Impact of rules-based accounting standards and principles based on earnings management

The main purpose of the present research is to investigate how standard setting can influence earnings management. If we consider the circumstances that the manager seeks to apply to earnings management, it is very important to consider how the manager chooses in a variety of conditions to apply for earnings management. Given that the regulatory environment and in particular the standard setting in countries is affected by how to emphasize principles and rules. Therefore, the main purpose of this study is to examine the extent to which changes in standard setting practices (rules or principle based) have changed and applied to the management practices for managing profits. For this purpose, in 2018, through random distribution, 24 questionnaires and interviews were conducted between academicians and members of the Iranian public accountants’ community and their data were analyzed using content analysis and non-parametric single-variable tests. The results of the research show that the use of principles-based standards reduces the willingness of managers to manage earnings and has a relatively limited effect on the reduction of real earnings management. In other words, managers in a rule-based standard setting are more likely to seek earnings management using accounting decisions (accruals) as well as earnings management through trading decisions (genuine profit management) in in comparison to the principle-based standard setting.