THE MODERATING ROLE OF AUDIT QUALITY ON THE RELATIONSHIP BETWEEN IFRS ADOPTION AND EARNINGS MANAGEMENT: EVIDENCE FROM BANGLADESH

Purpose: The intent of the study is to explore the effect of IFRS adoption on earnings management (EM) in an emerging economy like Bangladesh, as well as identify the moderating role of audit quality (AQ) on the relationship between IFRS and EM. Design/methodology/approach: The study sample contains 94 firms, listed in Dhaka stock exchange (DSE) for 6 years in two time frame as pre and post adoption of IFRS viz.2004-06 and 2013/14-2015/16. Following literature this study applied extended modified Jones model and Roychowdhury model to estimate the value of discretionary accruals (DA) and real earnings management (REM) respectively. Findings: Empirical outcome of the analysis shows that IFRS adoption has significant inverse relationship will both proxy of EM. It also reveals that AQ has significant negative relationship with DA. However, there no significant relationship between AQ and REM. Moreover, audit quality significantly moderate the relationship between IFRS and DA where it has insignificant role in the relationship between IFRS and REM. Originality/value: The study contributes in the literature by extending the knowledge in the context of emerging economy. Moreover, the role of AQ in the relationship between IFRS and EM is explored which may add value to policy makers.