Conceptual Framework for IFRS Adoption, Audit Quality and Earnings Management: The Case of Bangladesh

Mohammad Tariq Hasan,Azhar Abdul Rahman

doi:10.15294/ibarj.v3i1.56

Abstract

This study propose to explore the moderating role of audit quality on the relationship between IFRS adoption and earnings management as well as the effect of IFRS adoption on earnings management in the context of Bangladesh, as developing economy. Earlier literature document that the relationship among IFRS adoption, audit quality and earnings management are not conclusive. In case of IFRS adoption, it is incoherent which may be the result of difference in culture, practices and legal strength of the country. This study considers discretionary accruals as proxy of earnings management which is measured by the extended modified Jones model. Moreover, the influence of audit quality on the association between IFRS adoption and earnings management is also proposed to investigate. This study expects to explore the effect of IFRS adoption on earnings management in the context of developing country, like Bangladesh. It may be informative for the reader to understand the outcome of IFRS adoption, audit quality on earnings management in developing economy.

Highlights

Accounting is considered as an art or science to communicate business information through financial statements
This study expects to explore the effect of International Financial Reporting Standards (IFRS) adoption on earnings management in the context of developing country, like Bangladesh
The main focus of the study is to identify the effect of certain variables, namely IFRS adoption and audit quality on earnings management behavior of the company

Summary

Introduction

Accounting is considered as an art or science to communicate business information through financial statements. The main reason for adopting IFRS as a single set of standard is to ensure uniformity in accounting rules and regulation. This in turn is capable to produce more trustworthy and simplified financial statements which have higher value to the users in terms of the quality of accounting information. Comparability across companies and across countries could improve after the adoption of IFRS if investors, financial analysts, auditors, regulators and other stakeholders no longer need to understand financial statements that are prepared using different accounting standards from many jurisdictions, thereby reducing information processing costs (Cox, 2007; Nijam & Athambawa, 2016)

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Conclusion