This study investigates the moderating role of managerial ability in the relationship between earnings management and firms’ future accrual and cash performance over a three-year horizon, while also considering Islamic perspectives on earnings management. Data from 132 firms listed on the Tehran Stock Exchange during the period 2010–2022 were analyzed. Managerial ability was measured using the Demerjian et al. model and Data Envelopment Analysis (DEA), and regression analysis was conducted using EViews 12. The findings reveal that higher managerial ability significantly reduces the extent of earnings management. Moreover, the negative effects of earnings management are primarily short-term, manifesting mainly in the first year. Capable managers are able to moderate these adverse effects on the firm’s future performance. These results are further supported by robustness tests. From an Islamic perspective, earnings management that involves deception or leads to illegitimate gains is considered a form of Ghash (fraudulent practice) and is religiously condemned. However, when earnings management is conducted without deception, it is not considered religiously impermissible. The outcomes of this study offer both theoretical and practical value. Theoretically, the research contributes to a deeper understanding of how managerial ability influences the consequences of earnings management on firm value. Practically, the findings can support more effective managerial performance evaluation, enhance firm value, and promote greater transparency and quality in financial reporting, thereby improving capital market oversight.