The impact of IFRS on earnings management: evidence from Mexico

Eiler, Lisa; Miranda-Lopez, Jose; Tama-Sweet, Isho

doi:10.1108/jaee-11-2020-0316

Cited by 16 publications

(18 citation statements)

References 55 publications

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“…In Panel B, the dependent variables are conditional accounting conservatism (C_SCORE) and unconditional accounting conservatism (CON_ACC). For a detailed explanation of the construction of these measures, please refer to These findings extend prior studies (Cho and Krishnan, 2023;Eiler et al, 2022;Fullana et al, 2021) by demonstrating implications of principles-based standards on auditors' risk assessments via a reduction in financial reporting risks and accounting conservatism.…”

Section: Discussionsupporting

confidence: 70%

“…In Panel B of Table 8, the study provides evidence that a firm's reliance on principles-based accounting standards is negatively associated with both conditional accounting conservatism (C_SCORE) and unconditional accounting conservatism (CON_ACC). The findings in Table 8 extend prior studies (Cho and Krishnan, 2023;Eiler et al, 2022;Fullana et al, 2021) by demonstrating implications of principles-based standards on auditors' risk assessments via reduction in financial reporting risks and accounting conservatism.…”

Section: Additional Tests For Conservatism and Financial Reporting Risksupporting

confidence: 77%

“…The current study extends this connection by demonstrating implications for audit outcomes, such as a reduction in audit fees and considerations of going concern. Similarly, the study expands on prior research suggesting that firms are less likely to engage in earnings management during IFRS periods (Eiler et al, 2022;Ho et al, 2015) and studies suggesting that principles-based standards are associated with higher audit risk (Cho and Krishnan, 2023). The study expands on this research by providing comprehensive empirical evidence that the relative extent to which a US firm is reliant upon principles-based standards has a negative relationship with accounting conservatism and various metrics of financial reporting risks.…”

Section: Introductionmentioning

confidence: 67%

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Principles based accounting standards, audit fees and going concern: evidence using advanced machine learning

Subedi

2023

IJAIM

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Purpose The current study uses an advanced machine learning method and aims to investigate whether auditors perceive financial statements that are principles-based as less risky. More specifically, this study aims to explore the association between principles-based accounting standards and audit pricing and between principles-based accounting standards and the likelihood of receiving a going concern opinion. Design/methodology/approach The study uses an advanced machine-learning method to understand the role of principles-based accounting standards in predicting audit fees and going concern opinion. The study also uses multiple regression models defining audit fees and the probability of receiving going concern opinion. The analyses are complemented by additional tests such as economic significance, firm fixed effects, propensity score matching, entropy balancing, change analysis, yearly regression results and controlling for managerial risk-taking incentives and governance variables. Findings The paper provides empirical evidence that auditors charge less audit fees to clients whose financial statements are more principles-based. The finding suggests that auditors perceive financial statements that are principles-based less risky. The study also provides evidence that the probability of receiving a going-concern opinion reduces as firms rely more on principles-based standards. The finding further suggests that auditors discount the financial numbers supplied by the managers using rules-based standards. The study also reveals that the degree of reliance by a US firm on principles-based accounting standards has a negative impact on accounting conservatism, the risk of financial statement misstatement, accruals and the difficulty in predicting future earnings. This suggests potential mechanisms through which principles-based accounting standards influence auditors’ risk assessments. Research limitations/implications The authors recognize the limitation of this study regarding the sample period. Prior studies compare rules vs principles-based standards by focusing on the differences between US generally accepted accounting principles (GAAP) and international financial reporting standards (IFRS) or pre- and post-IFRS adoption, which raises questions about differences in cross-country settings and institutional environment and other confounding factors such as transition costs. This study addresses these issues by comparing rules vs principles-based standards within the US GAAP setting. However, this limits the sample period to the year 2006 because the measure of the relative extent to which a US firm is reliant upon principles-based standards is available until 2006. Practical implications The study has major public policy suggestions as it responds to the call by Jay Clayton and Mary Jo White, the former Chairs of the US Securities and Exchange Commission (SEC), to pursue high-quality, globally accepted accounting standards to ensure that investors continue to receive clear and reliable financial information globally. The study also recognizes the notable public policy implications, particularly in light of the current Chair of the International Accounting Standards Board (IASB) Andreas Barckow’s recent public statement, which emphasizes the importance of principles-based standards and their ability to address sustainability concerns, including emerging risks such as climate change. Originality/value The study has major public policy suggestions because it demonstrates the value of principles-based standards. The study responds to the call by Jay Clayton and Mary Jo White, the former Chairs of the US SEC, to pursue high-quality, globally accepted accounting standards to ensure that investors continue to receive clear and reliable financial information as business transactions and investor needs continue to evolve globally. The study also recognizes the notable public policy implications, particularly in light of the current Chair of the IASB Andreas Barckow’s recent public statement, which emphasizes the importance of principles-based standards and their ability to address sustainability concerns, including emerging risks like climate change. The study fills the gap in the literature that auditors perceive principles-based financial statements as less risky and further expands the literature by providing empirical evidence that the likelihood of receiving a going concern opinion is increasing in the degree of rules-based standards.

