On 19July 2002, the European parliament give out a ordinance necessitating all EU listed houses to organize their amalgamate fiscal statements based on international accounting criterions ( IAS/IFRS ) by 2005. International Financial Reporting Standards ( IFRS ) have been established to intermix corporate accounting pattern and to reply the demand for high quality criterions to be approved in the universe ‘s first capital markets.
Ball et Al. ( 2003 ) argue that following top quality criterions can be a necessary status for great quality information, nevertheless non basically an equal 1. This paper contributes to the statement by analyzing whether or non the acceptance of high quality criterions like IFRS is related to high fiscal coverage quality. In peculiar, we question whether the acceptance of the IFRS will ensue in a lessening in net incomes direction of France or non. We chose France because it is among the first-time adoptive parents and besides a code-law state. Previous research provides the grounds that net incomes directions are higher in code-law states with low invertor ‘s protection rights, compared to common code-law states with the high investor protection rights ( Van Tendeloo & A ; Vanstraelen, 2005 ; Leuz, Nanda & A ; Wysocki, 2003 ) . Previous literatures concentrated chiefly on the voluntary acceptance consequence of IAS/IFRS for German companies on net incomes direction ( Van Tendeloo & A ; Vanstraelen 2005 ; Barth, landlubber & A ; Lang, 2008 ) . So this paper will analyze the compulsory acceptance consequence of IAS/IFRS on net incomes direction in Gallic companies.
What is Earnings Management?
Stakeholders mostly base their determinations on the fiscal statements of a company. Therefore, it is of import that the fiscal statements supply a true and just position of the companies ‘ place and public presentation. The enlightening value of fiscal statements is one of the factors dependent on whether the presented net incomes are manually managed by the mom nagers of a company, a phenomenon termed as net incomes direction. For illustration, a director may mean to pull strings net incomes when his/her fillip depends on the fiscal consequences of the company. In this instance, net incomes direction is seen as a negative phenomenon, since it is clear that stakeholders can non to the full rely on fiscal statements when they are managed in the involvement of the directors. “ In general, it is assumed that net incomes direction has a negative impact on the transparence and comparison of fiscal coverage ” ( Heemskerk, 2006 ) . Van Beest ( 2008 ) besides states that net incomes direction is in general seen as a negative phenomenon and defines net incomes direction as the usage or maltreatment of accounting determinations to do the fiscal study expression ‘better ‘ . Besides, harmonizing to him, IFRS is an accounting criterion that is of high quality, which should take to an addition in the quality of the fiscal statements ( Beest, 2008 ) . So it is really assumed that the debut of IFRS increases the quality of fiscal studies. Following Ball ( 2006 ) and Dechow, Ge and Schrand ( 2010 ) , net incomes direction is one of the placeholders that has an influence on the quality of fiscal coverage. In the instance net incomes direction is seen as bad, it is assumed that net incomes that are non managed are of higher quality than net incomes that are managed ( Ball, 2006 ; Dechow, 2010 ) . This is consistent particularly with the second of the following four demands of Ball ( 2006 ) of fiscal coverage quality: “ 1 ) accurate word picture of economic world, 2 ) low capacity for managerial use, 3 ) seasonableness and 4 ) asymmetric seasonableness ” . The fact that net incomes direction is by and large negative in nature is an of import premise for this survey.
Due to increasing internationalisation of concern, the demand for uniformity in accounting criterions is besides turning so that investors can trust on and compare fiscal statements of national and foreign companies. Furthermore, hearers of fiscal statements need to cognize the differences in chances for net incomes direction that may originate with the new criterions: a higher degree of net incomes direction consequences in a higher hazard for the hearers, since there is a greater opportunity that boundaries of materiality will be exceeded.
However, a quandary sing the fecundity of IFRS still remains: did the debut of the demand to fix fiscal statements in conformity with IFRS so increase the enlightening value of the fiscal statements? More exactly, did the debut of IFRS lead to a lessening in the degree of net incomes direction? This quandary leads to the necessity to research farther in this field. In my research, I will concentrate on one of the first clip adoptive parents of the IFRS: France, which was required to follow with IFRS for its listed companies since 2005 and therefore the effects of IFRS acceptance on their net incomes direction will be more marked and easy to find. Therefore, the chief inquiry that my research will be based on is: