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A Reinvestigation into Accounting Quality Following Global IFRS Adoption: Evidence via Earnings Distributions
Abstract
Despite over 140 countries adopting IFRS in some form, its effect on accounting quality remains unclear. Potential explanations for divergent findings in the literature include the focus on a narrow sample of EU countries and the use of noisy discretionary accrual models to measure accounting quality. This study circumvents these issues by investigating the impact mandatory IFRS adoption has on accounting quality using earnings distributions. Using a sample of 5691 firms in 46 countries that have adopted IFRS, I find that while the distribution discontinuity does not completely disappear, it decreases in severity for both a total and a constant sample of firms. Results are consistent for both EU and non-EU countries and are more pronounced for countries with high enforcement and where users’ demand for high quality reporting is high. Furthermore, I investigate the level of discretionary accruals and real earnings management around the earnings benchmark and conclude that a systematic relationship cannot be found for either method pre- or post-IFRS adoption.
... We proxy accruals-based earnings management at the firm-level through the absolute amount of discretionary accruals, as consistently recommended by a large body of relevant previous literature (e.g. Lara et al., 2020;Osma et al., 2020;Trimble, 2018;Black et al., 2017;Gray et al., 2015;Ahmed, 2015;Kothari et al., 2005). We employ the modified Jones (1991) model as proposed by Dechow et al. (1995), according to Equation (1). ...
... The absolute values of the estimated residuals from Equation (1) 100.00 - Table 3. Sample distribution by country National culture and earnings management management estimations for specific country-level variation components by including lagged gross domestic product (GDP) growth (see, e.g. Trimble, 2018;Chaney et al., 2011). ...
... We control for country-level variation components by including lagged GDP growth (see, e.g. Trimble, 2018;Chaney et al., 2011). We multiply ABN_CFO and ABN_DISX by negative one so that the higher amount, the more likely it is that managers are engaged in price discounts and cutting discretionary expenses, respectively [3]. ...
Purpose
This study investigates how the association between national culture and earnings management compares between developed and emerging countries.
Design/methodology/approach
The empirical analysis relies on a sample of 6,313 firm-year observations from 11 emerging markets and 27,605 firm-year observations from 22 developed countries. The authors use ordinary least squares regression methods to test the hypotheses of the study.
Findings
Based on Hofstede's (2011) cultural dimensions, the authors find that firms from countries with a higher level of uncertainty avoidance and individualism are less likely to engage in earnings management, but the effect of uncertainty avoidance (individualism) is more (less) pronounced in the emerging countries. Moreover, the authors demonstrate that firms from emerging (developed) countries with higher levels of power distance and masculinity are less (more) likely to engage in earnings management. Finally, the authors find evidence of a trade-off between accruals-based and real earnings management in firms from countries with greater long-term orientation and an indulgence cultural dimension.
Originality/value
This paper adds to the literature by theoretically discussing and empirically analysing the role that developed and emerging countries' development plays on the effect of national culture on earnings management.
... According to the third stream of the related literature, it provides evidence that no differences are observed in accounting information quality previous to adopting IFRS and after it ( [11], [2], [43], [44], [45]) These studies find no clear relationship between IFRS adoption and accounting information quality. ...
... In contrast, [39], [40], and [16] have contradictions with the study's results; they build on the conclusion that the discretionary accruals are increased in the adoption time of IFRS, which indicates a lower accounting information quality. However, several papers reveal no significant change in discretionary accruals measure during the two testing periods [11], [2], [43], [49], and [44]. ...
... Furthermore, Bryce et al. [43] demonstrate a stability of accrual quality before IFRS adoption and after it. Trimble [44] doesn't find clear relation between IFRS adoption and accrual quality measure. On the other hand, Chen et al. [3] reach to a result in which adoption of IFRS improves accrual quality across different European countries. ...
The primary goal of conducting this paper is to investigate the consequences IFRS mandatory adoption has concerning the accounting information quality for Palestinian listed firms. Discretionary accruals and accruals quality measures are utilized to operationalize the quality of accounting information. The sample in the study contains an examination of 378 firm-year observations covering years from 2003 to 2016. The overall result shows mixed evidence suggesting that the IFRS mandatory adoption declines the extent of discretionary accruals, which means a decline in earnings management and manipulation activities. Furthermore, the results of the study show a lower accruals quality in IFRS mandatory adoption time. This paper builds on the current debate about the ramifications relating to the mandatory adoption of IFRS in emerging countries and displays that adopting IFRS affects accounting information quality. However, the effect differs from one accounting quality measure to another.
