IFRS Adoption, Earnings Management and Investor Protection in Several Asian Countries

This research aims to examine whether the adoption of IFRS decreases earnings management in companies from Asian countries. It also considers the impact of country-level investor protection on the adoption of IFRS that would affect earnings management. The Kothari, Leone and Wasley(1) model is used to calculate discretionary accruals to measure earnings management. Unlike most of the previous research, the result shows that earnings management is higher after the adoption of IFRS than before IFRS was adopted. This increase in earnings management is probably due to IFRS adoption, which is still at an early stage. Principle-based IFRS characteristics provide a broader judgment area for management. Thus, in the transition period of IFRS adoption, management may use its discretion in preparing financial statements. However, the positive relation of IFRS with earnings management level is lower in countries with a strong investor protection.