IFRS Standards and Executive Remuneration : The Influence on Accounting Manipulation

Abstract

This paper studies the combined influence of the flexibility within accounting standards and executive remuneration on accounting manipulation. Accounting manipulation has been distinguished to be enabled by the inherent flexibility in the IFRS Standards. The standards require a level of flexibility in order to be suitable to companies in differing business environments. Using case companies, the methods of manipulating the accounting standards are studied. The elements of flexibility are identified by analysing the IFRS Standards that have been selected as a part of the case study analysis. Analysing the executive remuneration schemes of the case companies shows that companies are prone to pay executive directors large bonuses in the years before the manipulation becomes public. It can be assumed that executives have benefitted monetarily from the accounting manipulation in the form of bonus payments while manipulation could be exercised to conceal the business problems.