TRANSITIONAL INFLUENCES IN ACCOUNTING STANDARDS ON MANAGEMENT OF EARNINGS

Abstract — This paper examines whether the transition in accounting standards has an effect on the use of management of earnings. Using the item provisions from 4 equally large listed companies in The Netherlands and Germany from before the year 2005 and compare them with the annual reports of these companies after 2005 in order to get a clear picture about the possibilities to apply management of earnings before and after IFRS. Annual reports from before the year 2005 have all been formulated according to Dutch and German GAAP. From the year 2005 onwards Dutch and German listed companies have been obliged to report according to the International Financial Reporting Standards (IFRS). Also I have engaged more specifically into the balance sheet item ‘Provisions’. For this item I have debated regulations under Dutch and German GAAP and indicated what has changed after the obligation to report under IFRS. Also in the item provisions it can be clearly seen that IFRS rules are stricter than Dutch and German GAAP. The results show in this paper that the transformation in regulations has an influence on the level of earnings management