... Some previous studies about the effect of IFRS adoption on earnings management resulted in various outcomes. Some researchers argued that IFRS adoption reduce earnings management (Barth, Landsman, & Lang, 2008;Iatridis & Sotiris, 2010;Zéghal, Chtourou, & Sellami, 2011;Dimitropoulos et al., 2013;Pelucio-Grecco et al., 2014;Baig & Khan, 2016), while other studies suggested an increase in earnings management (Callao & Jarne, 2010;Capkun, Collins, & Jeanjean, 2016;Oz & Yelkenci, 2018;Malikov, Manson, & Coakley, 2018), even some studies indicate no effect of earnings management (Jeanjen & Stolowy 2008;Wang & Campbell 2012;Doukakis, 2014;Brice, Ali, & Maher, 2015;Trimble, 2018). Most of the studies had used accrual earnings management (AEM). ...
... Most of the studies had used accrual earnings management (AEM). Meanwhile, studies used real earnings management (REM) were fewer and created different outcomes (Doukakis, 2014;Oz & Yelkenci, 2018;Trimble, 2018). ...
... Instead, other studies demonstrate an increase in AEM (Callao & Jarne, 2010;Capkun et al., 2016;Oz & Yelkenci, 2018;Malikov et al., 2018). Meanwhile, other studies demonstrate no difference in AEM before and after the adoption of IFRS (Jeanjen & Stolowy 2008;Wang & Campbell 2012;Doukakis, 2014;Brice et al., 2015;Trimble, 2018). ...
We analysis to determine the level of conservatism and earnings management in the period of IFRS adoption in Indonesia. We used a quantitative approach and was tested using a different group test, i.e. Mann-Whitney U, ANOVA, and MANOVA. The object of this research is all manufacturing companies listed in Indonesia Stock Exchange (IDX) for the period of 2012-2017. The number of samples used in this research is 516 firm-years. Earnings management is measured by two approaches, i.e. accrual earnings management and real earnings management, while conservatism is measured by Basu Model. The level of conservatism and earnings management in this study focuses on after the IFRS adoption period. We reveal that IFRS adoption does not change accounting conservatism in financial statements. In addition, the greater adoption of IFRS is not able to reduce the level of overall earnings management both in accrual earnings management and real earnings management.
... Although the literature about the consequences of accounting regulatory changes is expansive, consensus on its effectiveness in enhancing the accounting quality is not yet decisive. Even studies use the same measure of accounting quality, they found opposite and contradict results (Trimble, 2018). The emergence of studies in this stream was coincided with the increasing trend towards international standardization, especially in the European countries before 2001. ...
... This study indicates contradictory results between different measures of accounting quality in terms of accounting change consequences, which confirm the conclusions of Brüggemann et al. (2013), Trimble (2018), and Alshyoukh et al. (2019). This because the change in accounting policies has different effects on the items used to estimate the measures of accounting quality. ...
This paper aims to explore the impact of the 2010 accounting change in Algeria
on accounting quality. The study included 20 non-financial companies during the period
2005-2009 before and the period 2011-2016 after the accounting change. The first sub-period
included 81 firm-year observations, while the second included 94 firm-year observations.
Accounting quality was measured by the three known proxies: accounting earnings
management as the discretionary accruals (Dechow et al., 1995), real earnings management
as the abnormal cash flows from operations (Dechow et al., 1998; Roychowdhury, 2006),
and accounting conservatism (Ball and Shivakumar, 2005). According to the results,
accounting change impacted accounting quality in the Algerian companies, with
inconsistency regarding the improvement of accounting quality between different measures,
where the results recorded an insignificant decrease in accounting earnings management,
significant decreases in both real earnings management and accounting conservatism.
... The central concepts addressed in studies by Barth et al. (2008), Christensen et al. (2015), Trimble (2018), Key and Kim (2020), and Mensah (2020) belong to the conceptual space of accounting quality. The accounting quality can itself be assessed using different measures that vary immensely in terms of the contexts they are applied to. ...
... The concepts in the studies by Barth et al. (2018), Trimble (2018), Mensah (2020), andChristensen et al. (2015) appear to identify the qualitative aspects which require further elaboration (albeit only within the context of their papers). The concepts used in the studies could also be seen as sensitising concepts, as they open up the field for further investigation. ...
This article provides a comprehensive review of the conceptual formation and explanation within International Financial Reporting Standards (IFRS)-based financial accounting research. The mandatory adoption of IFRS by the European Union (EU) on 1 January 2005 resulted in an increase in the number of scientific articles explaining the effect of mandating IFRS on capital markets within the EU. Independently, these studies offer interesting insights; however, there have been few attempts to offer a critical analysis of the current state of the field in terms of conceptual formation and the role of theories in explanation. This paper provides a richer understanding of the scientific basis of the empirical research within this emerging field. We identify and critically assess a sample of eight relevant scholarly articles. Our findings suggest that the concepts in these articles appear to be borrowed from the mainstream accounting and finance literature and used in the form of variables. These concepts primarily play a deductive role. The nature of explanation appears to be mechanistic. We offer a discussion of our review's findings and suggest some implications for future research.
