Gusau Journal of Accounting and Finance (GUJAF) Vol. 4 Issue 1, April, 2023 ISSN: 2756-665X A Publication of Department of Accounting and Finance, Faculty of Management and Social Sciences, Federal University Gusau, Zamfara State -Nigeria Gusau Journal of Accounting and Finance, Vol. 4, Issue 1, April, 2023 ii © Department of Accounting and Finance Vol. 4 Issue 1 April, 2023 ISSN: 2756-665X A Publication of Department of Accounting and Finance, Faculty of Management and Social Sciences, Federal University Gusau, Zamfara State -Nigeria All Rights reserved Except for academic purposes no part or whole of this publication is allowed to be reproduced, stored in a retrieval system or transmitted in any form or by any means be it mechanical, electrical, photocopying, recording or otherwise, without prior permission of the Copyright owner. Published and Printed by: Ahmadu Bello University Press Limited, Zaria Kaduna State, Nigeria. Tel: 08065949711, 069-879121 e-mail: abupress2013@gmail.com abupress2020@yahoo.com Website: www.abupress.com.ng mailto:abupress2013@gmail.com Gusau Journal of Accounting and Finance, Vol. 4, Issue 1, April, 2023 iii EDITORIAL BOARD Editor-in-Chief: Prof. Shehu Usman Hassan Department of Accounting, Federal University of Kashere, Gombe State. Associate Editor: Dr. Muhammad Mustapha Bagudo Department of Accounting, Ahmadu Bello University Zaria, Kaduna State. Managing Editor: Umar Farouk Abdulkarim Department of Accounting and Finance, Federal University Gusau, Zamfara State. Editorial Board Prof.Ahmad Modu Kumshe Department of Accounting, University of Maiduguri, Borno State. Prof Ugochukwu C. Nzewi Department of Accounting, Paul University Awka, Anambra State. Prof Kabir Tahir Hamid Department of Accounting, Bayero University, Kano, Kano State. Prof. Ekoja B. Ekoja Department of Accounting, University of Jos. Prof. Clifford Ofurum Department of Accounting, University of PortHarcourt, Rivers State. Prof. Ahmad Bello Dogarawa Department of Accounting, Ahmadu Bello University Zaria. Prof. Yusuf. B. Rahman Department of Accounting, Lagos State University, Lagos State. Prof. Suleiman A. S. Aruwa Gusau Journal of Accounting and Finance, Vol. 4, Issue 1, April, 2023 iv Department of Accounting, Nasarawa State University, Keffi, Nasarawa State. Prof. Muhammad Junaidu Kurawa Department of Accounting, Bayero University Kano, Kano State. Prof. Muhammad Habibu Sabari Department of Accounting, Ahmadu Bello University, Zaria. Prof. Okpanachi Joshua Department of Accounting and Management, Nigerian Defence Academy, Kaduna. Prof. Hassan Ibrahim Department of Accounting, IBB University, Lapai, Niger State. Prof. Ifeoma Mary Okwo Department of Accounting, Enugu State University of Science and Technology, Enugu State. Prof. Aminu Isah Department of Accounting, Bayero University, Kano, Kano State. Prof. Ahmadu Bello Department of Accounting, Ahmadu Bello University, Zaria. Prof. Musa Yelwa Abubakar Department of Accounting, Usmanu Danfodiyo University, Sokoto State. Prof. Salisu Abubakar Department of Accounting, Ahmadu Bello University Zaria, Kaduna State. Dr. Isaq Alhaji Samaila Department of Accounting, Bayero University, Kano State. Dr. Fatima Alfa Department of Accounting, University of Maiduguri, Borno State. Dr. Sunusi Sa'ad Ahmad Department of Accounting, Federal University Dutse, Jigawa State. Gusau Journal of Accounting and Finance, Vol. 4, Issue 1, April, 2023 v Dr. Nasiru A. Ka’oje Department of Accounting, Usmanu Danfodiyo University Sokoto State. Dr. Aminu Abdullahi Department of Accounting, Usmanu Danfodiyo University Sokoto, State. Dr. Onipe Adebenege Yahaya Department of Accounting, Nigerian Defence Academy, Kaduna State. Dr. Saidu Adamu Department of Accounting, Federal University of Kashere, Gombe State. Dr. Nasiru Yunusa Department of Accounting, Ahmadu Bello University Zaria. Dr. Aisha Nuhu Muhammad Department of Accounting, Ahmadu