IFRS convergence and earnings management in India: a mixed method approach

This paper uses a mixed method to address the impact of International Financial Reporting Standards (IFRS) convergence on earning management in India. We examine a sample of 70 Indian listed companies with net worth exceeding 500 crore INR that adopted IND(AS) in Phase 1 in 2016. The Modified Jones Model is employed to assess earnings management over four years–two years pre- and post-IND(AS) adoption. Additionally, we conducted six semi-structured interviews with auditors and accountants. Contrary to the hypothesis of improved reporting quality through IFRS harmonisation and reduced principal-principal agency conflict, our findings reveal increased earnings management practices post-IND(AS) adoption. The complementary quantitative and qualitative results highlight India’s power imbalance, enabling large firms with tight controls to influence reporting practices, potentially indicating principal-principal conflicts between majority and minority shareholders. This research suggests implementing additional measures to safeguard minority shareholders’ interests from expropriation by the majority.