... In short, the transition process from a rules-based culture to principles-based accounting standards and the difficulties faced by Brazilian organizations in this process (Silva et al., 2021), along with the economic context of greater information asymmetry, which gives space for earnings management practices (Adamska & Dabrowski, 2021) and, also, considering that Brazil's legal system itself ends up taking the focus off public statements (Black & Nakao, 2017) and allows greater practices of accounting manipulation, they end up creating a favorable scenario for earnings management (Trimble, 2018). ...
Objetivo: objetivou-se analisar a relação entre conservadorismo e suavização dos resultados após implementação obrigatória das IFRS em empresas brasileiras de capital aberto. Método: realizou-se uma pesquisa descritiva, documental e quantitativa. A amostra analisada corresponde a 92 empresas de capital aberto do Brasil, durante o período de 2000 a 2018, sendo o período antes (2000 a 2009) e após a implementação obrigatória das IFRS (2010 a 2018). As variáveis utilizadas na investigação foram coletadas do banco de dados da Refinitiv Eikon. Resultados: Os resultados evidenciam que, ao contrário do esperado, houve um aumento no conservadorismo contábil e na suavização de resultados das empresas no período pós-IFRS. Destaca-se que o aumento da suavização não se deve às mudanças de reconhecimento oportuno de ganhos e perdas, mas sim ao gerenciamento de resultados. Chegou-se a esta conclusão, pois o conservadorismo das empresas aumentou pós-IFRS, não afetando a correlação negativa entre accruals e fluxo de caixa. Contribuição: Assim, contribui-se com a ampliação da literatura sobre os efeitos da adoção das IFRS em empresas brasileiras, e ainda, de forma prática chama-se a atenção dos usuários das informações contábeis para o reconhecimento oportuno de ganhos e perdas, visto que em determinados casos, isso pode influenciar a suavização dos resultados.
... A large and growing body of research tends to argue that the discontinuity reflects earnings management (e.g. Hayn 1995;Burgstahler and Dichev 1997;Roychowdhury 2006;Zang 2012;Halaoua et al. 2017;Elleuch Hamza and Kortas 2018;Trimble 2018), while others challenge this view and provide a variety of explanations, such as the effects of deflation and sample selection (e.g. Dechow et al. 2003;Easton 2005, 2009) as well as the asymmetric effects of income taxes and special items on profit and loss firms (Beaver et al. 2007). ...
In this paper we argue that financing decisions contribute to the zero-earnings discontinuity. We find a discontinuity in the distribution of earnings before tax and earnings before special items, but not in the distribution of earnings before interest which suggests that interest expense contributes to the zero-earnings discontinuity. To investigate the role of interest expense in the zero-earnings discontinuity, we further show that there was a discontinuity in the distribution of the level of debt issues around zero earnings contemporaneous with the zero-earnings discontinuity. We also show that the recent disappearance of zero-earnings discontinuity is coincident with the disappearance of the discontinuity in the debt issuance distribution. Overall, our findings suggest that the level of debt contributed to the zero-earnings discontinuity when it existed.
... When accounting information is subjective, such as that derived from estimates, the uncertainty is even more accentuated. In these cases, managers tend to exert their decisional power and abuse discretion, which leads to biases in their valuations ( The debate on fair value accounting's capability of increasing accounting quality has a long history (Laux & Leuz, 2009) and is still open (Mora et al., 2019), particularly for the International Accounting Standards (Trimble, 2018). The opponents to this accounting practice primarily criticize the prospective negative impacts on markets, such as procyclicality, financial instability, or inadequacy in illiquid markets or specific business models (Marra, As defined by both IFRS and SFAS accounting principles, any asset's fair value is the price that would be received to sell that asset in an orderly transaction between market participants at the measurement date. ...
In capital markets, the investment decision-making process is vastly influenced by accounting information. This paper addresses equity investment valuation through market multiples and its consequences in investors’ financial statements under fair value accounting principles. After replicating the valuation process through the most used market multiples (price-to-forecasted earnings; market-to-book; enterprise-value-to-performance indicators), the authors analyze the distribution of the estimated-to-actual fair value ratio under the IFRS 13 perspective and the effects of a randomly selected portfolio on the balance sheet and income statement of the investor. The study’s primary findings are that the market multiples tend to produce consistent results in 7 (at least) to 20 (at best) out of 100 cases, and over or underestimate the fair value in all the remaining cases without any apparent or predictable reason. The results of the paper confirm what previous literature underlined by studies conducted on older data and with a different geographical scope (Kim & Ritter, 1999; Lie & Lie, 2002; Palea & Maino, 2013). The results and the literature suggest being particularly cautious in applying the market multiples valuation method for estimating the fair value of an equity investment, given the preference that accounting principles accord to the Level 2 market-comparable methods, which also seem to be the most used ones in practice
... UFRS'nin değer ilişkisini, Birleşik Krallık (Shah vd., 2013) ve Yunanistan'da (Tsalavoutas vd., 2012;Kousenidis vd., 2010) düşürdüğü; Avusturya (Chalmers vd., 2011) ve Türkiye'de (Oral ve Bekci, 2019) artırdığı bulgulanmıştır. Benzer şekilde UFRS'nin çeşitli araştırmalarda raporlama kalitesini (Mikova, 2014;Dayanandan vd., 2016;Kim vd., 2012;Nechita, 2018) muhasebe kalitesini (Ahmed vd., 2013;Trimble, 2018) ve kazanç kalitesini (Alhadi vd., 2018) artırdığı; sermaye maliyetini (Mihai vd., 2012) düşürdüğü yönünde bulgular vardır. ...
