAS NO. 143 to Effect Earnings Management‪.‬

ABSTRACT Because of the great subjectivity required in determining the fair value of an asset retirement obligation (ARO) and its subsequent accretion expense under SFAS No. 143, a new opportunity exists for managing earnings. Prior research provides evidence that earnings management is related to company characteristics, such as leverage, firm size, and operating performance. For a sample of oil, gas, and energy companies, the current study tests for possible relationships between these characteristics and the propensity for companies to manage earnings via the level of accretion expense recorded. Results suggest that earnings management exists in the application of SFAS No. 143 and, more importantly, that earnings management is closely related to company size and operating performance. Larger, more profitable entities tend to record much less accretion expense than do their smaller, less profitable counterparts.