Mandatory IFRS Adoption and Real Earnings Management of Deposit Money Banks in Nigeria

Abstract

Real earnings management can be influenced by change in financial reporting framework, such as mandatory IFRS adoption. This study examines the effect of mandatory IFRS adoption on real earnings management of Deposit Money Banks (DMBs) in Nigeria using difference-in-difference (D-in-D) design.Panel data regression analysis based on the D-in-D model is used in analysing the data collected fromsecondary sources. The findings of this study based on the difference-in-differences approach are thatthere is no significant effect of mandatory IFRS adoption on real earnings management of DMBs in Nigeria, although, there is an increase in the real earnings management after the mandatory adoption.The difference in the real earnings management of mandatory adopting banks in the post-mandatory IFRS adoption period compared to pre-mandatory IFRS adoption period is not significant.The study recommends thatto reduce accrual-based and real earnings management after mandatory adoption of IFRS by mandatory adopting banks, Financial Reporting Council of Nigeria (FRC) should increase legal enforcement of IFRS, backed by Section 64 of the FRC of Nigeria Act 2011 as it is obvious by the findings of this study that management of DMBs still engage in manipulating earnings through discretionary accruals and abnormal real costs.