This study examines the effect of adopting International Financial Reporting Standards (IFRS) on earnings management practices in Saudi Arabian commercial banks. It concentrates on two forms of earnings management: accrual earnings management (AEM) and real earnings management (REM). The research aims to explore how the adoption of IFRS affects the mitigation of earnings manipulation and promotes financial transparency in Saudi banks.
Design and Methodology: The research employs an experimental methodology, gathering data from ten Saudi banks spanning the years 2015 to 2023. Financial information was sourced from publicly accessible reports on the banks' official websites and the Saudi Capital Market Authority (CMA) website. The analysis was conducted using SPSS statistical software (version 25) to examine the relationship between IFRS adoption and both accrual-based earnings management (AEM) and real earnings management (REM). Additionally, the study incorporates control variables, including bank size, leverage, and profitability, to substantiate the hypotheses.
Results: The findings of the study indicated a statistically significant link between the adoption of IFRS and a reduction in accrual earnings management (AEM), marked by a noticeable decline in earnings manipulation. Additionally, the results showed a significant correlation between IFRS adoption and a decrease in real earnings management (REM), enhancing transparency and diminishing real earnings manipulation. Moreover, the study observed a significant reduction in the impact of control variables such as bank size, leverage and profitability on earnings management following the adoption of IFRS.