Team Play for Stretching IFRS : The New Institutional Earnings Management

This paper investigates whether the current IFRS enforcement system at a supra-national level can prevent opportunistic behaviors at a national level that conflict with the major objectives of accounting harmonization. In this perspective, it identifies a new type of earnings management, new institutional earnings management (NIEM), based on inter-firm cooperation arising in the interstices existing between formal institutions' scopes.The paper adopts new institutional accounting as a theoretical framework, and broadens the research scope to explain the interactions between players, observed as formal and informal institutions. Through this theoretical lens, this paper presents the case study of the Bank of Italy share revaluation within the EU IFRS enforcement system.The case illustrates the complex interactions among all key actors at different levels: (i) preparers; (ii) their industry association; (iii) a national state; (iv) national and European enforcers; and (v) national and international standard setters. The analysis indicates that NIEM can occur in interstices between formal institutions under given circumstances, such as interpretation uncertainties of IFRS, cooperation between formal and informal institutions (at a national level), and weaknesses of accounting enforcement (at a supra-national level). Given the global relevance of IFRS in the accounting harmonization process, this study's findings have important implications both for accounting scholars and for regulators