Reporting Regulatory Environments and Earnings Management: U.S. and Non-U.S. Firms Using U.S. GAAP or IFRS

Posted: 10 Jan 2015

See all articles by Mark E. Evans

Mark E. Evans

Wake Forest University

Richard W. Houston

University of Alabama

Michael F. Peters

University of Maryland

Jamie H. Pratt

Indiana University - Kelley School of Business - Department of Accounting

Date Written: December 4, 2014

Abstract

Based on data collected from 616 experienced financial officers who use U.S. GAAP or IFRS and are domiciled in the U.S., Europe, or Asia, we examine how reporting standards (U.S. GAAP vs. IFRS) and domicile (U.S. vs. non-U.S.) affect earnings management (real vs. accrual). U.S. firms using U.S. GAAP rely more heavily on real methods than non-U.S. firms that use either IFRS or U.S. GAAP, and U.S. firms using IFRS. U.S. firms using U.S. GAAP operate in an environment that encourages real over accruals methods; specifically, U.S. GAAP facilitates detection of earnings management and enforcement is more effective in the U.S. Further, the likelihood and amount of earnings management does not differ across conditions, suggesting that firms using less accruals earnings management tend to fully compensate by increasing real methods. So, stronger reporting environments do not necessarily reduce total earnings management, but instead encourage substitution of real for accruals methods.

Keywords: Earnings management; IFRS; regulation

JEL Classification: M40, M41

Suggested Citation

Evans, Mark E. and Houston, Richard W. and Peters, Michael F. and Pratt, James H., Reporting Regulatory Environments and Earnings Management: U.S. and Non-U.S. Firms Using U.S. GAAP or IFRS (December 4, 2014). Accounting Review, Forthcoming; Kelley School of Business Research Paper No. 15-12. Available at SSRN: https://ssrn.com/abstract=2546762

Mark E. Evans (Contact Author)

Wake Forest University ( email )

P.O. Box 7659
Winston-Salem, NC 27109-7285
United States

Richard W. Houston

University of Alabama ( email )

Culverhouse School of Accountancy 310 Alston, Box 870220
Tuscaloosa, AL 35487
United States
205-348-8392 (Phone)
205-348-8453 (Fax)

Michael F. Peters

University of Maryland ( email )

Department of Accounting Van Munching Hall
College Park, MD 20742-1815
United States
301-405-7118 (Phone)
301-405-0359 (Fax)

James H. Pratt

Indiana University - Kelley School of Business - Department of Accounting ( email )

1309 E. 10th Street
Bloomington, IN 47405
United States
812-855-2657 (Phone)
812-855-8679 (Fax)

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