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

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 financial earnings management. Prior to the imple- mentation of IFRS, there were powerful incentives
for firms facing higher tax pressure to restrict
(exacerbate)
upward (downward) financial
earnings management due to direct tax implications. IFRS
adoption reduced book–tax conformity, thereby
releasing financial
income from tax implications. As expected, we find 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 book–tax conformity and its concomitant effects on tax-induced managerial opportunism. Greece provides an interesting research
setting because high book–tax 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 book–tax conformity renders upward financial earnings management a particularly
costly activity; even artificially increased financial income entails tax implications. In a
similar vein, high book–tax 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 book–tax 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 book–tax 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 book–tax conformity. Furthermore,
relaxations in book–tax conformity as imposed by IFRS implementation release financial accounting income from direct tax implications and attenuate the effect
of tax pressure.
8.
THE 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 responsibilit
y 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.
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