10 JURNAL INTERNASIONAL



NAMA                         :  DEDE RIDWAN
NIM                              :  C.1410087
FAK/JUR                     :  EKONOMI/AKT (SORE)
MATA KULIAH         : PRAKTIKUM AKUNTANSI
TUGAS                        :  10 JURNAL INTERNASIONAL

1.     Impact of IFRS on Earnings Management Comparison of Pre-Post IFRS Era in Pakistan

This paper investigates the impact of introduction of International Financial Reporting Standards on earnings management of Public limited companies in Pakistan as the purpose of the reporting standards is to  make the financial statements of companies more transparent and comparable. The research undertaken, is based on sampling process involving 100 Companies, listed on Karachi Stock Exchange of Pakistan, to investigate the quality of accounting information enhanced in the context of preǦpost IAS/IFRS period i.e. 2001. The cut off point is to evaluate the Earning management Score in absolute terms of Pakistani listed companies. This study relies upon the the crossǦsectional modified Jones model  of by Kothari et al. (2005). With this approach, discretionary accruals are measured on the past estimates of an industry. In earning management the discretionary accruals represent the employment of earnings management. This is done after subtracting the portion of nonǦdiscretionary accruals from the total value of accruals. The global practice is converging towards transitioning from GAAP to domestic IFRS.  With this, in many countries the use of earnings management has significantly decreased, but this is not the case in Pakistan due to two reasons;
1) Pakistan is using the IAS/IFRs based system since its inception
2) Due to 1) the data features are in a comparable form to check the effectiveness of IFRS. However, since the onset of 2001, a decreasing trend has been observed in the using of earnings management. It renders ineffective, the conclusion that the introduction of IFRS, during the period 2001 2009, led to less earnings management.
 

The world is at the end of convergence towards International Financial Reporting Standards (IFRS) which are high quality accounting standards for judging the transparency and comparability of financial statements in financial reporting process. All users of financial statements want a true and fair representation of information about companies in financial statements. However, under the crisis period, it is disputable whether companies present the true position to the users of financial statements to make economics decisions and for resources allocation. On the other hand the management of companies can make different accounting choices or structure business transactions to report according to intent rather than true and fair presentation. In past many big or well reputed companies in all over the world created sophisticated methods for accounting manipulations by abusing accounting and shaking the confidence of the investors and general public too, which hurt the economic activity around the world. One study
Do accounting standards matter’ points out that USA, which uses rule based accounting standards (GAAPS), could not make much difference to safeguard its companies like Enron, worldcom etc. In USA the level of Earnings management score is 2 points, out of 34 countries (1990-1999). The highest point in Austria is 28 points and in Pakistan the earning management score is 17.8 points. IFRS in financial reporting can be extended beyond the quality of financial information, out in the following terms:
a.       To reduce the asymmetry and Earning management which can mitigate the agency problem
b.      To reduce the cross-border listing requirements
c.       To make the local GAAPS align to IFRS that is harmonization of local accounting standards
d.      To make better economic decisions with the help of full disclosures in the financial report
e.       To maximize the firm value
f.       To improve the predictive and confirmatory value of the information which is more relevant and reliable to the decision making process.



2.     DOES IFRS ADOPTION INCREASE VALUE RELEVANCE AND EARNINGS TIMELINESS IN LATIN AMERICA ?

ABSTRACT
This study analyzes whether changing from local to international accounting standards improves the quality of accounting for Latin American companies. In particular, we  aim  to  identify  whether  fundamental  accounting  variables  are  more  relevant  and increase earnings timeliness after companies adopt the International Financial Reporting Standards.  This  research  was  conducted  during  2000 - 2014  using  a  sample  of  923 companies from Argentina, Brazil, Chile, and Mexico. Employing panel data and quantile regression, our findings show that changes from local accounting regulations to internationally approved standards increase the value relevance. In addition, the results suggest the presence of earnings timeliness in large firms.
Globalization and regional integration, such as the North American Free Trade Agreement (NAFTA), the Southern Common Market (MERCOSUR), and the European Union, has given rise to a structural alteration in the world. This alteration is reflected in the increasing penetration of large multinational companies in different sectors of economic activity (Palacios and Martínez,
2005).

As a result of financial crises in previous decades, the need for universal accounting has emerged in order to provide necessary information to investors and creditors in markets with fewer borders (Macedo et al., 2013) and to provide transparency and information disclosure in capital markets (Carvalho and Salotti, 2013).
Many arguments that favor the adoption of the International Financial Reporting Standards (IFRS) have been proposed throughout the debate about the global harmonization of accounting. According to Choi and Zéghal (1999), because of the internationalization of companies’ accounting operations, uniformity allows information to be compared for decision making, and saves costs and time through consolidation effects.



