The impact of IFRS-based accounting standards on earnings management: evidence from Malaysia


  • Yosra Makni Fourati Faculty of Economics Sciences and Management
  • Rania Chakroun Ghorbel





, International Financial Reporting Standards (IFRS), Earnings Management, Malaysia.


This study aims to examine the consequences of International Financial Reporting Standards (IFRS) convergence in an emerging market. More specifically, we investigate whether the adoption of the new set of accounting standards in Malaysia is associated with lower earnings management. Using a sample of 3,340 firm-year observations across three reporting periods with different levels of IFRS adoption, we provide evidence that IFRS convergence improves earning quality. In particular, we find a significant decrease in the absolute value of discretionary acccruals in the partial IFRS-convergence period (2007-2011), whereas this effect is restrictive after the complete IFRS- implementation.


[1] Berghe, L. (2002). Corporate governance in a globalising world: Convergence or divergence? Boston: Kluwer Academic Publishers.

[2] Burgstahler, D. C., Hail, L. & Leuz, C. (2006). The importance of reporting incentives: earnings management in European private and public firms. The Accounting Review 81 (5): 983-1016.

[3] Cavalier-Rosa, G. & Tiras, L.S. (2013). Brazil’s Adoption of IFRS: Fertile Ground for Examining Earnings Management. Brazilian Business Review 10 (4): 133–146.

[4] Chen, H., Tang, Q., Jiang, Y. & Lin, Z. (2010). The role of International Financial Reporting Standards in accounting quality. Journal of International Financial Management & Accounting 21 (3): 220-278.

[5] Chiu T-T. & Lee Y-J. (2013). Foreign Private Issuers' Application of IFRS around the Elimination of the 20-F Reconciliation Requirement. The International Journal of Accounting 48: 54-83.

[6] Claessens, S., Djankov, S. & Lang, L.H.P. (2000). The separation of ownership and control in East Asian corporations. Journal of Financial Economics 58 (1-2): 81-112.

[7] Dechow, P.M., Sloan, R.G. & Sweeney, A.P. (1995). Detecting earnings management. The Accounting Review 70 (2): 193-225.

[8] Doukakis,L.C. (2014). The effect of mandatory IFRS adoption on real and accrual-based earnings management activities. Journal of Accounting and Public Policy 33: 551–572.

[9] Fadzly, M.N. & Ahmad, Z. (2004). Audit expectation gap: The case of Malaysia. Managerial Auditing Journal 19 (7): 897-915.

[10] Gibson, M. S. (2003). Is corporate governance ineffective in emerging markets? Journal of Financial and Quantitative Analysis 38 (1): 231-250.

[11] Gray, S.G., Kang, T., Lin, Z. & Tang, Q. (2015). Earnings Management in Europe Post IFRS: Do Cultural Influences Persist? Management International Review 55: 827-856.

[12] Hofstede, G. & Hofstede, G.J. (2004). Cultures and Organizations: Software of the Minds.New York: McGraw Hill.

[13] Isenmila, P.A. & Aderemi, A.k. (2013). Mandatory Adoption of International Financial Reporting Standards (IFRS) in Nigeria: The Unresolved Institutional Question. Mediterranean Journal of Social Sciences 4 (1): 175-184.

[14] Jones, J.J. (1991). Earnings management during import relief investigations. Journal of Accounting Research 29 (2): 193-228.

[15] Kabir, M.H., Laswad, F. & Islam, M.A. (2010). Impact of IFRS in New Zealand on accounts and earnings quality. Australian Accounting Review 20 (4): 343-357.

[16] Kothari, S.P., Leone, A.J. & Wasley, C.E. (2005). Performance matched discretionary accruals measures. Journal of Accounting and Economics 39 (1): 163-197.

[17] Kwong, L.C. (2010). The Value Relevance of Financial Reporting in Malaysia: Evidence from Three Different Financial Reporting Periods. International Journal of Business and Accountancy 1 (1): 1-19.

[18] Latridis, G. & Rouvolis, S. (2010). The post-adoption effects of the implementation of international financial reporting Standards in Greece. Journal of Inernational Accouning, Auditing and Taxation 13: 89-119.

[19] Lau, C. K., & Ooi, K. W. (2016). A case study on fraudulent financial reporting: evidence from Malaysia. Accounting Research Journal 29 (1): 4-19.

[20] Lin, F. & Wu, S-F. (2014). Comparison of cosmetic earnings management for the developed markets and emerging markets: Some empirical evidence from the United States and Taiwan. Economic Modelling 36:466-473.

[21] Lins, K.V. (2003). Equity ownership and firm value in emerging markets. Journal of Financial & Quantitative Analysis 38 (1): 159-184.

[22] Liu, C., Yuen, C.Y., Yao, L.J. & Chan, S.H. (2014). Differences in earnings management between firms using US GAAP and IAS/IFRS. Review of Accounting and Finance 13 (2): 134-155.

[23] Pelucio-Grecco, M.C., Geron, C.M.S., Grecco, G.B. & Lima, J.P.C. (2014). The effect of IFRS on earnings management in Brazilian non-financial public companies. Emerging Markets Review 21: 42-66.

[24] Rashid, K. & Islam, S.M.N. (2008). Corporate governance and firm value: Econometric modelling and analysis of emerging and developed financial markets. Bingley, UK: Emerald Book Publishing.

[25] Saleh, N.M., Iskandar, T.M. & Rahmat, M.M. (2005). Earnings management and board characteristics: Evidence from Malaysia. Journal Pengurusan 24 (4): 77-103.

[26] Saudagaran, S.M., (2004). International Accounting: A User Perspective, (Australia: Thomson South – Western).

[27] Sellami, M. & Fakhfakh, H. (2013). Effect of the mandatory adoption of IFRS on real and accruals-based earnings management: Empirical evidence from France. International Journal of Accounting and Economics Studies 2(1): 22-33.

[28] Shleifer, A. & Vishny, R.W. (1997). A survey of corporate governance. Journal of Finance 52 (2): 737-783.

[29] Teoh, S.H., Welch, I. & Wong, T.J. (1998). Earnings management and the underperformance of seasoned equity offerings. Journal of Financial Economics 50 (1): 63-99.

[30] Thillainathan, R. (1998). A review of corporate governance in Malaysia with special reference to shareholder and creditor rights. Malaysian Journal of Economic Studies 35 (1-2): 161-198.

[31] Wan Ismail, W.A., Van Zijl, T. & Dunstan, K. (2013). Earnings quality and the adoption of IFRS-based accounting standards: Evidence from an emerging market. Asian Review of Accounting 21 (1): 53-73.

[32] Watrin, C. & Ullmann, R. (2012). Improving earnings quality: The effect of reporting incentives and accounting standards. Journal of Advances in Accounting 28(1): 179-188.

[33] Zang, A. (2012). Evidence on the trade-off between real activities manipulation and accrual-based earnings management. The Accounting Review 87 (2): 675-703.

[34] Zeghal, D., Chtourou, M.S. & Fourati, M.Y. (2012). The Effect of Mandatory Adoption of IFRS on Earnings Quality: Evidence from the European Union. Journal of International Accounting Research 11 (2): 1-25.

[35] Zeghal, D., Chtourou, M.S. & Sellami, M.Y. (2011). An analysis of the effect of mandatory adoption of IAS/IFRS on earnings management. Journal of International Accounting, Auditing and Taxation20: 61-72.

[36] Zhou, H., Xiong, Y. & Ganguli, G. (2009). Accounting Standards and Earnings Management: Evidence from an Emerging Market. Working papers available at:

View Full Article: