Implementation of IFRS 16 and Its Effect on Earnings Management

Abstract

The adoption of IFRS 16 – Leases has introduced significant changes to financial reporting by requiring companies to recognize lease liabilities on their balance sheets. This shift has potential implications for earnings management practices, as companies may adjust financial reporting strategies in response to the new standard. This study explores the possible effects of IFRS 16 on earnings management, focusing on areas such as income smoothing, financial
ratios, and managerial discretion. While IFRS 16 aims to enhance transparency and reduce off-balance-sheet financing, its actual impact on earnings management remains a subject of discussion. By analyzing financial data before and after IFRS 16 implementation, this research seeks to understand whether firms have altered their reporting behavior in response to the standard. The findings contribute to the broader discourse on financial reporting quality, regulatory effectiveness, and managerial incentives under IFRS 16.