... Os estudos elencados na tabela 1 abordam o mesmo tema do presente artigo, mas não necessariamente sob o mesmo enfoque. Pode-se citar alguns destes enfoques: Comparação entre os níveis de perdas em BRGAAP e IFRS (Dantas, Micheletto, Cardoso, & Sá Freire, 2017); investigação sobre a aderência de estimativas de perdas esperadas com base em IFRS em relação às efetivas perdas nas operações de crédito (Dantas, Micheletto, Cardoso, & Sá Freire, 2017); comparação sobre o que a IFRS 9 proporcionaria benefícios aos investidores internacionais (Onali & Ginesti, 2014); identificação da relevância da perda com créditos de liquidação duvidosa, principalmente em instituições financeiras (Silva & Robles Junior, 2018); Comprovação do atendimento aos objetivos de risco de liquidez de bancos proporcionado pelo conteúdo da IFRS 9 (Nadiaa & Rosab, 2014); Verificação do GAAP local do ambiente estudado, apresentando desempenho relativamente melhor do que IFRS em bancos grandes e lucrativos (Marton & Runesson, 2017); demonstração de que refutou-se o relacionamento de gerenciamento de resultados na adoção de normais internacionais de contabilidade por 46 países (Trimble, 2018); constatação de que o reconhecimento antecipado de perdas proporcionado pela IFRS 9 reduzirá o acúmulo de perdas e a evidenciação requerida pela norma auxiliará na disciplina do mercado, contribuindo assim para uma estabilidade financeira (Novotny-Farkas, 2016). ...
O impacto da adoção do IFRS 9 (CPC 48) nas perdas esperadas em crédito de liquidação duvidosa (PECLD) nas empresas brasileiras do setor de energia elétrica The adapting of the IFRS 9 (CPC 48) on expected credit losses (ECL) in Brazilian energy companies El impacto de la adopción de IFRS 9 (CPC 48) en las perdidas esperadas en crédito de liquidación dudosa (PECLD) en las empresas brasileñas del sector de energía eléctrica
... Arguments ensue on the differences in the financial reporting environment across jurisdictions that adopt IFRSs (Maradona & Chand, 2018). Also, its value relevance is still unclear (Trimble, 2018). For instance, full IFRS adoption impacts negatively on Africa Countries; Foreign Direct Investment and perceived corruption in a country (Houqe & Monem, 2016;Nnadi & Soobaroyen, 2015). ...
Countries in Africa have since joined their counterparts in other regions of the world in adopting IFRSs with over 30 countries either requiring or permitting its use for its companies. This study contributes to academic literature as it presents a bibliometric analysis on the state of IFRS research in Africa. The analysis involves 73 published articles listed on Scopus database between 2005 and 2018. Key findings in the study indicate that the first research document on Scopus database on IFRS in Africa was in 2005, despite its early adoption since 1993 in Zimbabwe. There is a continued upward growth in the volume of publications and citations over the years. The year of first IFRSs adoption is not associated with the volume of publication. Top five leaders in the volume of publication on IFRSs include Tunisia and Egypt, these countries are yet to adopt IFRSs. The dominant subject areas on IFRSs research are Business, Management & Accounting, Economics, Econometrics & Finance and Social Sciences. Only 21 authors and 18 institutions out of over 600 institutions in Africa contribute more than one publication to IFRS research. These institutions and authors are all in six African countries (South Africa, Nigeria, Tunisia, Egypt, Uganda and Ghana). Recommendations from the result include the need for higher visibility of research on IFRS. Approximately 87% of the publications are non-open access and the need for more academic conference on IFRS as conference proceedings accounts for only 11%.
