Corporate Governance typically includes the board of directors, audit committee, and internal and external auditors. Earnings Management (audit quality) should maintain financial reporting and follow the stipulated guidelines as per IFRS (International Financial Reporting Standards), and Corporate Governance should see market fluctuations as well. Any misleading communication, lack of risk appetite, or following unethical practices can impact the share value of the company and its reputation.
Speaking generally, many publicly listed corporations are reluctant to adopt IFRS as an integral part of their overall process to portray the organization’s financial health. In conjunction with Corporate Governance and Audit Quality, the decision to implement IFRS comes from upper management. In doing so, they will not only gain the investor’s confidence but will have global recognition. The share price value will go up, and there will be a dense flow of trading transactions in the stock exchange. This is not only beneficial for the organization but also for the country and region, as it brings respite to economic concentration and stagnation.
We will investigate the importance of Audit Quality, Earnings Management, Corporate Governance, and IFRS. Examining these three pillars individually reveals a great deal about the organization’s foundation, but analyzing them together can divulge more information about the company. In tandem, these three essential ingredients fortify and augment the financial health of the company, where the financial statements are not only reliable but also transparent, acceptable, and accessible. Many corporations in the US have yet to implement the process of IFRS as an integral part of their financial reporting, where the operational risk can disclose the reporting standards and accuracy of financial statements fully. The conjunction among the three is of utmost importance to boost the investor’s confidence. However, there is a lack of focus on creating a conglomerate among the three in the contemporary scenario. This gap should motivate in-depth research on the importance of IFRS in the organization to mediate or foster a cordial relationship between Corporate Governance and Earnings Management within the US.
In the wake of the worldwide money-related emergency, there must be solid and successful Corporate Governance. Since the IFRS is principle-based and requires administration reasoning, there will be a requirement for administrators to practice their judgment to the greatest advantage of the stakeholders.
Companies should be given time to review and comprehend the effects of a change proposed by the IFRS-based financial accounting standards and consider them when corresponding with stakeholders like government bodies, financial institutions, and so forth. All regulatory bodies using IFRS with Corporate Governance should, likewise, set up lawful and regulatory environments. In the end, it is beneficial for everyone involved and focuses their attention on nurturing trust, expansion, and financial stability on a long-term basis.
Audit Quality needs to ensure that transparency co-exists between Corporate Governance and IFRS. The synergy of both is bound to provide investors with transparent financial health of the organization by improving worldwide financial reporting and quality of financial statements. This will provide a platform for investors to make educated and knowledgeable economic decisions.
The International Accounting Standards Board (IASB) warrants that every corporation adopts IFRS, following the financial reporting and accounting practices per International Accounting Standards (IAS). Adhering to IFRS by publicly listed corporations is not easy to implement. Companies need to forsake their idiosyncrasies to adapt to the IFRS culture, change their primary financial reporting practices, and give up benchmark ruling. The second hurdle is the scarcity of qualified IFRS chartered accountants and auditors in the GCC to achieve their desired level of Earnings Management.
Captivating the fact that the economic strength of the states in the US does have a monopolistic advantage globally. It has been highlighted above that for shareholders to make an educated investment decision in the capital market, adopting IFRS in public organizations is imperative. However, one apparent drawback, which IASB failed to consider, was the socio-environmental factor during the IFRS implementation. The resolve of which touchstones to select relies on the cultural background, regulatory and taxation framework, legal structure of ownership, and accounting standards within the US.
As earlier stated, the benefits, which IFRS brings to the investors, along with Corporate Governance and Audit Quality, are not only good for the investors but also the economy. It can help increase market capitalization, share value, and expand dominance beyond the Big 4.
Another aspect Earnings Management needs to ensure is formidable accountability. Incorporating IFRS accounting standards into the organization’s Corporate Governance will establish a strong, accountable process regarding financial reporting and finance statements. This will help reduce information inconsistency and minimize the gap between shareholders and public investors. It is the core responsibility of Audit Quality to hold management responsible for any breach of information or irregularity in preparing the financial statements for reporting.
When Earnings Management is mentioned, it automatically infers that there will be no deviation from the prevalent, efficient process. With the advent of IFRS accounting standards and embedding them with Corporate Governance, contribution towards attaining proactive economic proficiency is inevitable.
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