The Effect of IFRS and its Enforcement on Earnings Management: An International Comparison

43 Pages Posted: 16 Sep 2009

See all articles by Lei Cai

Lei Cai

Massey University - School of Accountancy

Asheq Razaur Rahman

School of Accountancy, Massey University

Stephen M. Courtenay

Massey University

Date Written: December 10, 2008

Abstract

Widespread adoption of International Financial Reporting Standards (IFRS) is expected to improve accounting quality. IFRS is issued by the International Accounting Standards Board (IASB), but the IASB has no power to enforce the standards. Many are concerned that without adequate enforcement mechanisms, the benefits of IFRS adoption will be minimal. We examine the effect of IFRS and its enforcement on earnings management in financial reporting using over 100,000 firm-year observations from 2000 to 2006 across 32 countries. We conduct this examination by using a modified measure of enforcement developed by Hope (2003). We find that earnings management in IFRS adoption countries has been decreasing in recent years. The results also show that countries with stronger enforcement generally have less earnings management.

Keywords: IFRS, Enforcement, Earnings Management, Institutions

JEL Classification: G32

Suggested Citation

Cai, Lei and Rahman, Asheq Razaur Razaur and Courtenay, Stephen M., The Effect of IFRS and its Enforcement on Earnings Management: An International Comparison (December 10, 2008). Available at SSRN: https://ssrn.com/abstract=1473571 or http://dx.doi.org/10.2139/ssrn.1473571

Lei Cai (Contact Author)

Massey University - School of Accountancy ( email )

Auckland
New Zealand

Asheq Razaur Razaur Rahman

School of Accountancy, Massey University ( email )

New Zealand

Stephen M. Courtenay

Massey University ( email )

School of Accountancy
Massey University
Auckland, Auckland
New Zealand
+64 4140800 x9209 (Phone)

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