The Impact of Changes in Accounting Standards on Earnings Management

Applied Research from 2003-2014

Abstract

This study considers the question whether the changes in Accounting Standards has led to companies making less use of earnings management. The paper is an attempt to investigate whether the application of high quality standards like International Financial Reporting Standards (IFRS) is related to high financial reporting quality. This study addresses this issue empirically. Furthermore, this research examines whether German companies that have applied IFRS have less earnings management compared to German companies that report according to the German Generally Accepted Accounting Principles (GGAAP). The sample, consisting of two equally large listed companies in Germany (Südzucker Group and Henkel Group) from 2003-2014. The study suggests that IFRS-adopters show different earnings management performance compared to companies reporting under German GAAP. This finding contributes to the discussion on whether high quality standards are appropriate and operational in countries with weak investor protection rights. The result shows that adopters of IFRS in Germany can be related with less use of earnings management as a result of changes in accounting standards. This result is contradictory with previous research that was done by Van Tendeloo and Vanstraelen, (2005), and consistent with the previous research conducted by Ball et al. (2003).

Downloads

Download data is not yet available.

Author Biographies

Kawa W. Muhamad, Department of Finance and Banking, College of Administration and Economics, Salahaddin University- Erbil, Kurdistan Region, Iraq

Kawa Wali, the lecturer of managerial and financial accounting, he has been achieved master degree in Accounting and Finance in 2007 at the Erasmus University-Rotterdam, Netherlands. He started working at Faculty of Management and Economics at Salahaddin University in 2010. He published several articles in accounting and finance in International and National Journals. Recently, a PhD student at the Salahaddin University-Erbil-Kurdistan Region-Iraq, in cooperation with the Erasmus University- Rotterdam in the Netherlands. He lives in Erbil, DC  

Subhi M. Saleh, Department of Accounting, College of Administration and Economics, Salahaddin University-Erbil, Kurdistn Region, Iraq

Sabhi Saleh Associate Professor of Accounting, Faculty of Management and Economics, University of Salahaddin. He is credited with developing the accounting department. He has published many researches in the field of accounting, finance and international financial reporting standards. He has participated in many international and national conferences and has also supervised many researches of students at the master's and doctoral levels. He is a member of several national and international economic and accounting forums and unions.

Kees van Paridon, Department of Accounting and Finance, College of Economics and Business, Erasmus University, Rotterdam, Netherlands

Kees van Paridon, Professor of Economics at Erasmus University Rotterdam (EUR), Netherlands. He is the author of numerous publications and research published in the field of accounting, management, and -finance. He has participated in many international and national conferences and has also supervised many researches of students at the master's and doctoral levels. He is a member of several national and international economic and accounting forums and trade unions, as well as an honorary professor who has lectured in many German universities and is an expert in Dutch and German economic relations.

References

Ball R., Kothari, S.P. and Robin A. (2000). The Effect of International Factors on Properties of Accounting earnings, Journal of Accounting and Economics, pp.1-51

Ball, R. Robin A., Wuc, JS. (2003). Incentives versus Standards: Properties of Accounting Income in Four East Asian countries Journal of Accounting and Economics, p. 236

Bartov, E., F.A. Gul and J. Tsui, 2000. Discretionary-Accruals Models and Audit Qualifications. Journal of Accounting and Economics, December: 421-452.

Barth, M.E., Landsman, W.R. and M.H. Lang, 2008, International Accounting Standards and Accounting Quality, Journal of Accounting Research, vol. 46, no. 3, pp. 467-498.

Chang, Yuk Ying, Sudipto Dasgupta and Gilles Hilary, (2010). “CEO Ability, Pay, and Firm Performance”, Management Science, Forthcoming.

Daske, H., Hail, L., Leuze, C. and R. Verdi (2008). Mandatory IFRS Reporting around the World. Early Evidence on the Economic Consequences. Journal of Accounting Research 46 (5): 1085-1143

Demski, J. S., & Frimor, H. (1999). Performance Measure Garbling under Renegotiation in Multi-period Agencies. Journal of Accounting Research, 37, 187-214.

