Earnings management and derivatives reporting: evidence from the adoption of IFRS standards in Europe

Rebecca BENAIS

Although the new IFRS standards are considered an improvement for financial transparency,
derivatives reporting remains subject to criticism by professional observers due to its complexity.
Indeed, derivatives reporting could easily be used for earnings management. In this article, we
analyse half a dozen earnings management proxies before and after the mandatory adoption of a
battery of IFRS standards in 2013 and 2014 by European firms. Among others, IFRS 13 and IFRS 11
featured impactful requirements for the financial reporting of listed companies. Our results show
that following the adoption of these standards, earnings management has faded except for firms
using derivatives. These results suggest that the 2013–2014 IFRS standards package has improved
the accounting quality of European-listed firms but that the flexibility and lack of guidance in the
new standards regarding derivatives reporting are used by managers to manage earning

Publication type: 
Scientific Article
Date de parution: 
Applied Economics