Impact of IFRS on Earnings Management: Comparison of Pre-Post IFRS Era in Pakistan

This paper investigates the impact of introduction of International Financial Reporting Standards on earnings management of Public limited companies in Pakistan as the purpose of the reporting standards is to make the financial statements of companies more transparent and comparable. The research undertaken, is based on sampling process involving 100 Companies, listed on Karachi Stock Exchange of Pakistan, to investigate the quality of accounting information enhanced in the context of pre-post IAS/IFRS period i.e. 2001. The cut-off point is to evaluate the Earning management Score in absolute terms of Pakistani listed companies. This study relies upon the the cross-sectional modified Jones model of by Kothari et al. (2005). With this approach, discretionary accruals are measured on the past estimates of an industry. In earning management the discretionary accruals represent the employment of earnings management. This is done after subtracting the portion of non-discretionary accruals from the total value of accruals. The global practice is converging towards transitioning from GAAP to domestic IFRS. With this, in many countries the use of earnings management has significantly decreased, but this is not the case in Pakistan due to two reasons; 1) Pakistan is using the IAS/IFRs based system since its inception 2) Due to 1) the data features are in a comparable form to check the effectiveness of IFRS. However, since the onset of 2001, a decreasing trend has been observed in the using of earnings management. It renders ineffective, the conclusion that the introduction of IFRS, during the period 2001 - 2009, led to less earnings management.