Incentives for prior period error corrections under IAS 8
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This study examines whether International Financial Reporting Standard IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors (IAS 8) is used to engage in opportunistic reporting practices by Australian companies. IAS 8 requires prior period errors to be amended retrospectively by restating the comparatives as if the error had never occurred (International Accounting Standards Board, 2009). Hence, the impact of any prior period errors is shown through retained earnings rather than being included in the current period’s profit or loss. Managers could use this treatment for prior period errors as a method for manipulating current period earnings. If this is the case, then characteristics that have been shown in prior research to predict the presence of earnings management should also be associated with prior period error corrections that adjust prior earnings.
This document has been peer reviewed.