臺大管理論叢 NTU Management Review VOL.30 NO.2

The Effects of Relaxing the Reconciliation Requirement in Foreign Private Issuers’ SEC Filings on Earnings Management Strategies: IFRS Adopters versus U.S. GAAPAdopters 76 that domicile in counties (i.e., Argentina, Channel Islands, China, Ireland, Korea, and Marshall Islands) with only one individual firm. The results are qualitatively similar and the inferences are unchanged. Sixth, to address the possibility that pre-existing differences and/or changes around the relaxation of reconciliation requirement drive the documented differences between firms voluntarily switching to U.S. GAAP and those to IFRS, we conduct similar tests for our U.S. GAAP and IFRS test samples using firm-year observations during the U.S. GAAP reconciliation sample period 2003-2006. The evidence suggests that differences in the earnings management strategies between these two groups of firms before the reconciliation elimination generally do not explain their differences after the regulatory change. Seventh, we repeat the analyses using two control samples of firms that did not domicile in countries that adopt U.S. GAAP/IFRS but that volunteer to do so prior to the change and maintain their filing choice afterward. The results generally reveal that, in contrast to our IFRS test sample, managers of firms voluntarily applying IFRS prior to the elimination adjust the magnitude of their discretionary accruals, mostly in the fourth quarter (or after the fiscal year-end but before the earnings announcement date), based on the realized level of real activities manipulation through cutting discretionary expenditures. One possible explanation for this sequential decision process is that more of the control sample of firms adopting IFRS relative to U.S. GAAP is permitted to apply the more lenient deadline for furnishing annual reports. 3 Finally, additional findings provide evidence that voluntary and mandatory IFRS adopters exhibit significant differences in earnings management practices. Specifically, the earnings management strategies play different roles in firms that voluntarily adopt IFRS prior to the regulatory change, those that voluntarily switch to IFRS after the elimination, those that apply non-U.S. GAAP/non-IFRS domestic standards after the elimination, and those that domicile in countries that adopt IFRS on a mandatory basis, if ranked by the order of most positive (or least negative) to least positive (or most negative) income effect. This study contributes to accounting literature in the following ways. First, we present the first attempt to examine the earnings management potential of allowing non-U.S. cross-listed firms to choose IFRS reporting and to compare the effects of 3 We provide more details about the due dates of the annual information forms that must be filed to the SEC or other equivalent regulatory authority in the additional analyses section.