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Section: Discussionsupporting

confidence: 70%

Section: Additional Tests For Conservatism and Financial Reporting Risksupporting

confidence: 77%

Section: Introductionmentioning

confidence: 67%

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Principles based accounting standards, audit fees and going concern: evidence using advanced machine learning

Subedi

2023

IJAIM

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“…Some researchers (Yamani and Almasarwah, 2019;Nurunnabi, 2021a;Eiler et al, 2021) noted that the study of institutions would be indispensable for the understanding of social, economic, political, cultural phenomena and the reconstruction of the complex relationship between individuals and the supra-individual sphere. As a result, the neo-institutional theory emphasizes the social and cultural aspects of the general environment that constitute institutional pressures that push organizations to adopt isomorphism or similar behaviors.…”

Section: Neo-institutional Theorymentioning

confidence: 99%

“…Some researchers (Yamani and Almasarwah, 2019; Nurunnabi, 2021a; Eiler et al. , 2021) noted that the study of institutions would be indispensable for the understanding of social, economic, political, cultural phenomena and the reconstruction of the complex relationship between individuals and the supra-individual sphere.…”

Section: The Theoretical Backgroundmentioning

confidence: 99%

The impact of acculturation process and the institutional isomorphism on IFRS adoption

Salem

Damak-Ayadi

2022

EMJB

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PurposeThis study aims to explain why some countries have quickly embraced IFRS standards while others have partially adopted IFRS and others have been resisting using a model borrowed from social psychology that appeals to cultural differences.Design/methodology/approachAfter selecting a sample of 30 countries, the data were analyzed through hierarchical cluster analysis. The results indicate that the sampled countries are classified into seven categories according to the degree of application of international standards. The ordinal regression is used to identify cultural and institutional factors that influence the adoption of IFRS.FindingsThe findings show that interpersonal communication promotes the application of international standards while open-mindedness, ethnocentrism and knowledge of the host culture prevent the transition to a strategy of adoption. The authors have also found out an empirical support for the two institutional isomorphic pressures (coercive and mimetic) on the adoption of IFRS at the national level. While the opening to the international economy encourages countries to set a strategy of adoption, civil liberties and political rights, taxation and innovation impede such adoption.Practical implicationsThe study contributes to a better understanding of the factors influencing the implementation of IFRS. It provides to institutional theorists, accounting scholars and policymakers a cultural and institutional model for effective IFRS adoption conditions: promote intercultural interactions; master IFRS does not automatically mean applying them; encourage openness to the global economy; review the taxation system and accounting education programs and especially; and allow some flexibility for standard setters. This study can also assist regulators to verify their policies for the enforcement of IFRS. This paper will also be useful for future research studying the links between human behavior and the choice of new accounting standards through acculturation theory.Originality/valueThrough the acculturation theory, five new cultural dimensions developed by Ben Salem et al. (2019) are used for the first time to define the choice of accounting systems developed to international standards. This study empirically verified the predictive validity of these dimensions on the adoption of IFRS. Previous research have been based on the relationship between culture and disclosure using mainly the Hofstede dimensions. There is, therefore, a shortage of studies analyzing the culture and adoption of IFRS in individual countries. This study provides a cultural and institutional model of IFRS implementation conditions. Similarly, the research included taxation, which is not addressed by previous research, and their relevance in explaining the recourse to IFRS standards is confirmed.

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Analysis of factors affecting the adoption of IFRS in an emerging economy

Nguyen

2023

Heliyon

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The impact of IFRS on earnings management: evidence from Mexico

Cited by 16 publications

References 55 publications

Principles based accounting standards, audit fees and going concern: evidence using advanced machine learning

Principles based accounting standards, audit fees and going concern: evidence using advanced machine learning

The impact of acculturation process and the institutional isomorphism on IFRS adoption

Analysis of factors affecting the adoption of IFRS in an emerging economy

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