Bello University Zaria. Dr. Lawal Muhammad Department of Accounting, Ahmadu Bello University Zaria. Dr. Farouk Adeza School of Business and Entrepreneurship, American University of Nigeria, Yola. Dr. Bashir Umar Farouk Department of Economics, Federal University Gusau, Zamfara State. Dr Emmanuel Omokhuale Department of Mathematics, Federal University Gusau, Zamfara. State Gusau Journal of Accounting and Finance, Vol. 4, Issue 1, April, 2023 vi ADVISORY BOARD MEMBERS Prof. Kabiru Isah Dandago, Bayero University Kano, Kano State. Prof A M Bashir, Usmanu Danfodiyo University Sokoto, Sokoto State. Prof. Muhammad Tanko, Kaduna State University, Kaduna. Prof. Bayero A M Sabir, Usmanu Danfodiyo University Sokoto, Sokoto State. Prof. Aliyu Sulaiman Kantudu, Bayero University Kano, Kano State. Editorial Secretary Usman Muhammad Adam Department of Accounting and Finance, Federal University Gusau, Zamfara State. Gusau Journal of Accounting and Finance, Vol. 4, Issue 1, April, 2023 vii CALL FOR PAPERS The editorial board of Gusau Journal of Accounting and Finance (GUJAF) is hereby inviting authors to submit their unpublished manuscript for publication. The journal is published in two issues of April and October annually. GUJAF is a double-blind peer reviewed journal published by the Department of Accounting and Finance, Faculty of Management and Social Sciences, Federal University Gusau, Zamfara State Nigeria The Journal accepts papers in all areas of Accounting and Finance for publication which include: Accounting Standards, Accounting Information System, Financial Reporting, Earnings Management, , Auditing and Investigation, Auditing and Standards, Public Sector Accounting and Auditing, Taxation and Revenue Administration, Corporate Governance Issues, Corporate Social Responsibility, Sustainability and Environmental Reporting Issue, Information and Communication Technology Issues, Bankruptcy Prediction, Corporate Finance, Personal Finance, Merger and Acquisitions, Capital Structure, Working Capital Management, Enterprises Risk Management, Entrepreneurship, International Business Accounting and Finance, Banking Crises, Bank’s Profitability, Risk and Insurance Issue, Islamic Finance, Conventional and Islamic Banks and so forth. GUIDELINES FOR SUBMISSION AND MANUSCRIPT FORMAT The submission language is English and must be a well-researched original manuscript that has not previously been submitted elsewhere for publication. The paper should not exceed more than 15 pages on A4 type paper in MS-word format, 1.5-line spacing, 12 Font size in Times new roman. Manuscript should be tested for plagiarism before submission, as the maximum similarity index acceptable by GUJAF is 25 percent. Furthermore, the length of a complete article should not exceed 5000 words including an abstract of not more than 250 words with a minimum of four key words immediately after the abstract. All references including in text citation and reference list, tables and figures should be in line with APA 7th Edition publication manual. Finally, manuscript should be send to our email address elfarouk105@gmail.com and a copy to our website on journals.gujaf.com.ng http://www.gujaf.com.ng/ Gusau Journal of Accounting and Finance, Vol. 4, Issue 1, April, 2023 viii PUBLICATION PROCEDURE After receiving a manuscript that is within the similarity index threshold, a confirmation email will be send together with a request to pay a review proceeding fee. At this point, the editorial board will take a decision on accepting, rejecting or making a resubmission of the manuscript based on the outcome of the double-blind peer review. Those authors whose manuscript were accepted for publication will be asked to pay a publication fee, after effecting all suggested corrections and changes made on the manuscript. All corrected papers returned within the specified time frame will be published in that issue. PAYMENT