The impact of the IFRS 15 implementation on the revenue based earnings management in Poland

Abstract

Aim/purpose – This paper aims at investigating whether the International Financial Reporting Standard (IFRS) 15 Revenue from Contracts with Customers implementation in Poland has affected earnings management that uses discretion in revenue recognition to avoid losses and earnings decreases. Design/methodology/approach – The empirical studies were conducted using a sample of 80 entities from four industries listed on the Warsaw Stock Exchange (WSE) in Poland from 2016 to 2019. Caylor’s (2010) revenue-based model was applied, and an econometric model describing the studied relation was built and verified to this end. Findings – The analyzed entities managed earnings using discretion in accrued revenue recognition to avoid reporting losses. The research results did not confirm that the IFRS 15 adoption in Poland influenced revenue-based earnings management aimed at avoiding losses and earnings decreases. Research implications/limitations – This study warns of the role played by discretion in revenue recognition and recommends careful recognition of revenue under IFRS 15. Limitations of this study are generally related to the models’ specification and a relatively small number of the entities studied. Originality/value/contribution – This study contributes to the literature on revenue- -based earnings management and is one of the first studies on the association between IFRS 15 adoption and revenue-based earnings management in Poland. Thus, this study bridges the research gap in Poland. Keywords: IFRS 15, earnings management, revenue recognition, earnings benchmarks. JEL Classification: M40, M41, M48.