A Review on Accounts Manipulation via Loan Loss Provisions to Manage Earnings and Impact of IFRS
A Review on Accounts Manipulation via Loan Loss Provisions to Manage Earnings and Impact of IFRS

Summary/Abstract: Nowadays there is extensive research on financial reporting in banking industry. We also find a lot of studies specifically devoted to investigation of the estimation techniques of the amount of provisions,which represent important accrual amounts for a bank. In this paper we employ a non-statistical technique of meta-synthezis, through which we try to research the motives, existence, and effects of IFRS in income smoothing of banking institutions. As the theory of agency implies, the management can apply income smoothing because they may be oriented towards bonuses and wage increases more than towards the benefit of the economic entity. Factors such as their own reputation regarding the prediction of incomes, avoiding lack of analists’ expectations on incomes, to signal information on incomes, also contribute to earnings management. We find that most of the research find income smoothing in the banking sector, but also in other industries. Another issue that seems to emerge is that, based on research, the application of IFRS-es does not seem to have decreased the income smoothing phenomena in most of the countries where the studies were conducted.

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