Gergő Tömöri

Department of Controlling, Institute of Accounting and Finance, University of Debrecen,

Hungary

tomori.gergo@econ.unideb.hu

ORCID 0009-0007-1320-1791

Earnings manipulation in transition to IFRS in the pharmaceutical and energy industries – the Hungarian case

László Erdey

Department of World Economy and International Business,

Institute of World Economy and International Relations, 

University of Debrecen,

Hungary

erdey.laszlo@econ.unideb.hu

ORCID 0000-0002-6781-4303

Alexandra Szekeres

Department of Accounting, Institute of Accounting and Finance, University of Debrecen,

Hungary

szekeres.alexandra@econ.unideb.hu

ORCID 0000-0003-4067-3915

Abstract. Driven by the need to diversify financing channels and the incentives arising from globalization, the inevitable transition to international accounting systems may provide companies opportunities for accounting manipulation. The main objective of our study is to investigate whether the transition to IFRS significantly affects the reliability of financial statements of pharmaceutical and energy companies operating in Hungary. For this purpose, two econometric models were applied: firstly, a binary logistic regression-based analysis of the Beneish M-Score values, and secondly, a modified Jones model based on a linear regression estimation of discretionary accruals. The research findings showed no clear significant relationship for the Beneish M-score values. However, application of the Jones model to the financial statements that companies prepared for the same year according to different standards revealed a negative shift in the deviation of discretionary accruals from their normal value. This was observed in the energy sector among the companies transitioning to IFRS, which suggests a greater use of cost accounting opportunities by industry players. Nevertheless, these modelling results can only indirectly support the potential investor concerns about the change in accounting systems and they do not diminish the importance of the potential institutional incentives and benefits of the transition.

Received: May, 2024

1st Revision: February, 2025

Accepted: March, 2025

DOI: 10.14254/2071-8330.2025/18-1/8

JEL Classification: M41

Keywords: earning manipulation, Beneish M-score, Jones model, IFRS