3.     Adoption of the  International Financial Reporting Standards (IFRS) on companies’ financing structure in emerging economies

This paper aims to study the relationship between the adoption of the International Financial Reporting Standards (IFRS) and the companies’ financing structure in different emerging economies. A linear hierar- chical regression model is applied, considering firm, country and re- gion  levels, in a database of 150,265 observations of companies from 145  countries between 2003 and 2014. The impact of the adoption of IFRS in financing decisions is heterogeneous among companies from different regions and countries. This  effect is clearer when country controls are  applied to monitor the legal  enforcement and investor safety, such as the quality of the boards and accounting audits.
 

Several studies identified that country characteristics affect  the companies’ funding decision. SinceRajan  and   Zingales (1995)  and   La Porta et  al.  (1998),  it is  observed that  country factors affect   the capital structure and  financial performance. Comparing developed and  emerging markets, it is observed that country factors influence in a different rate the decision of companies’ funding. While in developed markets the country factors have  a less  importance in capital structure, comparing to the  firm  determi- nants, in emerging economies, country factors are  more relevant (de Jong et al., 2008; Kayo and  Kimura,2011; Lucey and  Zhang, 2011; Santos, 2013).
In economies with low  levels  of protection for creditors, the initial cost of capital tends to be higher than in economies where this protection exists and, thus, there is a greater impact of tangibility due to the need for a loan,  mostly in small companies (González and  González, 2008). Big companies, on the  other hand, can structure their capital offering other forms of financing, attracting new investors (raising more equity or retained it). In this case, the improvement of quality information is more sensible to equity than credit (Myers and  Majluf, 1984).
The need for guarantees to grant credit, whose influence is enhanced by the  company size, according to Gao and  Zhu (2015) and  Nikaido et al. (2015), is mainly related to asymmetric information problems. Thus,  the greater the adverse selection risks  resulting from  the  creditors’ and  investor’s choice of bad investment projects, the higher the costs of capital for the  organizations. One way  to reduce this cost of capital is the issuing of contracts based on guarantees.
Considering difficulties to access credit by new investors or creditors, a stronger trend is observed for governments to adopt policies and  institutional improvements that can facilitate the companies’ capital- ization through own  capital or capital from  third parties. The adoption of policies that can  improve the credit market, mostly for small companies, has  been discussed in recent researches (Clarke  et al., 2006; González and  González, 2008; Moro and  Fink, 2013; Gormley, 2014; Owen  and  Temesvary, 2014; Nikaido et al., 2015). One of the measures governments have  adopted to improve the credit and  capital markets is the  adaptation of their countries’ accounting models to national generally accepted international stan- dards through the International Accounting Standards Board (IFRS), which are aimed at the harmonization of corporate financial statements in different international markets, favoring these countries’ inclusion in the  movements of external capital, as well  as the  investors and  creditors’ greater confidence in the  com- panies.
The main importance to adopt the  IFRS is the improvement in the informational quality of financial reportings. Daske et al. (2013) and Cristensen et al. (2013) stand out, which identify a significant evolution of the transparency standards in countries that adhere to the international standards, resulting in a greater impact on the  capital markets in economics with characteristics such  as greater protection of investors.
Ahmed et al. (2013), on  the other hand, identify no  significant changes in the  accruals between the former models and the IFRS, despite an improvement in the analysts’ correct assessment of the companies’ future returns in the new model, which indicates the  importance of the adoption in financial decision making.
Other studies (Houqe et al., 2012; Gao and Sidhu, 2014; Houqe et al., 2014; Naranjo et al., 2015; Beneish et al., 2015) identified positive behaviors in the  implementation of the  IFRS regarding the  improvement of the  accounting quality and  of the  companies’ performance, which ends up creating positive impacts in the  concession of credit by the  banks.
As the  IFRS tend to enhance the information quality and,  consequently, contribute to the investors’ confidence, the main objective in this paper is to verify  whether a relation  exists between the adoption of the IFRS in different countries  and the companies’  financing decision. That is, if the  characteristic adherence to the IFRS’ in one country significantly affects the companies’ ease  of getting credit access and the choice of bank  financing or investor financing for investments and  working capital. Other contribution of this study is to identify the impact of IFRS in financing decision of small and  medium firms, emphasizing that this  characteristic, not observed in other studies, can  influence capital structure and  access to credit. In this sense, not only the financing decision theories related to companies’ strategies, such  as pecking order and  trade-off, are  considered, but  also the importance of companies’ financing sources and  credit access policies in different countries.