... Os estudos elencados na tabela 1 abordam o mesmo tema do presente artigo, mas não necessariamente sob o mesmo enfoque. Pode-se citar alguns destes enfoques: Comparação entre os níveis de perdas em BRGAAP e IFRS (Dantas, Micheletto, Cardoso, & Sá Freire, 2017); investigação sobre a aderência de estimativas de perdas esperadas com base em IFRS em relação às efetivas perdas nas operações de crédito (Dantas, Micheletto, Cardoso, & Sá Freire, 2017); comparação sobre o que a IFRS 9 proporcionaria benefícios aos investidores internacionais (Onali & Ginesti, 2014); identificação da relevância da perda com créditos de liquidação duvidosa, principalmente em instituições financeiras (Silva & Robles Junior, 2018); Comprovação do atendimento aos objetivos de risco de liquidez de bancos proporcionado pelo conteúdo da IFRS 9 (Nadiaa & Rosab, 2014); Verificação do GAAP local do ambiente estudado, apresentando desempenho relativamente melhor do que IFRS em bancos grandes e lucrativos (Marton & Runesson, 2017); demonstração de que refutou-se o relacionamento de gerenciamento de resultados na adoção de normais internacionais de contabilidade por 46 países (Trimble, 2018); constatação de que o reconhecimento antecipado de perdas proporcionado pela IFRS 9 reduzirá o acúmulo de perdas e a evidenciação requerida pela norma auxiliará na disciplina do mercado, contribuindo assim para uma estabilidade financeira (Novotny-Farkas, 2016). ...
Objetivo: Identificar o impacto da adoção do IFRS 9 (CPC 48) nas Perdas Esperadas em Crédito de Liquidação Duvidosa (PECLD) antes baseadas em perdas históricas conforme o CPC 38.
Metodologia: Pesquisa documental, exploratória, com todas as empresas do setor de energia elétrica listadas na Bolsa de Valores do Brasil, denominada, Brasil, Bolsa, Balcão (B3) dos segmentos Novo Mercado (NM), Nível 1(N1) e Nível 2 (N2) de governança corporativa. Analisando as PECLDs divulgadas nas demonstrações financeiras, principalmente notas explicativas (NE) de 2017 e primeiro trimestre de 2018. Para as empresas que divulgaram estes ajustes foram realizados os testes de comparação de média de Wilcoxon e o diagrama de Boxplot.
Resultados: Os resultados mostraram que nem todas as empresas analisadas divulgaram em suas NEs os ajustes e os critérios de contabilização das PECLDs, conforme o CPC 48, e as que divulgaram não demonstraram impacto significativo na adoção do novo CPC.
Contribuições do Estudo: Este artigo contribuiu para a reflexão, compreensão e análise sobre a adoção, impacto e avaliação empírica dos efeitos dos modelos de perdas esperadas em empresas do setor elétrico, corroborando os efeitos da Norma CPC 48 (IRFS 9) nas demonstrações financeiras das empresas classificadas como Novo Mercado, podendo ser úteis ao processo de regulação do segmento, na tomada de decisões e possível compreensão de seus potenciais efeitos, particularmente na adequação das normas multinacionais. Foi verificado se as alterações nas métricas de mensuração de PECLD podem resultar em impactos no resultado do exercício apurado, assim como alterações no valor líquido do ativo circulante, ambos componentes relevantes para tomada de decisão. Tal verificação é relevante para os gestores das empresa e investidores, para segurança em relação a manutenção da forma de verificação de desempenho.
... Os estudos elencados na tabela 1 abordam o mesmo tema do presente artigo, mas não necessariamente sob o mesmo enfoque. Pode-se citar alguns destes enfoques: Comparação entre os níveis de perdas em BRGAAP e IFRS (Dantas, Micheletto, Cardoso, & Sá Freire, 2017); investigação sobre a aderência de estimativas de perdas esperadas com base em IFRS em relação às efetivas perdas nas operações de crédito (Dantas, Micheletto, Cardoso, & Sá Freire, 2017); comparação sobre o que a IFRS 9 proporcionaria benefícios aos investidores internacionais (Onali & Ginesti, 2014); identificação da relevância da perda com créditos de liquidação duvidosa, principalmente em instituições financeiras (Silva & Robles Junior, 2018); Comprovação do atendimento aos objetivos de risco de liquidez de bancos proporcionado pelo conteúdo da IFRS 9 (Nadiaa & Rosab, 2014); Verificação do GAAP local do ambiente estudado, apresentando desempenho relativamente melhor do que IFRS em bancos grandes e lucrativos (Marton & Runesson, 2017); demonstração de que refutou-se o relacionamento de gerenciamento de resultados na adoção de normais internacionais de contabilidade por 46 países (Trimble, 2018); constatação de que o reconhecimento antecipado de perdas proporcionado pela IFRS 9 reduzirá o acúmulo de perdas e a evidenciação requerida pela norma auxiliará na disciplina do mercado, contribuindo assim para uma estabilidade financeira (Novotny-Farkas, 2016). ...
Purpose: To identify the IFRS 9 (CPC 48) adoption impact on Expected Credit Losses, based on historical losses under CPC 38.
