The impact of principles-based vs rules-based accounting standards on reporting quality and earnings management

Sundvik, Dennis

doi:10.1108/jaar-05-2018-0063

Cited by 25 publications

(16 citation statements)

References 53 publications

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“…However, after adoption where there have been increased in the discretion of managers, higher leverage resulted in increased earnings management practices. This view was echoed by Hashem et al (2012), Nelson & George [12] that higher leverage would force firms to engage in earnings management practice in order to present results that will enable them to attracts more external financing at a cheaper rate from shareholders (lenders of fund) in support of the capital need theory.…”

Section: Source: Extracted From Regression Resultsmentioning

confidence: 95%

“…The argument is made more complicated by the adoption of International Financial Reporting Standards (IFRS) for the production of financial reports. For example, while the proponents of IFRS adoption argued that IFRS conferred the liability for detail disclosure on managers, that is, managers would disclose more information irrespective of debt status, others authors such as Sundvik [12] and Belloa, Abubakar & Adeyemi [13] argued that the principled based IFRS would allow more of discretion of managers and thus, would be associated more with earnings manipulation.…”

Section: Introductionmentioning

confidence: 99%

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Leverage of Firms and Earnings Management Practices in Nigeria Pre and Post IFRS Adoption Periods

Enakirerhi

Ewiwile

Wobo

2022

AJEBA

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It has been argued that taking on more leverage in firm’s capital structure will force managers to disclose more information in line with agency theory and theoretically, this is expected to increase in postIFRS periods. Whether, this theoretical assertion holds in the case of Nigeria is subject to academic debate. Thus, the paper examines the association between leverage and earnings manipulative practice of firms in Nigeria pre and postIFRS periods and attempt to test the assertion of agency theory that higher leverage will be beneficial to improved earnings quality dues to pressure on managers by bondholders. The study incorporated data for 87 listed firms on the floor of the Nigeria Stock Exchange for 10 years, 5 years preIFRS (2007 to 2011) and 5 years postI FRS (2012 to 2016) making 870 firm year observations. It disaggregated the periods into pre and postIFRS to enable the researcher test for the effect of adoption. The panel regressions estimate (Random effect model) was used to test the effect of the association between the independent and dependent variables. The results deviate from norms and show that although taking on leverage in the capital structure of firms could be beneficial to earnings quality in line with agency theory in preIFRS, this benefit had been eroded after Nigeria’s adoption of the global standards. In postIFRS, leverage has a positive association, indicating that more leverage resulted in increased manipulation. Performance of firms proved to be an important factor affecting earnings quality as the results showed that lower performance was likely associated with increased earnings management practice post IFRS. The study is original and deviate from norms, puncturing the beliefs that IFRS adoption would limit managers’ ability to manipulate earnings. It also found, against popular assertion, that increased leverage may not be associated with reduced earnings manipulative practices. Leverage is unlikely to prevent earnings management practices.

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Section: Source: Extracted From Regression Resultsmentioning

confidence: 95%

Section: Introductionmentioning

confidence: 99%

Leverage of Firms and Earnings Management Practices in Nigeria Pre and Post IFRS Adoption Periods

Enakirerhi

Ewiwile

Wobo

2022

AJEBA

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“…Interestingly, a firm that misstates financials is less likely to be an AAER target if the firm practices relatively complex revenue recognition accounting (Peterson, 2012). Finally, Sundvik (2019) finds that organizations more reliant on rules-based accounting standards are more likely to be targeted than organizations reliant on principle-based accounting standards.…”

Section: Politics and Regulationmentioning

confidence: 99%

SEC enforcement targets: a Christian virtue ethics perspective

Demaline

2020

JFC

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Purpose The purpose of this paper is to provide a summary and synthesis of US Securities and Exchange Commission accounting and auditing enforcement release (AAER)-based research on financial misreporting firms and the firms’ management. Christian virtue ethics (CVE) is used as a framework for this review. Suggestions for future research are presented. Design/methodology/approach This is a review of the academic literature covering AAERs. The findings are viewed through the lens of CVE. Findings Several financial misconduct studies use samples developed from AAER targets. These studies commonly focus on specific characteristics of AAER targets. This paper presents and analyzes characteristics of AAER targets and considers how CVE may mitigate fraudulent reporting. Research limitations/implications The main limitation of the research is that the literature review is confined to studies of financial fraud that use an AAER-based sample. Nevertheless, the sample is sufficient to provide insight into the common characteristics of AAER target firms and related entities. The benefits of CVE are considered. This study has relevant implications for investors, regulators and researchers concerned with financial reporting quality, fraud, regulatory oversight and business ethics. Originality/value This paper provides a set of AAER target features and considers how CVE may mitigate financial fraud. Financial regulators, accounting standards setters and researchers may be interested in the findings presented in this study.

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“…Thus, REM is deemed a consequence of rule-based accounting standards, while AEM is used in the context of principle-based standards. From the perspective of consequences, REM has negative effects on a longer term than AEM, leading to the idea of superiority of principle-based regulations (Sundvik, 2019).…”

Section: The Influence Of Audit Opinion On the Degree Of Real Earnings Management The Case Of Romanian Listed Companiesmentioning

confidence: 99%

The Influence of Audit Opinion on the Degree of Real Earnings Management. The Case of Romanian Listed Companies

Carp¹,

Georgescu²

2019

AUDITF

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The quality of financial information is a decisive landmark in the decision-making process of all users. This is why meeting the quality criteria should be a desideratum for all the stakeholders involved in the development and verifying of financial reports. In this context, this paper aims to analyze the influence exercised by the audit opinion on the quality of the financial information reported by Romanian companies listed on the regulated market of the Bucharest Stock Exchange. Quality is assessed in terms of the degree of manipulation of operational activities (intervention in the conduct of commercial transactions and controlling the cost of the goods sold via overproduction, respectively). The analyzed data cover a time frame of 6 financial years (2012)(2013)(2014)(2015)(2016)(2017), and the dependency relations are also tested by introducing control variables such as: company size, indebtedness, profitability and reputation of the auditor. The results obtained highlight the contribution of the audit opinion to boosting the quality of financial information, measured based on the degree of manipulation of sales (under the aspect of value and the time when the transactions were made). In case of manipulation via overproduction, the audit opinion does not exercise significant influences, reflecting possible limitations of the audit endeavor in terms of its capacity to identify corrupt activities associated with production. The auditor's reputation does not have a significant impact on the manipulation of sales, only in overproduction case this characteristic having a positive role.

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The impact of principles-based vs rules-based accounting standards on reporting quality and earnings management

Cited by 25 publications

References 53 publications

Leverage of Firms and Earnings Management Practices in Nigeria Pre and Post IFRS Adoption Periods

Leverage of Firms and Earnings Management Practices in Nigeria Pre and Post IFRS Adoption Periods

SEC enforcement targets: a Christian virtue ethics perspective

The Influence of Audit Opinion on the Degree of Real Earnings Management. The Case of Romanian Listed Companies

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