4.     How  would the  differences between IFRS and  U.S. GAAP affect  U.S. analyst performance?

We   examine whether  differences between  IFRS  and U.S.  GAAP affect forecast accuracy and other measures of  analysts’ perfor- mance and if  analysts with superior forecasting ability are   less affected by  these differences. Our  unique sample consists of  U.S. analysts who followed cross-listed firms in the U.S. and were unfa- miliar with IFRS prior to its  adoption but were familiar with U.S. GAAP. The  main finding is  that firm-specific differences between IFRS and U.S. GAAP and its  interaction with our superior analyst variable and other information environment characteristics signif- icantly affect forecast accuracy in  the year of  IFRS adoption, but this is generally not the case in  the subsequent year. We  provide evidence that superior analysts gain a  comparative advantage in the year of  IFRS adoption but the advantage fades out in  subse- quent years when all  analysts are  trained and educated in  IFRS. Similar effects are   generally documented  on   analysts  following and stock recommendations but we  find no  significant effects on forecast dispersion. We  interpret our findings as  being consistent with U.S.  regulators stating that U.S.  analysts will   need investments in  education, training, and processing the interactive IFRS data  and practitioners’ predictions that  analysts would quickly learn the new accounting standards.
 

International Financial Reporting Standards (IFRS) adoption in the U.S. has  been debated by regu- lators, practitioners and academicians. The Securities and Exchange Commission (SEC) has  considered IFRS adoption since 2007 (SEC, 2007a). Despite its  widespread use  around the world, the  SEC has expressed concerns about the  quality of IFRS and  comprehensiveness of its disclosures. Some  external users perceive U.S. GAAP to  be  of higher quality than IFRS (PwC, 2009), other studies notice that the momentum towards the  adoption of IFRS in the  U.S. has  slowed (e.g., Atwood et al., 2011), and  recently some academics recommend reversing the  tentative SEC consideration to adopt IFRS (e.g. Selling, 2013). Many  prior studies that either discuss or empirically examine the  cost  and  benefits of, and  issues related to, IFRS adoption in the  U.S. provide conflicting arguments and  find  mixed results (e.g., Hail et al., 2010a, 2010b; Kothari et al., 2010; Sunder, 2011; Sun et al., 2011; Barth  et  al., 2012,  2013; Chan  et  al., 2013). One aspect not  specifically explored in prior empirical studies is the  ability of U.S. analysts and  investors to adapt to IFRS through education and training, thereby gaining the  proficiency to effectively process the interactive IFRS data. This issue  has  been considered by the  SEC as one  of the  seven key components  of the  original Roadmap to IFRS adoption by U.S. issuers (SEC, 2008) and  in subsequent releases (e.g., SEC,
2010,  2012).
The major purpose of our  study is to examine the impacts of IFRS adoption, specifically the differ- ences between IFRS and U.S. GAAP (IFRSUSDIF) on  U.S. analyst forecast accuracy and to  contemplate whether superior analysts better incorporate these differences into their earnings forecasts and other measures of performance. In our  study superior analysts demonstrate superiority via  issuing highly accurate forecasts that improve during the year of  IFRS adoption (detailed definition and criteria are  provided in  Section 3.2.).  We  focus on  investigating the effects during the year of IFRS adoption and whether these effects dissipate as analysts obtain education and training to become familiar with the standards in the subsequent year. These are  interesting research questions because the results of this analysis could potentially inform us  on  some of the consequences of IFRS adoption for sophisti- cated external users. We  use  a unique sample of cross-listed companies traded in  the United States and followed by  our  sample of U.S. analysts who were unfamiliar with IFRS prior to  its  adoption by our  sampled companies. After adopting IFRS, these companies reported based on IFRS and filed recon- ciliations of earnings and shareholders equity to  U.S. GAAP on  form 20-F.
Our  study provides a natural experiment for  testing the effect and dynamic of the potential IFRS adoption on  U.S. financial analysts. Our  sample of  analysts surrogates for  all  U.S. analysts, so  we can  observe the effect of IFRS adoption in the U.S. on  forecast accuracy and some other measures of analyst performance. We  presume that when U.S. analysts begin analyzing IFRS financial statements they will  likely   obtain education and training to  better understand and interpret IFRS. This  will probably cause the impact of IFRS adoption on  U.S. analysts to  dissipate quickly. This  presumption is consistent with anecdotal evidence and analysts’ interviews suggesting that the estimated training and developing expertise in IFRS for U.S. analysts will be relatively short (PwC, 2009). To explore these presumptions, our  focal  research design examines whether the effect of differences between IFRS and U.S. GAAP on  forecast accuracy and other qualities is  permanent or  transitory. In  this context, we examine this relation in  conjuncture with superior analyst, individual analyst effort and expertise while controlling for other information environment (i.e., firm and country) characteristics.
Prior  IFRS related studies neither exclusively examine the association of U.S. analysts forecast accu- racy  or analysts following or stock recommendations with analyst and firm characteristics in the U.S. and the effect of superior analysts in  the context of IFRSUSDIF, nor  test the association in  the IFRS adoption year versus the associations in  the subsequent years. There are  several reasons why IFRS adoption may affect U.S. analysts differently than analysts in  other countries. The  U.S. information environment is uniquely different from the information environments in most countries and material differences exist between the characteristics and behavior of U.S. analysts and those outside the U.S.


