Earnings Management under IFRS

Sammanfattning: Title: Earnings Management under IFRS Date of seminar: 2017-05-29 Authors: David Backaliden & Ragnar Nilhag Supervisor: Peter W. Jönsson Keywords: Earnings Management, Discretionary Accruals, Jones Cash Flow Model, IFRS, Conservatism. Purpose: To investigate how the introduction of IFRS for listed companies in Sweden has affected Swedish listed companies' use of earnings management. Method: A quantitative method with a deductive approach. Estimation of parameters in the Jones Cash Flow Model cross-sectionally. Theory: A review of the different ways in which firms can engage in earnings management. Furthermore, we review the link between accounting standards and earnings management, and how the use of an accounting standard can affect the degree of manipulation as well as what impact earnings management has on accounting quality. Results: The use of discretionary accruals has decreased in the time period following IFRS as compared to the time period prior to IFRS adoption. In both time periods the general pattern is to create hidden reserves. Analysis: The magnitude of earnings management has decreased substantially following IFRS adoption among Swedish listed companies. The use of conservative strategies such as the creation of hidden reserves appear in both time periods, however the adoption of IFRS has decreased the magnitude of the conservative approach to earnings management. Conclusion: The results indicate that the more principle-based IFRS accounting model leaves a smaller scope for earnings management among Swedish listed companies than the national framework Swedish GAAP did. For standard setters such as IASB, these findings are likely to confirm their intuition that IFRS leads to better earnings quality compared to the Swedish GAAP.