Conceptual Framework for IFRS Adoption, Audit Quality and Earnings Management: The Case of Bangladesh

Mohammad Tariq Hasan(1*), Azhar Abdul Rahman(2),

(1) School of Accountancy, College of Business, Universiti Utara Malaysia
(2) School of Accountancy, College of Business, Universiti Utara Malaysia
(*) Corresponding Author


Aim (Background): This study propose to explore the moderating role of audit quality on the relationship between IFRS adoption and earnings management as well as the effect of IFRS adoption on earnings management in the context of Bangladesh, as developing economy. Earlier literature document that the relationship among IFRS adoption, audit quality and earnings management are not conclusive. In case of IFRS adoption, it is incoherent which may be the result of difference in culture, practices and legal strength of the country.

Materials and Methods: This study considers discretionary accruals as proxy of earnings management which is measured by the extended modified Jones model. Moreover, the influence of audit quality on the association between IFRS adoption and earnings management is also proposed to investigate.

Conclusion: This study expects to explore the effect of IFRS adoption on earnings management in the context of developing country, like Bangladesh. It may be informative for the reader to understand the outcome of IFRS adoption, audit quality on earnings management in developing economy.


Audit quality, Discretionary accruals, Earnings management, Financial reporting quality, International Financial Reporting Standards,


Affes H, & Smii T. (2016). The Impact of the Audit Quality on that of the Earnings Management: Case Study in Tunisia. Journal of Accounting & Marketing, 5(3). doi: 10.4172/2168-9601.1000178

Alareeni, B., & Aljuaidi, O. (2014). The modified jones and yoon models in detecting earnings management in Palestine Exchange (PEX). International Journal of Innovation and Applied Studies, 9(4), 1472.

Arya, A., Glover, J. C., & Sunder, S. (2003). Are unmanaged earnings always better for shareholders? Accounting Horizons, 17, 111.

Ashbaugh, H., & Pincus, M. (2001). Domestic accounting standards, international accounting standards, and the predictability of earnings. Journal of accounting research, 39(3), 417-434.

Aussenegg, W., Inwinkl, P., & Schneider, G. T. (2008, September 1, 2008). Earnings management and local vs. international accounting standards of European public firms. Paper presented at the International Accounting Standards of European Public Firms University of Birmingham.

Barth, M. E., Landsman, W. R., & Lang, M. H. (2008). International accounting standards and accounting quality. Journal of accounting research, 46(3), 467-498.

Becker, C. L., DeFond, M. L., Jiambalvo, J., & Subramanyam, K. (1998). The effect of audit quality on earnings management. Contemporary Accounting Research, 15(1), 1-24.

Biddle, G. C., & Hilary, G. (2006). Accounting quality and firm-level capital investment. The accounting review, 81(5), 963-982.

Bouchareb, M., Ajina, A., & Souid, S. (2014). Does the Adoption of IAS/IFRS with a Strong Governance Mechanism Can Deter Earnings Management? International Journal of Academic Research in Economics and Management Sciences, 3(1), 264.

Brüggemann, U., Hitz, J.-M., & Sellhorn, T. (2013). Intended and unintended consequences of mandatory IFRS adoption: A review of extant evidence and suggestions for future research. European Accounting Review, 22(1), 1-37.

Cai, L., Rahman, A. R., & Courtenay, S. M. (2008). The effect of IFRS and its enforcement on earnings management: An international comparison. Paper presented at the Massey University. file:///C:/Users/DELL/Downloads/SSRN-id1473571.pdf

Callao, S., & Jarne, J. I. (2010). Have IFRS affected earnings management in the European Union? Accounting in Europe, 7(2), 159-189.

Callao, S., Jarne, J. I., & Laínez, J. A. (2007). Adoption of IFRS in Spain: Effect on the comparability and relevance of financial reporting. Journal of International Accounting, Auditing and Taxation, 16(2), 148-178.

