Exploring the effects of IFRS on earning management : A comparative study of South Korean and Swedish manufacturing companies

Abstract: The adoption of International Financial Reporting Standards (IFRS) has been a significant event in the accounting profession, as it provides a common language for financial reporting across the globe. The impact of IFRS adoption on earnings management practices in South Korean and Swedish manufacturing companies is studied in this research. The study aims to explore the influence of accounting regulation on companies' behavior towards earnings management practices. Applying insights from the Positive accounting theory (PAT) and Enforcement theory, the research provides a nuanced understanding of the role of regulations and enforcement in shaping corporate earnings management behaviors following the adoption of FRS. The study uses a comparative approach to examine the differences in IFRS adoption and earnings management practices in South Korea and Sweden. Data are collected from 21 manufacturing companies in each country, using secondary sources such as annual reports, financial statements, and other public records. South Korea shows the high frequency of manipulating income reports, while Sweden is among the countries with the lowest earning management level. Despite the difference in earnings management behavior, this study results indicate that after adoption of IFRS has reduced earnings management in both South Korean and Swedish manufacturing companies. The study concludes that the regulatory environment in each country had a bigger impact on Korean manufacturing companies on earnings management practices, compared to Sweden.