In today’s economic system, due to the development of information technology, transmission and accurate reporting of related financial information on which financial decision making is based has particular importance. Investors who make investment in companies do not have tools as well as expertise to know the workings of the company and to ensure the accuracy of the financial reporting. The government also, due to different reasons, requires an accurate and reliable financial reporting. Moreover, accurate information regarding the economic activities of the business, certitude in the application of accounting principles and standards, and proper information transmission in the form of financial reporting are considered effective factors in realizing the basic objective of financial reporting. But due to the application of creative accounting practices, the quality of financial reporting gets affected. The present study investigates income smoothing, one of the techniques of creative accounting, with reference to the companies listed in the National Stock Exchange (NSE) of India. Apart from studying the existence of income smoothing practice among the NSE-listed companies, effort has also been made to study the factors that may affect income smoothing.

In today’s economic system, given to the development of information technology, transmission and accurate reporting of related financial information on which financial decision making is based has particular importance. However, shareholders who give their savings in the form of investment to companies, do not have any tools except the annual financial statements, reports and notes of companies for knowing how to manage their assets and ensure the accuracy of performance, efficiency and productivity of managers. The government also, due to different reasons like ensuring the accuracy of funds and sources, consumption income analysis through tax and so on, requires accurate and reliable financial reporting. On the other hand, the accurate information from the results of various economic activities, certitude in the performance of accounting principles and standards, and establishment of appropriate systems of information transmission in the form of financial reporting are considered as effective factors in realizing the prospects and economic programs of the country.

Income smoothing is the utilization of accounting discretion to reduce income stream variability (Fudenberg and Tirole, 1995). Smoothing moderates year-to-year fluctuations in income by shifting earnings from peak years to less successful ones, making earnings fluctuations less volatile (Copeland, 1968). As a simple definition, income smoothing is a kind of intentional act committed by managers using special tools in accountancy for lowering profit fluctuations. Low profit fluctuations create a more favorable image in investors for investing in companies. Management of some companies deliberately manipulates items of financial statements in order to attract the attention of investors with a view to feigning that their profitability is stabilized. This study investigates income smoothing as one of the earnings management techniques.

Accounting Research and Audit Practices, Investigation, Income Smoothing, National Stock Exchange (NSE), Extraordinary Item (EI), Profit Before Tax (PBT).