Methodology: a documentary, exploratory research was carried out in all the companies of the electric energy sector listed on the Brazilian Stock Exchange, denominated, Brazil, Bolsa, Balcão (B3) of the Novo Mercado (NM), Level 1 (N1) and Level 2 (N2) of corporate governance. Analyzing all the expected losses disclosed in the financial statements, mainly the explanatory notes of 2017 and the first quarter of 2018. For the companies that disclosed these adjustments the Wilcoxon average comparison tests and the Boxplot diagram were performed.
Results: The survey results showed that not all the companies analyzed disclosed the adjustments and the accounting criteria of the SCPPs in the Explanatory Notes, according to CPC 48, and those that disclosed haven´t had a significant impact on the adoption of the new CPC.
Contributions of the Study: This paper contributed to the reflection, understanding and analysis of the adoption, impact and empirical evaluation of the effects of the expected loss models on companies in the electricity sector, corroborating the effects of the Standard CPC 48 (IRFS 9) on the financial statements of companies classified as New Market, starting in January 2018, and may be useful in the process of regulating the segment, in decision-making and possible understanding of its potential effects, particularly in the adequacy of multinational standards. It was verified whether changes in expected losses measurement metrics could result in impacts on net income for the year, as well as changes in the net value of current assets, both of which are relevant to decision making. Such verification is relevant to the managers of the companies and investors, for security in relation to the maintenance of the form of performance verification.
... Accounting researchers are concerned whether the implementation of IFRS, a product of a monopolistic accounting standard setter is the right decision for a global accounting practice since accounting relates to culture and culture is dynamic across jurisdictions and within countries (Borker 2013b;Gray 1988;Zeghal and Lahmar 2018). Adoption of IFRS in over 140 countries has shown accounting regulators' support for IFRS requirements and undermining of the effects of cultural differences in financial reporting (Trimble 2018). However, the level of preparers of financial statements' adoption of IFRS has varied across countries (d'Arcy and Tarca 2018). ...
This study investigates the influences of companies’ cultural diversity on International Financial Reporting Standards (IFRS) adoption in Nigeria. The diverse response to IFRS adoption is a phenomenon that necessitates further investigation to understand the reasons some companies adopt IFRS while others do not. Previous studies have investigated preparers of financial statements’ adoption of IFRS and there is a dearth of research on the role of cultural difference on IFRS adoption. However, little has been explored to understand the impacts of cultural variables on IFRS adoption. Using a self-administered survey questionnaire and logistic regression, this study identifies that financial statement preparers’ levels of professionalism, transparency, flexibility, secrecy, uniformity and the statutory control dimensions of cultural factors impact IFRS adoption at different magnitudes. The study notes that IFRS adoption can only be successful when accountants develop the relevant technical expertise in IFRS prior to implementation. This includes practical training in IFRS requirements, accounting assets and liabilities valuation, recognition of income or liabilities and disclosure of economic events before and after the reporting period consistent with IFRS 10.
Purpose
This study analyzes earnings management among Brazilian public firms during the 2016 Presidential Impeachment.
Design/methodology/approach
The sample comprises, as a treatment group, 721 firm-quarter observations relating to Brazilian listed firms. It also considers a control group of listed firms from Mexico, which were not affected by the exogenous shock analyzed (i.e. the 2016 Presidential Impeachment in Brazil). The firms' quarterly financial data cover the period between 2013 and 2018.
Findings
Considering several proxies related to earnings management by accruals, the main findings suggest a negative relationship between the 2016 impeachment event and the level of discretionary accruals, suggesting that Brazilian firms tended to reduce their earnings management levels during the impeachment process. The results are robust whether the control group is considered or not.
Originality/value
This study brings new empirical evidence to the literature on accounting information quality about the role of the economic and political environment in earnings management, especially in weak institution countries characterized by institutional voids and higher levels of corruption.
Purpose
The purpose of this study is to examine the association between financial distress and accruals-based earnings management in emerging markets, and the role that auditors play in that association.
Design/methodology/approach
This study relies on a sample of 33,455 firm-year observations from 20 emerging markets, covering a large period of analysis of 20 years. A multivariate analysis is performed by considering the level of financial distress as the dependent variable, and the accruals-based earnings management and dummies for the type of auditor as the main independent ones.
Findings
The authors predict and find empirical evidence that firms facing greater financial distress engage in income-increasing accruals-based earnings management in emerging markets, and that such engagement is lower in firms audited by Big 4 firms compared to those audited by non-Big 4 auditors. The authors also find significant differences across Big 4 audit firms in their role of constraining income-increasing earnings management strategies in firms with high levels of financial distress.
Originality/value
The study adds to previous literature by investigating the association between financial distress and accruals-based earnings management in a comprehensive sample of 20 emerging markets, by providing important overall cross-country empirical evidence that has not been addressed by previous literature. The authors also bring new knowledge by discussing the role played by the Big 4 audit firms in limiting earnings management practices by firms with high levels of financial distress. Such a limitation serves as an important external corporate governance mechanism to restrain managers’ opportunistic behaviour in firms facing financial distress – especially in emerging economies characterized overall by institutional voids.
