Rounding-up in reported income numbers

• Published in: Review of accounting & finance 2014-05, Vol.13 (2), p.156-170
• Main Authors: Shette, Rachappa, Kuntluru, Sudershan
• Format: Article
• Language: English
• Subjects: Accounting & Finance; Accounting/accountancy
• ISSN: 1475-7702; 1758-7700
• DOI: 10.1108/RAF-04-2013-0042

Purpose – This paper aims to investigate the rounding-up in reported income numbers of Indian companies by examining the evidence of unusual occurrence of zero and nine in reported income numbers such as profit after tax and earnings per share (EPS). It also examines such rounding-up patterns under different scenarios such as companies varying across different time periods, income size, market capitalization, industries, initial public offering and earnings news. Design/methodology/approach – All 1,707 companies listed on National Stock Exchange of India were considered for analysis. This study covered a period of 21 years from 1991-1992 to 2011-2012. Data were collected from PROWESS database. Findings – In Indian companies, the rounding-up pattern in reported income numbers is in conformity with existing studies (Carslaw, 1988; Thomas, 1989). In case of income numbers, the observed proportionate occurrence of zero and nine is significantly different from the expected proportionate occurrence. The study found that anomalies in reported earnings vary across industry. Further, it is found that the per cent deviations are more in case of companies having high income levels, high market capitalization and with positive news. Research limitations/implications – In future studies, it will be interesting to develop a model reflecting the causes for such rounding-up of income numbers. Practical implications – The paper provides an insight analysis on the rounding-up behavior of Indian companies and facilitates the understanding of occurrence of such anomalies under various scenarios. This paper may be useful to all the users of accounting information. Originality/value – First study on examining the rounding-up of reported income numbers and EPS by companies in India.