The Shift from Accrual-Based to Real Earnings Management Post-IFRS Adoption: A Study of Firms in Emerging Markets

Abstract

This article examines the shift between accrual-based earnings management (AEM) and real earnings management (REM) in emerging market firms following the mandatory adoption of International Financial Reporting Standards (IFRS). Earnings management is understood as managers’ deliberate intervention in the financial reporting process, either through accounting-based judgments or through manipulation of real operating activities, with the aim of achieving private benefits or meeting contractual benchmarks. Prior research on developed countries generally suggests a substitution from AEM to REM in response to stricter accounting standards and greater scrutiny. However, evidence for emerging markets is more mixed, reflecting weaker institutional environments, differing enforcement regimes, and heterogeneity in the nature of IFRS implementation. Drawing on an interpretive qualitative research design, this study synthesises academic literature, regulatory documents, and selected empirical findings to provide a comprehensive discussion of how IFRS adoption interacts with managerial incentives, governance structures, and enforcement mechanisms in shaping the trade-off between AEM and REM. Particular attention is paid to the possibility that IFRS, especially when adopted in modified form, may unintentionally encourage greater reliance on accrual-based discretion while constraining visible real activities manipulation. The analysis concludes that the direction of the shift between AEM and REM is context-dependent and mediated by institutional quality, enforcement intensity, and firm-level characteristics, with important implications for regulators, auditors, and investors in emerging markets