DETAILS Bank: FCMB Account Number: 7278465011 Account Name: Gusau Journal of Accounting and Finance FOR INQUIRY The Head, Department of Accounting and Finance, Federal University Gusau, Zamfara State. elfarouk105@gmail.com +2348069393824 FOR MORE INFORMATION, CONTACT The Editor-in-Chief on +2348067766435 The Associate Editor on +2348036057525 OR visit our website on www.gujaf.com.ng or journals.gujaf.com.ng http://www.gujaf.com.ng/ http://www.gujaf.com.ng/ Gusau Journal of Accounting and Finance, Vol. 4, Issue 1, April, 2023 ix CONTENTS Board Characteristics and Earnings Management of Listed Consumer Goods Firms in Nigeria Benjamin Gwabin Joseph, Murtala Abdullahi PhD, Benjamin Kumai Gugong PhD 1 Dividend Policy and Value of Listed Non-Financial Companies in Nigeria: The Moderating Effect of Investment Opportunity Abubakar Umar 18 Trialability and Observability of Accrual Basis International Public Sector Accounting Standards Implementation in Nigeria Aliyu Abdullahi Ahmed PhD, Zakari Usman 35 Liquidity Risk and Performance of Non-Financial Firms Listed on the Nigerian StockExchange Muhammed Alhaji Abubakar, Nurnaddia Binti Nordin PhD, Abubakar Hamisu Umar 54 Board Diversity, Political Connections and Firm Value: An Empirical Evidence from Financial Firms in Nigeria Rofiat Oyetunji, Isah Shittu PhD, Ahmed Bello PhD. 75 Moderating Effect of Bank Size on the Relationship between Interest Rate, Liquidity, And Profitability of Commercial Banks in Nigeria Shehu Usman Hassan, Bello Sabo (Ph. D), Ismai'l Idris Tijjani (Ph. D), Idris Ahmed Aliyu. (Ph. D) 96 Sources of Health Care Financing Among Surgical Patients Seen at the Dalhatu Araf Specialist Hospital Lafia Nasarawa State Nigeria Ahmed Mohammed Yahaya, Babatunde Joseph Kolawole, Bello Surajudeen Oyeleke 121 Transparency, Compliance and Sustainability of Contributory Pension Scheme in Nigeria Olanrewaju Atanda Aliu (Ph. D), Mohamad Ali Abdul-Hamid (Ph. D), Salami Suleiman (Ph. D), Salam Mudathir Olanrewaju 135 Gusau Journal of Accounting and Finance, Vol. 4, Issue 1, April, 2023 x Examining the Impact of Working Capital Management on the Financial Performance of Listed Industrial Goods Entities in Nigeria 151 Sani Abdulrahman Bala (Ph. D), Jamilu Jibril, Taophic Olarewaju BAKARE Corporate Governance Factors and Tax Avoidance of Listed Deposit Money Banks in Nigeria 171 Sani Abdulrahman Bala (Ph. D), Umar Salim Ibrahim, Samaila Dannana Risk Committee Demographic Traits: A Study of the Impact of Expertise on Risk Disclosure Quality of Listed Insurance Firms in Nigeria Wada Najib Abbas, Dandago, Kabiru Isa (Ph. D), Rabiu, Naja’atu Bala 192 Moderating Effect of Audit Committee on the Relationship Between Audit Quality and Earnings Management of Listed Non-Financial Services Firms in Nigeria Ahmad Muhammad Ahmad, Lubabah Mansur Kwanbo (Ph.D.), Shehu Usman Hassan (Ph.D.) Musa Suleiman Umar (Ph.D.) 216 Determinants of Audit Opinion of Negative-Book-Value Firms in Nigeria: Firm Value and Audit Characteristics Perspective Asma’u Mahmood Baffa (Ph. D), Lawal Mohammed (Ph.D.), Ahmed Bello (Ph.D.) Umar Farouk Abdulkarim 237 Intervention Announcements and Naira Management: Evidence from the Nigerian Foreign Exchange Market Adedeji Daniel Gbadebo 254 Is There Earnings Discontinuity After the Implementation of IFRS in Nigeria? Adedeji Daniel Gbadebo 275 Gusau Journal of Accounting and Finance, Vol. 4, Issue 1, April, 2023 275 IS THERE EARNINGS DISCONTINUITY AFTER THE IMPLEMENTATION OF IFRS IN NIGERIA? Adedeji Daniel Gbadebo Department of Accounting Science Walter Sisulu University, Mthatha, Eastern Cape, South Africa. gbadebo.adedejidaniel@gmail.com ; agbadebo@wsu.ac.za Abstract Earnings metrics are major financial indicators which capital market participants and investors focus on for informed decisions. Because reporting earnings increase may enhance firms’ stock price, many managers are motivated to avoid