The Relationship Between IFRS Adoption and Earnings Management in Nigeria
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Background of the Study
Earnings management refers to the manipulation or adjustment of financial statements to meet certain objectives, such as meeting earnings expectations or influencing the company's stock price. The adoption of International Financial Reporting Standards (IFRS) is intended to provide transparency, reduce earnings manipulation, and improve the comparability of financial statements. In Nigeria, where earnings management practices have been prevalent, this study aims to investigate how the adoption of IFRS affects the occurrence of earnings management in Nigerian firms.
Statement of the Problem
Earnings management practices undermine the reliability and transparency of financial statements, leading to a distorted picture of a company’s financial health. With Nigeria’s adoption of IFRS, it is crucial to understand whether these standards have effectively curbed earnings management practices or if firms continue to engage in such activities. There is a gap in understanding the direct relationship between IFRS adoption and earnings management within Nigerian companies.
Aim and Objectives of the Study
The aim of this study is to examine the relationship between IFRS adoption and earnings management in Nigeria.
The objectives are:
- To evaluate the impact of IFRS adoption on earnings management practices in Nigerian companies.
- To assess the role of IFRS in reducing earnings manipulation among Nigerian firms.
- To explore whether IFRS enhances financial transparency and accountability in Nigerian firms.
- To identify challenges in enforcing IFRS provisions to prevent earnings management.
Research Questions
- How has the adoption of IFRS affected earnings management in Nigerian firms?
- To what extent does IFRS reduce the incidence of earnings manipulation in Nigerian companies?
- What challenges do Nigerian companies face in implementing IFRS standards to curb earnings management?
- How do Nigerian regulators enforce IFRS to ensure transparency and prevent earnings management?
Research Hypotheses
- There is a significant negative relationship between IFRS adoption and earnings management in Nigerian firms.
- IFRS adoption has led to a reduction in earnings manipulation in Nigerian corporations.
- Firms that fully comply with IFRS exhibit lower instances of earnings management.
Significance of the Study
This study will provide insights into how IFRS adoption influences earnings management practices in Nigerian companies. The findings will help policymakers and regulators understand the effectiveness of IFRS in enhancing transparency and ensuring fair financial reporting in Nigeria.
Scope and Limitation of the Study
The study will focus on Nigerian publicly listed companies that have adopted IFRS. Limitations may include challenges in measuring earnings management directly, as well as variations in the enforcement of IFRS across different sectors.
Definition of Terms
- Earnings Management: The act of manipulating financial statements to meet predefined financial targets, such as income smoothing or adjusting earnings to avoid stock price volatility.
- IFRS: International Financial Reporting Standards, a global set of accounting principles designed to promote transparency, consistency, and comparability in financial reporting.
- Financial Transparency: The openness and clarity of a company’s financial reporting, making it easier for stakeholders to understand its true financial condition.
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