5.     An exploratory study of earnings management detectability, analyst coverage and  the  impact of IFRS adoption: Evidence from  China

Analysts serving as external monitors to managers is a topic of con- siderable interest in the analyst coverage literature. There are  two outcomes of  analyst coverage studies: curbing and stimulating earnings  management.  However, recent  studies  (such  as   Yu, 2008) only provide evidence supporting the curbing side. Given the fact  that the data of these studies focus on  developed markets and the finding of Rodríguez-Pérez and Hemmen (2010) that exter- nal  governance mechanisms may stimulate earnings management in  an   opaque information environment, we   conjecture whether stimulating side would be  dominant in  emerging markets. China offers a valuable setting for  us  to test the question. Using the data of  China capital market from 2003 to 2009, we  find that analyst coverage stimulates earnings management through above-the-line items  (ALIs)   where  earnings  management  cannot  be    easily detected, and curbs earnings management through below-the-line items (BLIs) where earnings management can  be  easily detected. We  also find that the adoption of International Financial Reporting Standards (IFRS) in  China does create many new opportunities for managers’  earnings  management   but   does  not   significantly improve the monitoring effect of  analyst coverage. We  only find that  compared to  those  without  analyst coverage, firms with analyst  coverage have  a   lower  level  of   earnings management through BLIs after IFRS adoption. These findings suggest that infor- mation  opacity may weaken  the  monitoring effect of  external corporate governance mechanisms  and high quality accounting standards in  the literal sense may not enhance the monitoring effect of  external corporate governance mechanisms if  it is  not compatible with the market’s institutional environment. In  addi- tion, we  find that firms with earnings meeting the benchmark have a lower level of earnings management, which indicates that bright- line accounting based rules used in emerging capital markets may constrain the managers’ behavior.
 

Existing research (such as  Yu, 2008) on  the effects of analyst coverage on  earnings management (EM) with accruals argues that there are  two possible effects: monitoring effect (i.e., curbing earnings management) and pressure effect (i.e.,  stimulating earnings management). Because analysts per  se function as  one   of  the external corporate governance mechanisms (Jensen and Meckling, 1976; Healy and Palepu, 2001; Lang et al., 2004; Yu, 2008), analyst coverage is intended to  scrutinize firm behavior and discipline the earnings management behavior of  managers. Numerous studies have shown that analyst coverage has  achieved their intended objective of curbing earnings management (Degeorge et al., 2005; Knyazeva, 2007; Yu, 2008; Sun,  2009).
Nevertheless, through covering firms, analysts usually release earnings forecast reports, which may set  a target for managers and create excessive pressure on managers. To achieve the target, managers may try  to meet or beat analysts’ forecast consensus through earnings management (Degeorge et al.,1999; Degeorge et al., 2005; Yu, 2008). Furthermore, there are many other factors such as the situation of analysts themselves under pressure (Yu, 2008), or the opaque information environment (Rodríguez- Pérez and Hemmen, 2010) that may affect analysts’ role  in  governance. However, to  the best of our knowledge, few  studies have documented empirical evidences for the pressure effect, i.e., unintended consequences of analyst coverage. As Rodríguez-Pérez and Hemmen (2010) find  that external gover- nance mechanisms may stimulate  earnings management in  an  opaque information environment, would pressure effect of analyst coverage be  dominant in opaque information environments?
The above literature on analyst coverage in American capital market is all based on the perception that analysts typically focus on  the persistent component of earnings,  e.g. ‘pro  forma’ earnings that exclude nonrecurring items or special items (Philbrick and Ricks 1991), thus the research on earning management is  primarily concerned with above-the-line items (i.e.,  accruals, hereafter ALIs). 3The effect  analyst coverage has  on  the  earnings management through below-the-line items (BLIs) remains unknown.  In  fact,  besides using accruals to  manage reported  earnings, management  also  use   BLIs (Chen  and  Yuan,  2004; Haw  et  al., 2005) or  classification shifting (McVay,  2006) to manage earnings. Because BLIs have  been shown to be highly transparent and  excessive amounts of non-operating income are usually viewed as clear  signs  of earnings management (Chen  and  Yuan, 2004), earnings management through BLIs (BLIEM) is  easier to  detect and  thus may  result in  management reputation damage or penalties.
Obviously, while forecasting earnings if analysts focus on BLIs and serve as one  of external gover- nance mechanisms, they could curb earnings management through BLIs or constrain the management behavior of classification shifting and therefore indirectly curb earnings management through ALIs. Then, could analysts focusing on BLIs as expected play  a role  in curbing earnings management through BLIs?


