Enforcement of accounting standards and their impact on the consistent application of IFRS

The objective of this study is to determine the impact of enforcement of accounting standards on earnings management. In line with previous studies, we have selected timely loss recognition, small positive income, and earnings variability as proxies for earnings management. In order to reach our objective, we have defined our enforcement indexes using a survey on enforcement activities. The survey was prepared and sent directly to the institution oversight bodies that have an enforcement power on the application of IFRS in the studied countries. We find that the existence of an effective enforcement body that supervises the implementation and application of IFRS has reduced the frequency of large losses recognition, and have some impact in some situations on small positive income and earnings variability. Other tests are performed on specific enforcement activities such as pre-clearance and the sanctions imposed by the judicial system in a country. The study opens the door for additional investigations in the area of enforcement activities.