The relationships between IFRS, earnings losses threshold and earnings management

Abstract

An increasing number of countries have adopted International Financial Reporting Standards (IFRS). Prior research indicates that IFRS increase the relevance of financial statements, but also increase opportunism in earnings management (EM). Despite this, no evidence is found in this study to demonstrate that the adoption of IFRS increases the use of EM by companies as a whole. Furthermore, the results indicate that the use of IFRS can enhance the neutrality of financial statements. However, these phenomena occur only in the case of firms with positive earnings. Therefore, if a firm faces earnings losses (ELOSS), the manager will often exhibit EM behaviour after implementing IFRS. Thus, when the firm has ELOSS and adopts IFRS, the situation that results will usually decrease the neutrality of financial statements. As for the management implications, these findings suggest that the government and regulator should implement more in-depth supervision to prevent the increased use of EM by managers following the adoption of IFRS.

Does IFRS Have Impact on Earning’s Quality and Audit Fee?

“…High reporting standard does not necessarily produce good quality of accounting information because it is also determined by the incentive level of the financial reporter, economic and politic factor (Ball, Robin, & Wu, 2003;Maulana, Salim, & Aisjah, 2015 Donnelly 2016found that financial reporting quality is not affected by the adoption of IAS/IFRS. Also, Kao (2014) found that higher audit quality does not help to a constraint on earnings manipulation but the increase the level of earnings management for IFRS adopters with income-decreasing earnings management. The results of this study are consistent with the result of some researchers (Ball, Robin, & Wu, 2003;Ismail, Kamarudin, Zijl, & Dunstan, 2013;Jeanjean & Stolowy, 2008).…”

International Financial Reporting Standards, Board Governance and Accounting Quality: Preliminary Ghanaian Evidence

“…The insignificant relation is due to the contention that IFRS adoption in isolation does not significantly improve accounting quality but rather compliance to the standards leads to increased accounting quality as established in the studies of Mbir et al (2020). Buttressing this point Kao (2014) reiterates that management are likely to engage in earnings manipulations when faced with negative earnings while Jeanjean and Stolowy (2008) ascribe the insignificant relation to the prevailing lax implementation of regulations by institutions and managerial incentives.…”

Ind-AS Enforcement in India: An Assessment of Readiness, Benefits and Key Challenges

“…Apparently, this research finds diverse studies conducted in the past couple of years in China, highlighting numerous issues associated with IFRS enforcement (Peng & Smith, 2010;Ping, 2008;, enforcement of IFRS (Ding & Su, 2008;Wang et al, 2012), fair value measurement issues (Peng & Bewley, 2010;Zhang et al, 2012), earnings management (Cang et al, 2014;Kao, 2014;Zhang et al, 2013), etc., but the literature is limited for other Brazil, Russia, India and China (BRIC) nations like Brazil, India and Russia. In India, according to Dhankar and Gupta (2014), the Advisory Committee on Accounting Standards (NACAS) published a deferral in enforcing the Ind-AS, which were cited as the pending modifications and settlement of diverse regulatory and taxation issues in addition to pitfalls inherent in IFRS convergence mechanism such as awareness, training and cost of implementation.…”