6.     The effect  of IAS/IFRS adoption on earnings management (smoothing): A closer look at  competing explanations

Prior research provides mixed evidence on  whether the transition to IAS/IFRS deters or  contributes to greater earnings management (smoothing). The  dominant explanation for  the conflicting results is   self-selection.  Early    voluntary  adopters  had  incentives  to increase the transparency of their reporting in order to attract out- side capital, while those firms that  waited  until IFRS adoption became mandatory in EU countries lacked incentives for  transpar- ent reporting leading to increases in  earnings management (smoothing) after IFRS adoption. We  maintain that the IFRS stan- dards that went into effect in  2005 provide greater flexibility of accounting  choices because  of  vague criteria, overt and  covert options, and subjective estimates. This  greater flexibility coupled with the lack  of  clear guidance on  how to implement these new standards has led  to greater earnings management (smoothing). Consistent with this view, we  find an  increase in earnings manage- ment (smoothing) from pre-2005 to post-2005 for  firms in  coun- tries that allowed early IAS/IFRS adoption, as  well as  for  firms in countries that did  not allow early IFRS adoption. We  find no  evi- dence of changes in  incentives that can  explain these results.




7.     Effects of IFRS Adoption on Tax-induced Incentives for Financial Earnings Management: Evidence from Greece

We investigate whether the adoption of International Financial Reporting Standards (IFRS) in Greece affected tax-induced incentives for nancial earnings management. Prior to the imple- mentation of IFRS, there were powerful incentives for rms facing higher tax pressure to restrict (exacerbate) upward (downward) nancial earnings management due to direct tax implications. IFRS adoption reduced booktax conformity, thereby releasing nancial income from tax implications. As expected, we nd that tax pressure is a significant negative determinant of discretionary accruals in the pre-IFRS period. However, this effect dissipates under the new IFRS regime.
© 2013 University of Illinois. All rights reserved.
 