Dechow, P.M., R. G. Sloan. (1995). Detecting Earnings Management. The Accounting Review 70 (April)

Dechow, P. M., Hutton A. P., Kim J. H (2011). “Detecting Earnings Management: A New Approach”.

Dechow, P. M, Sloan, R. G., Sweeney, A P. (1996). Causes and Consequences of Earnings Manipulation: An Analysis of Firm’s Subject to Enforcement Actions by the SEC, Contemporary Accounting Research,1-36

Dichev, I., Graham, J., and Rajgopal, S. (2012). Earnings Quality: Evidence from the Field. Fudenberg, D., and J. Tirole (1995). A Theory of Income and Dividend Smoothing Based on Incumbency Rents, Journal of Political Economy, 73-93.

Gassen, Joachim/Sellhorn, Thorsten (2006). Applying IFRS in Germany – Determinants and Consequences, in: Betriebswirtschaftliche Forschung und Praxis, Vol. 58, Issue 4, pp. 365–386.

Guenther, D.A (1994). Earnings Management in Response to Corporate Tax Rate Changes, The Accounting Review, 230-234.

Healy, P.M. (1985). The Effect of Bonus Schemes on Accounting Choices, Journal of accounting and Economics, 85-107

Hirst, D. E. (1994). “Auditor Sensitivity to Earnings Management.” Contemporary Accounting Research 11, 405-422.

Hoogendoorn, M.N. (1997). Beleidsaspecten Inzake de Jaarrekening, Externe verslaggeving in theorie en praktijk, deel I, Delewel ’s-Gravenhage

Kirschenheiter, M., Melumad, N. (2002). Can "Big Bath" and Earnings Smoothing co-exist as Equilibrium Financial Reporting Strategies? Journal of Accounting Research 40, 761-796.

Kieso, D.E., J.J. Weygandt, and T.D. Warfield. (2012). Intermediate Accounting. New York John Wiley and Sons, p.952

Kothari, S. P., Leone A. J. and Wasley C. (2005). “Performance Matched Discretionary Accrual measures”. Journal of Accounting and Economics 39 (1): 163-197

Levitt, A., (1998). The Numbers Game. Remarks by Chairman of SEC, delivered at the NYU Centre for Law and Business, New York, NY, September 28, 1998 available at http://www.sec.gov/news/speech/speecharchive/1998/spch220.txt.

Li, S. (2010). Does Mandatory Adoption of International Financial Reporting Standards in the Europe Union Reduce the Cost of Equity Capital? The Accounting Review 85 (2): 607-636.

Ronen, Joshua, and Simcha Sadan (1981). Earnings Management Application, Published by Addison Wesley.

Paananen, Mari/Lin, Henghsiu (2009). The Development of Accounting Quality of IAS and IFRS over Time: The Case of Germany: Journal of International Accounting Research, Vol. 8, No. 1, pp. 31–55.

Van Tendeloo B. and Vanstraelen A. (2005). The Impact of Voluntary Adoption of IFRS in Germany, European Accounting Review, Vol. 14, No. 1, 155–180.

Wali K. (2013). Self-interest Factors in Management of Earnings Reporting in The Netherlands and Germany. The international economics and engineering research.

Wild J.J. Warfield, T, and K.J. Wild (2007). Management Ownership and the In-Formativeness of Earnings as an Explanatory Variable for Returns, The Accounting Review 67, pp 821-842.
Published
2020-01-15
How to Cite
MUHAMAD, Kawa W.; SALEH, Subhi M.; PARIDON, Kees van. The Impact of Changes in Accounting Standards on Earnings Management. Koya University Journal of Humanities and Social Sciences, [S.l.], v. 2, n. 2, p. 166-175, jan. 2020. ISSN 2522-3259. Available at: <http://jhss.koyauniversity.org/index.php/jhss/article/view/197>. Date accessed: 22 feb. 2020. doi: https://doi.org/10.14500/kujhss.v2n2y2019.pp166-175.
Section
Articles