Managers’ Responses to the Announcement of K-IFRS 1116

Byungchul Choi, Sooin Kim, Doocheol Moon

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1 Citation (Scopus)


This study examines a firm’s financial reporting strategy during the period after the K-IFRS No. 1116 was announced but before that standard is in effect. Lessees subject to K-IFRS, from 2019, in accordance with K-IFRS No. 1116, have to recognize their rights and obligations arising from all lease or rent contracts. Therefore, return on assets will decrease and debt ratio will increase under the circumstance where real business activities remain unchanged. Regarding this, we hypothesize that firms using lease or rent at a large scale would adjust earnings in advance of implementing K-IFRS No. 1116 and examine a firm’s ex-ante earnings management. We find that the degree of downward earnings management just before K-IFRS No. 1116 is implemented increases with lease usage. This result implies that managers concern on large time-series changes of financial ratios by the revision of the accounting standard and proactively adjust earnings downward, because comparative financial statements for the previous years are not restated. However, we find that ex-ante downward earnings management according to lease usage is not significant for firms with financial constraint. It shows that for financially constrained firms, the incentive to upward earnings management offset the opposite incentive, because stability indicators such as debt ratio are more important for financially constrained firms. Our findings suggest that managers attempt to mitigate the negative impact of the new accounting standard on reported numbers by ex-ante earnings management.

Original languageEnglish
Pages (from-to)47-81
Number of pages35
JournalKorean Accounting Review
Issue number1
Publication statusPublished - 2022

Bibliographical note

Funding Information:
이 논문은 2021학년도 충북대학교 학술연구지원사업의 연구비 지원에 의하여 연구되었음(This work was supported b? the research grant of the Chungbuk National Universit? in 2021) 충북대학교 경영대학 조교수 Assistant Professor, School of Business, Chungbuk National Universit? (E-mail: 건국대학교 경영대학 조교수 Assistant Professor, School of Business, Konkuk Universit? (E-mail: 연세대학교 경영대학 교수 Professor, School of Business, Yonsei Universit? (E-mail: dmoon@?

Publisher Copyright:
© 2022, Korean Accounting Association. All rights reserved.

All Science Journal Classification (ASJC) codes

  • Accounting


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