Using a sample of Greek firms, we study the potential implications of the adoption of International Financial Reporting Standards (IFRS henceforth) for booktax conformity and its concomitant effects on tax-induced managerial opportunism. Greece provides an interesting research setting because high booktax conformity and close links between financial income and taxable income prevailed prior to IFRS enactment. The strong interconnectedness between financial and tax reporting amplifies tax-induced incentives to restrict (exacerbate) upward (downward) financial earnings management for tax purposes. Tax-induced incentives are further encouraged by the paucity of analyst coverage (Chang, Khanna, & Palepu, 2000) and the underdevelopment of the Greek capital market relative to other European jurisdictions (La Porta, Lopez-de-Silanes, Shleifer, & Vishny, 1997). The lack of analysts' benchmarks to meet or beat, the concentrated family-ownership of Greek firms (La Porta et al., 1997; Papas, 1992), and the low reputation costs for managers promote tax goals relative to other managerial targets.  In addition, corporate costs of financial income manipulation are not severe due to poor monitoring mechanisms at the institutional level. Weak legal enforcement, low regulatory quality and inadequate shareholder protection are prevalent attributes of the Greek setting (Karampinis & Hevas, 2011).
High booktax conformity renders upward financial earnings management a particularly
costly activity; even artificially increased financial income entails tax implications. In a similar vein, high booktax conformity renders downward financial earnings management a potentially attractive vehicle to reduce taxes. However, these incentives are not expected to be equal across firms. On the contrary, we predict that their intensity varies depending on a firm's tax pressure. We use the term tax pressure to refer to a firm's ability to retain low taxes relative to its operating performance. Firms facing higher tax pressure exploit less efficiently the  provisions stipulated in  Greek  tax  law  (e.g.,  investments in  profitable associates, tax loss carryforwards, tax credits and untaxed reserves, domiciling in areas with lower tax rates) and incur increased tax outlays. Therefore, these firms may have greater incentives to restrict (exacerbate) upward (downward) financial earnings management. In these respects, the first prediction of this paper is that tax pressure constitutes a significant negative economic determinant of financial earnings management under a high booktax conformity regime such as the pre-IFRS period in Greece.
The adoption of IFRS caused an inevitable change in the interconnectedness between financial accounting and tax accounting in Greece. Because IFRS is independent of tax considerations (Hung & Subramanyam, 2007), the tax implications of financial income weakened considerably in the post-IFRS period. We argue that such relaxation in booktax conformity renders upward financial earnings management less costly and downward earnings management less attractive for tax purposes. Therefore, the second prediction of this paper is that the aforementioned effect of tax pressure declines in the post-IFRS period.
To assess these predictions, we gauge financial earnings management via abnormal discretionary accruals estimated using  a  Modified Jones  model  (Dechow, Sloan,  & Sweeney, 1995) that includes return on assets (ROA) to control for operating performance (Kothari, Leone,  &  Wasley,  2005).  In  addition,  we  consider  positive  and  negative discretionary accruals separately. Following prior research (e.g., Gupta & Newberry, 1997; Othman & Zeghal, 2006; Stickney & McGee, 1982; Zimmerman, 1983), we use each firm's average effective tax rate (ETR) to measure tax pressure. In particular, we employ the ratio of the current tax expense to operating cash flows (ETRCFO) as an indicator of tax pressure; higher (lower) values of ETRCFO indicate firms with relatively higher (lower) tax pressure. According to  our  predictions, in  the  pre-IFRS period, higher  tax  pressure intensifies tax-induced incentives either to restrict aggressive financial reporting or to manipulate financial income downward due to high booktax conformity.  Furthermore, relaxations in booktax conformity as imposed by IFRS implementation release financial accounting income from direct tax implications and attenuate the effect of tax pressure.


8.     Text Box: ACCEPTED MANUSCRIPTTHE EFFECT OF IFRS ON EARNINGS MANAGEMENT IN BRAZILIAN NON- FINANCIAL PUBLIC COMPANIES

This article evaluated whether changes in accounting practices brought a reduction in earnings
management (EM) in listed Brazilian non-financial companies through discretionary accruals. We  developed  a  model  to  observe  the  effect  of  the  International  Financial  Reporting Standards (IFRS) on firms’ EM as well as the restrictive effects of the audit, corporate governance and the regulatory environment. We find that the ones with the most limiting effects is the regulatory environment. We also find that the transition to IFRS had a restrictive effect on EM in Brazil after its complete implementation.
 

Financial statements are part of the set of information that firms make available to investors and  contribute  with  the  equilibrium  of  information  between  main  (investors)  and  agent (manager).
The process of elaboration for financial statements involves management making a series of estimations and judgments based on interpreting the operation and choosing which accounting practices to adopt.
This process of choosing and judging directly influences the firm’s accounting value, as shown in its financial statements. The difficulty of the situation is that if, on the one hand, it is necessary for management to make choices, on the other hand, there is the worry on the part of investors that management will not properly use its power of choice. This could happen, for example, if management manipulates the accounting results, a situation which would be known by earnings management.
It is important to highlight that earnings management is not based on fraud; it bases its decisions on specifically formulated alterations that have been defined by the accounting regulation (Martinez, 2001).
There have been many studies done about earnings management, especially in the last two decades; for instance, Jones (1991), Dechow et al. (1995), Kang and Sivaramakrishnan (1995), Teoh et al. (1998), Dechow and Dichev (2002), Kothari et al. (2005) and Ball and Shivakumar (2008).
Earnings management can be restricted by accounting regulations, particularly those issued by the regulatory agencies of capital markets that aim to ensure quality, comparability and transparency of information as well as the disclosure of the firm’s patrimonial position and performance. The more effective the regulation, the lower the possibility for the manager to opportunistically manipulate the financial statements during the elaboration process and, as a result, the better the quality of the accounting information that is produced. It is expected that when accounting regulations are modified, there is an improvement in the quality of the accounting information and a reduced possibility that the manager will manipulate the results.
It is pointed out that apart from the regulatory agencies of capital markets, there are other regulatory agencies depending on the activity sector that the entity is in.  Also, in addition  to  regulating  and  supervising  economic  activity,  Brazilian  regulatory  agencies regulate accounting too.
Besides the restrictive role that accounting regulation plays for earnings management, the importance of independent auditing is emphasized. The auditor has the responsibilitText Box: ACCEPTED MANUSCRIPTy to verify if the financial and patrimonial position disclosed by an entity is represented reliably. According to Santos and Grateron (2003), In the accounting information external users and even the clients’ point of view, the auditor’s acting is a synonym of trust and credibility.
In terms of the restricting earnings management and ensuring the quality of accounting information, the good practices of corporate governance stand out. According to Almeida dos Santos and colleagues (2001: 61), ‘Firms with a better corporative governance level may have some bigger issues when managing their results considering that the information asymmetry can be a counter-incentive for the use of this mechanism.





