The influence of IFRS adoption on earnings management: a cross-country analysis

  • Kayode Richard Abeleje

    Student thesis: Doctoral ThesisDoctor of Philosophy


    This research evaluates the global impact of the International Financial Reporting Standard (IFRS) in promoting the quality of reported earnings with a focus on earnings management. The purpose is to seek an answer to the question: Can the IFRS be a ‘one size fits all' standard? The European Union, with the support of the International Accounting Standards Board (IASB), initiated the IFRS. However, this was challenged by the force of globalisation. Contrary to how and why the IFRS originated, over 120 countries, mostly non-EU countries and of emerging economic status, have subscribed to the IFRS since it was made mandatory in 2005. The flexibility resulting from IASB trying to accommodate more countries has led to opportunistic earnings management (EM) by managers. Although IFRS is popular with its comprehensiveness, ability to reduce information asymmetry, promotion of cross-border transactions, easy comparability of financial statements among countries and possibility of raising funds in the international capital market, this thesis agitates that its efficacy in promoting the quality of published financial statements is dependent on the viability of the enforcement mechanisms in its application. Also, this research admits the universality of earnings management and increased adoption of IFRS as provoked by globalisation. It, however, argues that the level of economic, political and human development differs among countries. This might serve as an impediment for the usefulness of the standard in enhancing the quality of reported earnings. Hence, considering institutional diversities of countries, this thesis evaluates the relevance of the uniform standard to the reliability of published financial statements. Adopting purposive sampling and the Modified Jones Model, public listed companies in five developed economies (UK, France, Australia, Germany and Italy) and five emerging economies (China, South Africa, India, Malaysia and Brazil) were comparatively evaluated. The financial statements of firms of the selected countries were analysed over a period of 21years, to include the 10-year pre-adoption and 10-year post-adoption criterion. Discretionary accrual was used as the proxy for earnings management while the variability of net income and variability of cash flow from operation were also used as robustness checks. As a contribution to knowledge, the research uniquely captures country related variables such as the governance indicator (GOVind), average growth rate in GDP, the human development index (HDI) and the economic status of countries in the OLS regression models used. The models test the efficacy of the IFRS in curbing earnings management. The result reveals that IFRS is effective in reducing earnings management. However, more enforcement is needed on the application of the standard among emerging economies than in developed economies. Hence, IFRS thrives well where the enforcement infrastructure is strong. Therefore, consistent with the contingency theory, this thesis finds that the IFRS is a good standard. However, its efficacy is sensitive to the economic conditions and human development level of the country in which it is applied. Consequently, although the IFRS may be said to be a uniform standard across the globe, it may not have the same impact across the globe due to the economic, political and human development of countries. Emerging economies should adapt the standard to their settings rather than undertaking wholesale adoption. The results have implications for international organisations that are championing the adoption of uniform accounting standards across the world. Economic conditions and human development levels of individual countries should be determined to know which part of the IFRS will be adopted to achieve the intended benefits of adoption.
    Date of AwardJul 2019
    Original languageEnglish
    Awarding Institution
    • Coventry University
    SupervisorSina Yekini (Supervisor), Panagiotis Andrikopoulos (Supervisor) & Masud Ibrahim (Supervisor)

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