The regulators' provision of bailouts to troubled banks accentuates the connection between level of funding and bank financial condition. This scenario has been characteristic of Nigerian deposit money banks (DMBs) in the last decade and followed by a number of reforms including adoption of International Financial Reporting Standards (IFRSs). This prompted the study's examination of nexus between bank funding strategy and income smoothing practices achievable via adjustments to loan loss provisions (LLPs) considering IFRSs adoption and solvency risk. Bank-level unbalanced panel data were hand-extracted from the annual reports of a sample of 16 DMBs for the period 2007-2017. Data were analysed using appropriate panel regression model subsequent to derivation of discretionary provision for loan losses (DPL) used to measure income smoothing and index of funding strategy (FSI) as a measure of overall funding strategy. The results showed that bank funding drive prompts Nigerian DMBs' income smoothing practices via DPL regardless of their solvency status and reflects majorly in their motive for external financing, deposit and non-deposit funding other than internal funding strategy. However, reduction was noticeable during IFRS given the observed inverse relationship between funding strategy and Nigerian DMBs' income smoothing practices. Despite improved financial reporting quality during IFRS, the mixed results obtained in the funding strategy-DPL nexus of Nigerian DMBs threatened by risk of insolvency call for increased level of oversights and additional reforms by the regulators. The need for regulators to re-sharpen their supervisory tools as Nigerian DMBs switch from IAS 39 to more discretions-inclined IFRS 9 for loan loss reporting was also advocated. This study is unique for derivation of FSI and joint test of IFRS-solvency risk moderating influence.
Purpose
This study analyzes the effect of the mandatory adoption of the International Financial Reporting Standards (IFRS) on the level of both accruals-based (AEM) and real earnings management (REM) in a comprehensive sample of firms from emerging markets. It also analyzes whether this effect differs depending on the nature/extent of IFRS adoption (full versus modified).
Design/methodology/approach
Some previous studies predominantly made up of samples from developed countries suggest a substitution of AEM for REM in the post-IFRS period. The authors test whether this trade-off among the two earnings management strategies is also evident in emerging markets, based on a sample of 27,789 firm-year observations from 18 countries between 2000 and 2018.
Findings
The results suggest that IFRS adoption in emerging markets is associated with the replacement of REM by AEM, unlike previous overall evidence in developed countries where firms appear to do the opposite. The results also show that this replacement is lower in the emerging markets fully applying IFRS, when compared to those applying a modified version of these international standards.
Practical implications
Possibly due to the poor institutional environment of emerging markets, coupled with greater flexibility inherited of IFRS principles-based approach, the authors reiterate an imminent concern about IFRS encouraging substitution of REM for AEM in emerging countries, namely in those applying a modified version of IFRS.
Originality/value
While the predominant IFRS literature in emerging markets remains focused on analyzing only single-country studies, promoting clearly mixed results, the authors enhance such discussion and foster this debate on a more international level by analyzing the joint effect of IFRS in 18 emerging markets and by comparing the effect of full and modified IFRS adoption.
Purpose
This study aims to analyse the association between country-level ethical judgement and earnings management and the role that firm-level enforcement and the quality of accounting standards play in this association.
Design/methodology/approach
The analyses are based on a sample of 45,889 firm-year observations from 34 countries between 1998 and 2018. Based on the World Values Survey questionnaire, this study constructs a comprehensive index of the ethical judgement of each country.
Findings
The empirical findings suggest that firms from countries where ethically suspect behaviours are less acceptable are associated with lower levels of accruals-based earnings management and that firm-level enforcement and the quality of accounting standards dampen such association.
Practical implications
The results contribute to the debate about ethical issues in the accounting profession in an international context, adding to the sustainable development debate given that the creation of long-term value for firms is intrinsically related to business ethics and good quality financial reporting.
Social implications
When it is known that countries’ ethically-related judgements reduce the level of earnings management, actions can be taken by regulators and other stakeholders to build fairer societies with a more sustainable view, given that the quality of the financial reporting is inextricably linked to how income and wealth are distributed.
Originality/value
While previous literature documents that ethical judgement at both the individual and organizational levels matter as key determinants of the way managers are involved with unethical accounting practices, this study investigates the role of ethical judgement at the country level in explaining earnings management.