Chan, A. L.-C., Hsu, A. W.-h., & Lee, E. (2013). Does mandatory IFRS adoption affect the credit ratings of foreign firms cross-listed in the US? Accounting Horizons, 27(3), 491-510.

Chen, H., Chen, J. Z., Lobo, G. J., & Wang, Y. (2011). Effects of audit quality on earnings management and cost of equity capital: Evidence from China. Contemporary Accounting Research, 28(3), 892-925.

Chen, H., Tang, Q., Jiang, Y., & Lin, Z. (2010). The role of international financial reporting standards in accounting quality: Evidence from the European Union. Journal of International Financial Management & Accounting, 21(3), 220-278.

Christensen, P. O., Feltham, G. A., & Şabac, F. (2005). A contracting perspective on earnings quality. Journal of Accounting and Economics, 39(2), 265-294.

Cohen, D. A., & Zarowin, P. (2007). Earnings management over the business cycle. New York University, New York, NY, working paper.

Cox, C. (2007). Speech by SEC Chairman: Address to the Mutual Fund Directors Forum. Retrieved December 21, 2016, from

Craswell, A. T., Francis, J. R., & Taylor, S. L. (1995). Auditor brand name reputations and industry specializations. Journal of Accounting and Economics, 20(3), 297-322.

Daske, H., Hail, L., Leuz, C., & Verdi, R. (2008). Mandatory IFRS reporting around the world: Early evidence on the economic consequences. Journal of accounting research, 46(5), 1085-1142.

Davidson, R., Goodwin‐Stewart, J., & Kent, P. (2005). Internal governance structures and earnings management. Accounting & Finance, 45(2), 241-267.

DeAngelo, L. E. (1981). Auditor size and audit quality. Journal of Accounting and Economics, 3(3), 183-199.

Dechow, P. M., Sloan, R. G., & Sweeney, A. P. (1995). Detecting earnings management. Accounting review, 70(2), 193-225.

Deloittee: IAS Plus. (October 26, 2016). Use of IFRS by jurisdiction. Retrieved October 26, 2016, from

Deloittee: IAS Plus. (September 6, 2016). Conceptual Framework for Financial Reporting 2010. Retrieved September 6, 2016, from

Ding, Y., Hope, O.-K., Jeanjean, T., & Stolowy, H. (2007). Differences between domestic accounting standards and IAS: Measurement, determinants and implications. Journal of accounting and public policy, 26(1), 1-38.

El-Guindy, M., & Keasey, K. (2010). IFRS Reporting, Audit Quality and Earnings Management: UK Evidence.

Feltham, G., Indjejikian, R., & Nanda, D. (2006). Dynamic incentives and dual-purpose accounting. Journal of Accounting and Economics, 42(3), 417-437.

Francis, J. R., & Wang, D. (2008). The joint effect of investor protection and Big 4 audits on earnings quality around the world. Contemporary Accounting Research, 25(1), 157-191.

Gordon, E., Jorgensen, B., & Linthicum, C. (2011). Could IFRS replace US GAAP? A comparison of earnings attributes and informativeness in the US market. Working paper. from

Graham, J. R., Harvey, C. R., & Rajgopal, S. (2005). The economic implications of corporate financial reporting. Journal of Accounting and Economics, 40(1), 3-73.

Hasan, M. S., Hossain, S. Z., & Rahman, R. A. (2014). Corporate governance and corporate accruals: the situation in Bangladesh. Aestimatio(9), 90.


Hoang, V. X. (2014). Is modified Jones model effective in detecting earnings management? Evidence from IPO company on HOSE. (Bachelor Thesis ), International University HCMC, Vietnam. Retrieved from

Houqe, M. N., Ahmed, K., & Zijl, T. (2017). Audit Quality, Earnings Management, and Cost of Equity Capital: Evidence from India. International Journal of Auditing.

Humayun Kabir, M., Sharma, D., Islam, A., & Salat, A. (2011). Big 4 auditor affiliation and accruals quality in Bangladesh. Managerial Auditing Journal, 26(2), 161-181.

