The Change of Consolidation Rules and Its Impact on Earnings Management

Yan-Jie Yang (), Chi-Hua Li (), Ruey-Ching Lin () and Hong-Da Wang ()
Additional contact information
Yan-Jie Yang: Yuan Ze University
Chi-Hua Li: Fu Jen Catholic University
Ruey-Ching Lin: Fu Jen Catholic University
Hong-Da Wang: National Kaohsiung First University of Science and Technolog

No 5607918, Proceedings of Business and Management Conferences from International Institute of Social and Economic Sciences

Abstract: Boundaries of consolidated reporting entities vary between International Financial Reporting Standards (IFRS) and U.S. Generally Accepted Accounting Principles (GAAP). Based on the rules-oriented conceptual framework, U.S. GAAP adopts ownership-based consolidation approach (ARB 51), while IFRS adopts control-based approach that is more principle-oriented (IAS 27). Exploiting a unique setting which took place in Taiwan that switched from U.S. GAAP to IFRS in consolidation rules in 2005, this study finds that parent firms conducting more related party transactions with their subsidiaries are inclined to hide them from consolidation under ownership-based consolidation. This intention to avoid consolidation, however, is substantially restrained when switching to the control-based consolidation approach. In addition, firms employ real earnings management to substitute for earnings management via related party transactions after control-based consolidation approach is adopted, consistent with prior studies (e.g., Zang, 2012) that find relative costliness drives the earnings management decision.

Keywords: Consolidated rules; Business group; Earnings management; Related party transactions (search for similar items in EconPapers)
JEL-codes: M41 M48 (search for similar items in EconPapers)
Pages: 16 pages
Date: 2017-07
References: Add references at CitEc
Citations:

Published in Proceedings of the Proceedings of the 6th Business & Management Conference, Geneva, Jul 2017, pages 221-236

Downloads: (external link)
https://iises.net/proceedings/6th-business-managem ... =56&iid=018&rid=7918 First version, 2017

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:sek:ibmpro:5607918

Access Statistics for this paper

More papers in Proceedings of Business and Management Conferences from International Institute of Social and Economic Sciences
Bibliographic data for series maintained by Klara Cermakova ().