9.     An analysis of the effect of mandatory adoption of IAS/IFRS on earnings management

This  paper examines whether mandatory adoption of international accounting standards, IAS/IFRS, by French companies is associated with lower earnings management. In addition, the impact of six factors that may be related to earnings management level are also consid- ered: the independence and the efficiency of the board of directors, the separation of roles of CEO and Chairman of the board, the existence of an independent audit committee, the existence of block shareholders, the quality of the external audit and the listing on  foreign financial markets.
Based on  a sample of  353 French listed groups relating to the period 2003–2006, our results show that the mandatory adoption of  IAS/IFRS is  associated with a  reduction in the earnings management level. In  addition, the independence and the efficiency of  the board of directors, the existence of an independent audit committee, the existence of block shareholders, the quality of the external audit and the listing on  foreign financial markets are important factors for enforcement of IAS/IFRS in France. Mandatory adoption of IAS/IFRS has decreased earnings management level for companies with good corporate governance and those that depend on  foreign financial markets
 

On 19 July 2002, the European Parliament issued a regulation (1606/2002/EC) requiring all EU listed companies to prepare consolidated financial statements based on International Accounting Standards (IAS/IFRS) by 2005.
Our paper examines whether mandatory adoption of IAS/IFRS is associated with lower earnings management. In partic- ular, we question whether mandatory adoption of IAS/IFRS in France, a code-law country, is sufficient to override managers’ incentives to engage in earnings management. In fact, previous research provides evidence that earnings management mag- nitude is on average higher in code-law countries with low  investor protection rights, compared to common-law countries with high investor protection rights (Leuz, Nanda, & Wysocki, 2003; Van Tendeloo & Vanstraelen, 2005).
Previous literature has  concentrated mainly on the voluntary adoption effect of IAS/IFRS by German companies on earn- ings  management  (Barth, Landsman, & Lang,  2008; Van  Tendeloo & Vanstraelen, 2005). However, there is little research examining the mandatory adoption effect of IAS/IFRS on  earnings management in French companies. We  concentrate on France because, in contrast to Germany, it is an IAS/IFRS first-time adopter. This allows us to avoid the sample selection bias of prior studies on  voluntary adoption of IAS/IFRS. In addition, France is a code-law country, with low  investor protection rights and high magnitude of earnings management (Leuz  et al., 2003). Therefore, mandatory adoption of IAS/IFRS should
have a significant impact on  earnings management. Furthermore, by  focusing on  France, we  study a country which has made a major change from the stakeholder-oriented French GAAP to the shareholder-oriented IAS/IFRS. In fact,  regulatory changes in France have raised numerous questions concerning the potential effects of mandatory adoption of IAS/IFRS in an accounting environment that is unaccustomed to the utilization of accounting standards of Anglo-American inspiration. The accounting system in France is characterized by regulatory rigidity and a legalistic outlook and differs significantly from the international accounting system that is marked by a conceptual framework that safeguards shareholder interests.
The results of our  study show that mandatory adoption of IAS/IFRS by French companies has  decreased earnings man- agement level. The results also  show that the independence and effectiveness of the board of directors, the existence of an independent audit committee, the presence of block shareholders, the quality of the external audit and listing on  foreign financial markets are  important factors associated with enforcement of IAS/IFRS in France. Mandatory adoption of IAS/IFRS has  decreased earnings management level for companies with good corporate governance and those that depend on foreign financial markets.
The remainder of this paper is organized as follows. Section 2 provides theoretical background and hypotheses for the study. The research design is presented in Section 3. The results are discussed in Section 4. Finally, in Section 5, we summarize our  results, discuss the implications and limitations of our  analysis and give  suggestions for further research.