Islam, M. A. (2014). How Earnings Are Managed? Evidence from a Developing Country. The Social Sciences, 9(5), 321-334.

Islam, M. A., Ali, R., & Ahmad, Z. (2011). Is modified Jones model effective in detecting earnings management? Evidence from a developing economy. International Journal of Economics and Finance, 3(2), 116.

Jeanjean, T., & Stolowy, H. (2008). Do accounting standards matter? An exploratory analysis of earnings management before and after IFRS adoption. Journal of accounting and public policy, 27(6), 480-494.

Krishnan, G. V. (2003). Audit quality and the pricing of discretionary accruals. Auditing: A Journal of Practice & Theory, 22(1), 109-126.

Li, S. (2010). Does mandatory adoption of International Financial Reporting Standards in the European Union reduce the cost of equity capital? The accounting review, 85(2), 607-636.

Lin, J. W., & Hwang, M. I. (2010). Audit quality, corporate governance, and earnings management: A meta‐analysis. International Journal of Auditing, 14(1), 57-77.

Lin, S., Radhakrishnan, S., & Su, L. N. (2006). Earnings management and guidance for meeting or beating analysts' earnings forecasts. Available at SSRN 928182. Retrieved from SSRN website: doi:10.2139/ssrn.928182

Memis, M. U., & Cetenak, E. H. (2012). Earnings management, audit quality and legal environment: An international comparison. International Journal of Economics and Financial Issues, 2(4), 460.

Nelson, M. W., Elliott, J. A., & Tarpley, R. L. (2002). Evidence from auditors about managers' and auditors' earnings management decisions. The accounting review, 77(s-1), 175-202.

Nijam, H. M., & Athambawa, J. (2016). IFRS Adoption and Financial Reporting Quality: A Review of Evidences in Different Jurisdictions. International Letters of Social and Humanistic Sciences, 69, 93-106. doi: 10.18052/

Nobes, C., & Parker, R. H. (2008). Comparative international accounting (10 ed.): Pearson Education.

Nouri, Y., & Abaoub, E. (2014). Accounting Manipulations and IFRS: Evidence from French Companies. International Journal of Economics and Finance, 6(11), 229.

Ronen, J., & Yaari, V. (2008) Earnings management: Emerging Insights in Theory, Practice, and Research: Springer.

Soderstrom, N. S., & Sun, K. J. (2007). IFRS adoption and accounting quality: a review. European Accounting Review, 16(4), 675-702.

Van Tendeloo, B., & Vanstraelen, A. (2005). Earnings management under German GAAP versus IFRS. European Accounting Review, 14(1), 155-180.

Watts, R. L., & Zimmerman, J. L. (1978). Towards a positive theory of the determination of accounting standards. Accounting review, 53(1), 112-134.

Xu, W. (2014). The Effects of IFRS Adoption on Earnings Management: Evidence from the UK Private Firms. (Master thesis), Tilburg University. Retrieved from

Yasar, A. (2013). Big Four Auditors' Audit Quality and Earnings Management: Evidence from Turkish Stock Market. International journal of business and social science, 4(17), 153-163.

Yasser, Q. R., Mamun, A. A., Chapple, E., & Chapple, E. (2016). The Relationship between Board Leadership Structure and Earnings Management in Asia-Pacific. Accounting Research Journal, 29(4), 413-428. doi: 10.1108/ARJ-06-2015-0080

Yoon, S. S., Miller, G., & Jiraporn, P. (2006). Earnings management vehicles for Korean firms. Journal of International Financial Management & Accounting, 17(2), 85-109.

Yoon, S. S., & Miller, G. A. (2002b). Cash from operations and earnings management in Korea. The International Journal of Accounting, 37(4), 395-412.

Zaman Mir, M., & Shiraz Rahaman, A. (2005). The adoption of international accounting standards in Bangladesh: An exploration of rationale and process. Accounting, Auditing & Accountability Journal, 18(6), 816-841.

Article Metrics

Abstract : 326 times



  • There are currently no refbacks.

Creative Commons License