Adoption of International Financial Reporting Standards and Earnings Management

The issue of earnings management has always been a concern for the reliability of accounting information. In order to alleviate this problem and to increase comparability of accounting informationsKorean the International Financial Reporting Standards(K-IFRS) was introduced. The purpose of this research is to find out whether the K-IFRS has increased reliability of financial information in Korea. Many previous researches found that the K-IFRS increased the accounting reliability. However some researches found out different outcome. Jeong Do Jin and Bae Ki Soo(2012) surveyed the factors influencing voluntary early adoption of International Financial Reporting Standards. They found that Korean firms adopted IFRS early in order to improve the reliability of financial statement. Firms also adopted IFRS early in order to get supports from Financial Supervisory Service. Park Sang Ae etc.(2011) examined the effect of International Financial Reporting Standards(IFRS) on the quality of accounting earnings. They did not find the fact that IFRS improve the quality of accounting earnings in the case of emerging market due to the weak enforcement mechanism. Dong Su Bae and Su Mi Choi(2015) reported that the magnitude of earnings management has been reduced since K-IFRS adoption. Seung Min Cha, Bo Young Moon, and Il Joo Kang(2014) found that earnings management has been reduced after the adoption of K-IFRS. The purpose of this research is to determine if IFRS has any effect on the earnings management. To test the research hypothesis, we collected 3,557 KOSDAQ firms listed during the period from 2009 to 2012. We gathered data from the KIS Value. The regression results indicate that IFRS has negative effect on the earnings management. This indicates that firms adopting international standards are exposed to less earnings management compared to non-adopting firms. In this study, we used discretionary accruals to analyze quality of earnings management. Even though there are numerous studies about the effect of K-IFRS on earnings management in corporations that adopted IFRS at early stage, this study examined the effect of full introduction of IFRS on earnings management.