Relationship of Earnings Management and Earnings Quality before and after IFRS Implementation in Indonesia

Abstract

Basic usage of principles-based, fair value and full disclosure at IFRS is expected to have a positive impact, resulting in improving quality of accounting information to be capable of reflecting the current economic condition of the company. Thus, it can increase the value relevance, which will decrease the information asymmetry between management and users of financial statements. This study examines how the intensity of management in earnings management, how the earnings quality before and after the implementation of IFRS and whether earnings management affects the earnings quality. The results revealed that the intensity of management in earnings management is higher when it is compared to the one after the implementation of IFRS, by looking at the amount of discreationary accrual. Therefore, it can be concluded that the implementation of IFRS can reduce the intensity of corporate management activity in earnings management. The results of subsequent research states that earnings management after the implementation of IFRS effect on the earnings quality was proxied with earnings persistence. The next finding is that the quality of corporate earnings after IFRS implementation is higher when compared to earnings quality prior to IFRS implementation. Keywords: earnings quality, earnings management, earnings persistence and value relevance.