10.             Adoption of IAS/IFRS, liquidity constraints, and credit rationing: The case of the European banking industry

With imperfections, theory suggests that banks dependent on  external resources have greater difficulty refinancing their lending than banks with a lot  of internal resources. Hence, there is an increased risk of credit rationing to these institutions. In  this context, this empirical study tests the hypothesis that the adoption of the IAS/IFRS, deemed as of superior quality for  economic decision-making, results in an increase in  the amount of credit offered by  banks with liquidity constraints. For  a sample of European banks over the period of 2003–2008, we find that results are only partly consistent with this hypothesis. The  results depend on  the measure of the constraint, the bank size, and the enforcement regime. Our results show that the adoption (both voluntary and mandatory) of the IAS/IFRS lead to an increase in the credit supply only for small and constrained banks. These results are important with respect to the goal of banking stability and with the scarcity of credit observed in Europe since the financial crisis.
 

Liquidity constraints are of particular interest from the perspec- tive  of banking stability. In fact,  the more banks support liquidity constraints, the less they are able to refinance their lending and the greater the risk  of banking crises spreading to  the real economy through the lending channel. In addition, the presence of liquidity constraints reduces the ability of banks to raise the capital required to  meet prudential capital ratios and encourages banks to  substi- tute credit (risky) with risk-free assets (Berger & Udell,  1994; Peek & Rosengren, 1995).
Worldwide, the cost of  liquidity obtained from external investors is higher than from cash generated internally (through the sale  of securities, for example) or obtained from insured depos- itors, who are  risk  neutral to bank failure and therefore insensitive to  information and agency problems. As a result, the banks that are  dependent on  external resources are  less  able to  raise cash. This inability leads to a higher probability of credit rationing. From the beginning of the 1990s and the implementation of the Basel  I rules, the pressure was focused on  the equity ratio. It is only after 2010 that the liquidity of the assets was of a main interest to reg- ulators. During this period, it became apparent that the financial statements of banks needed to  be  more transparent, particularly for small banks.
When imperfections are   by  nature informational, the qual- ity   of  the accounting information that  banks publish matters. High-quality financial statements can  reduce the asymmetries of information ex  ante and allow better control ex  post, and they can  thus mitigate the effects of imperfections. Hence, high-quality statements can  help banks to  obtain cheaper external resources and then to minimize the probability of under-lending. Of course, the effect of better financial statements depends among others on the enforcement regime. The accuracy of the financial statements needs to be guaranteed by institutions otherwise investors will not be satisfied by the information the banks provide. Assume the banks with liquidity constraints offer  less credit because of informational problems and refinancing costs. The transition to IAS/IFRS financial statements would make these banks more “transparent,” then the volume of loans offered by banks should have increased after the adoption of these international accounting standards.
Several studies analyze the effects of the quality of accounting information published by nonfinancial companies on the efficiency of investment (Biddle & Hilary, 2006; Biddle, Hilary, & Verdi, 2009). Overall, these studies validate the hypothesis that liquidity con- straints decrease with the quality of the accounting information. In contrast, the studies on the relationship between the quality of accounting information, liquidity constraints, and the efficiency of lending by banks are  rare. Among these studies, few  have studied the economic impact of  the adoption of  international account- ing  standards in  banks, except, notably, the paper by  Gebhardt and Novotny-Farkas (2011). Several papers have questioned the impact of IFRS adoption on the transparency of banks (Bushman & Williams, 2012, 2013; Chen, Chin, Wang, & Yao, 2015; Christensen, Hail,  & Leuz,  2013;  Daske, Hail,  Leuz,  & Verdi,   2008; Li, 2010; Soderstrom & Sun, 2007).
Our  study analyzes loan offerings by  banks according to  their level of liquid assets and the equity ratio at the time of the adoption of the IAS/IFRS. The latter seem to  have a significant effect on  the supply of credit only for small banks. Indeed, the size  of the bank is an important variable to understand the mechanism of information given by the banks and the regulation they are  subjected to. Small banks are  less  constrained by  the European regulators to  publish information compared with international regulators.
The rest of this paper is organized as follows. Section 2 presents our  testable hypotheses. In  Section 3,  we  discuss the methodo- logical aspects of  the study. Section 4  contains a  description  of the sampling procedure. In Section 5, we  discuss the results, and Section 6 sets forth our  conclusions.

Komentar

Postingan populer dari blog ini

MAKALAH TEORI AKUNTANSI, KONSEP BIAYA (EXPENSES)

MAKALAH TEORI AKUNTANSI KONSEP EKUITAS

PENILAIAN PRESTASI KERJA