G38 - Corporate Finance and Governance: Government Policy and RegulationReturn

This paper analyzes the influence of one uniform accounting rule on accounting quality by investigating the effect of IFRS on earnings management. The paper examines whether IFRS adoption is associated with lower earnings manipulation measured by discretionary accruals, a commonly used method. It focuses on European Union membership among countries with both the common-law tradition and the code-law tradition. It investigates a sample of 603 companies (10,251 firm-year observations) during the years 1992-2013. The finding contributes to current accounting debate with the empirical evidence that earnings management did not decline after IFRS adoption. In the European Union itself, the research sample contains a very little portion of companies which show increased reporting quality, more precisely earnings management, on IFRS. Overall, the results do not support the assumption that IFRS have an improving impact on reporting quality and demonstrate that other relevant factors should be considered in creating more efficient capital markets.