The impact of IFRS-based accounting standards on earnings management: evidence from Malaysia

Abstract

This study aims to examine the consequences of International Financial Reporting Standards (IFRS) convergence in an emerging market. More specifically, we investigate whether the adoption of the new set of accounting standards in Malaysia is associated with lower earnings management. Using a sample of 3,340 firm-year observations across three reporting periods with different levels of IFRS adoption, we provide evidence that IFRS convergence improves earning quality. In particular, we find a significant decrease in the absolute value of discretionary acccruals in the partial IFRS-convergence period (2007)(2008)(2009)(2010)(2011), whereas this effect is restrictive after the complete IFRSimplementation.

The Impact of International Financial Reporting Standards (IFRS) on Accounting Quality in Malaysia

“…With lower earnings management activities observed in the post-adoption periods of IFRS, reported earnings resulted in higher value relevance. Fourati and Ghorbel (2017) addressed the impact of IFRSbased accounting standards on earnings management based on a sample of 3,340 firm-year observations across three reporting periods with different levels of IFRS adoption-pre IFRS period (2003)(2004)(2005), post FRS period (2007)(2008)(2009)(2010)(2011) and post MFRS period (2013-2014). The results of the regression to examine the effect of IFRS on earnings management employed the Kothari et al (2005) model discovered that adoption of IFRS decreased earnings management practices in the partial convergence period.…”