This study examines the impact on accounting quality in India after converging Indian generally accepted accounting principles (IGAAP) with International Financial Reporting Standards (IFRS). The converged form of IGAAP is referred as Indian Accounting Standards (Ind AS). Using a pre-and post-IFRS adoption period design, we compare the quality of accounting information reported under IGAAP and Ind AS. Our results show that accounting quality deteriorates immediately after the adoption of Ind AS. In particular, we document that the implementation of IFRS-converged standards results in lower variability in net income, a higher magnitude of discretionary accruals, less timely recognition of losses, and lower value relevance of reported earnings. Subsequent tests suggest that the deterioration in accounting quality ameliorates with the passage of time. The findings of the study suggest that there may be a learning curve for the benefits of IFRS adoption/convergence to diffuse over time through a system. Moreover, simply adopting or converging to IFRS without concurrent changes in institutional and enforcement frameworks may not result in improvements in accounting quality, especially in countries with weak regulatory jurisdictions. Consequently, more attention needs to be paid to implementation and diffusion issues, such as integrating IFRS intentionally in the University curriculum and providing workshops and continuing education courses to improve stakeholder familiarity with IFRS. Improvements in the institutional structures of financial reporting should also be implemented.
Purpose
This paper aims to identify what are the moderating factors affecting the relationship between firms’ adoption of international financial and reporting standards (IFRS) and the firm’s opacity.
Design/methodology/approach
This study uses the meta-analysis methodology from Hunter et al. (1982) to find if the mere IFRS adoption reduces firm’s opacity and a meta-regression from Stanley and Jarrell (1989) to identify the moderating factors that may influence this relationship.
Findings
Contrary to previous studies, this study finds a low, negative and nonsignificant correlation between IFRS adoption and firms’ opacity, but this relationship depends on the geographical region. Using 34 results from 28 studies from different continents published between 2005 and 2018 this study finds that IFRS adoption reduces opacity in countries with common law (COML) and with more authorities’ oversight and power to enforce the rules.
Originality/value
This study finds two institutional commonalities between different previous studies that intend to assess the impact of the IFRS adoption upon firms’ opacity: the legal system and the authorities’ oversight power.
The prime rationale of this study is to check the relation among capital market size, accountant educational level, professional bodies, management benefits investor behaviors and IFRS adoption. The impacts of some dynamics on the International Financial Reporting Standard (IFRS) adoption in Pakistani manufacturing firms were studied. Quantitative research approach has been used in this study. Primary data by means of questionnaire utilized. One hundred and sixty questionnaires were distributed among Investment managers/administrators, accountant and finance manager and directors working in forty manufacturing firms. One hundred and twenty eight questionnaires were properly filled and returned (response rate 80). Descriptive statistics and inferential analysis both were used. The study found that capital market size is positive and significantly influenced IFRS. Moreover, positive relation was found between accountant educational level and IFRS (β is .7105 and t-value is 12.7005). The study revealed that management benefits and IFRS were positively linked with each other. Furthermore, investor behaviors is significantly associated with IFRS (β is 0.4561 and t-value is 09.7457). The study concluded that capital market size, accountant educational level, professional bodies, management benefits investor behaviors are strongly correlated with IFRS adoption
The number of countries that have adopted International Financial Reporting Standards (IFRS) in some form has grown each year. However, the existing literature generally ignores the varied types and the complex timing of IFRS adoption. Our paper provides a cross-reference of IFRS adoption dates and types for 195 countries and territories around the world. This definitive data, including an extensive online dataset, was developed to help researchers better identify IFRS adoption events in the samples used in their empirical studies. Additionally, we highlight potential challenges in identifying IFRS adoption types and dates as well as provide areas of future research that can benefit from our dataset, which can be accessed online https://about.illinoisstate.edu/mktrimb/song-trimble-2022-dataset/ .
Purpose: This study examined the effects of the adoption of the International Financial Reporting Standard (IFRS) on the quality of financial statements of agro-allied firms in Nigeria. Methodology: Battery of unit root test techniques and co-integration tests were deployed to examine the existence of long-run impact of relevance and reliability of financial reporting as provoked by IFRS adoption. The study made use of Panel Fully Modified Least Square techniques to examine the nature of the relationship between the Pre-IFRS and Post-IFRS adoption periods. Main Findings: The study noted that IFRS adoption has a substantial effect on the reliability and relevance of financial statements. Implications: The findings of this study help in shedding light on the impact of the IFRS on financial statements' reliability and relevance of listed agro-allied firms in Nigeria. Novelty: This study offers a unique understanding of the impact of IFRS adoption on financial ratios in Nigeria.
This study examines the relationship between earnings quality and analysts’ information environment as measured by analysts following, analysts’ forecasts dispersion, and analysts’ forecasts accuracy. Using a sample of all non-financial listed firms in the 15 European Union (EU) member states, we find that higher earnings quality leads to more analysts following, less dispersion of analysts’ forecasts, and more accurate forecasts from analysts. We also provide evidence of a positive link between the strength of this relationship and both International Financial Reporting Standards (IFRS) and the strength of enforcement regimes in EU countries. Further, we find that the innate component of earnings quality dominates the effect on analysts’ information environment proxies, whereas the discretionary component is likely to have a negligible impact. These findings shed light on the vital role of earnings quality in helping analysts and investors to make better financial investment decisions.
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