reporting earnings decreases, but prefer to consistently report increase earnings greater than its previous valuation. There is evidence that such practice has led to a situation of conspicuous upward shift in frequency of observations, starting from the left of identified earnings benchmark to the right. Recent studies have shown that a change in accounting regulation may have effects on the shape of the firm-year distribution of earnings. This paper examines the discontinuity evidence for Nigeria, in relation to the adoption of the international financial reporting standard. The aim is to establish whether discontinuity in earnings, represented by the asset-scaled net profits, as well the discontinuity in earnings-change, has reduced following the adoption. According to literature, the study employs three methods – empirical histogram, standardise differences tests and the permutation tests – to validate the aims. The findings suppose evidence for increase in discontinuity, indicating increased in small profits’ earnings management, after the adoption. Contrary, the evidence is not sufficient to conclude that the discontinuity has increase for the earnings-change. It can be argued that the adoption has not achieve much in ensuring firms are monitored against earnings management to avoid losses. The study has limitation, since it considers only the distributions of earnings and earnings-changes. The distribution of forecast errors is not investigated because such is influence by forecast management. Future studies may consider this for improvement. Keywords: Earnings Discontinuity, Implementation of IFRS, Nigeria https://doi.org/10.57233/gujaf.v4i1.211 1. Introduction Accounting earnings, such as profits, earnings per share and others, are considered as the premier information items reported on the financial statements. Studies have documented the significance of earnings on debt contracting, equity valuation and managerial compensation contracts (Cadot et al., 2020; Francis et al., 2003; Graham et al., 2005). They are the major indicators that investors focus on to make informed financial decisions in the capital market. Because investors rely on simple heuristics to depends these measures, the markets react positively (negatively) to unexpected increase (decrease) in reported earnings. Reporting earnings decrease or loss spiral undesirable news, which spreads into the markets and may trigger fall in the firm’s mailto:gbadebo.adedejidaniel@gmail.com mailto:agbadebo@wsu.ac.za Gusau Journal of Accounting and Finance, Vol. 4, Issue 1, April, 2023 276 share price. Thus, in order to create optimistic gains, many managers avoid reporting earnings decreases, but consistently report increase earnings greater than previous valuation in order to attract positive market response and enhance firms’ stock price (Pretorius & De-Villiers, 2013). Burgstahler and Eames (2006) observe that firms having regular routine of reporting earnings increases sustain higher price-to-earnings ratios, and this may even be larger, the longer the periods of increase reported. Researchers identify that substantial reporting of earnings above certain benchmark may cause discontinuity in earnings distribution (Enomoto & Yamaguch, 2017; Gilliam et al., 2015). The distribution includes too few observations immediately below the identified benchmark and too higher firm-years immediately above benchmark than are likely. The evidence reports conspicuous upward shift in the frequency of observations, from left of identified earnings benchmark to the right. Researchers maintain that such firm-years in interval just the right of the benchmark are managing earnings to document income above earnings threshold since discontinuity at target cannot be described by managers’ normal operations, due to firms’ earnings management activities (Burgstahler & Dichev, 1997; Shuto, & Iwasaki, 2015). After the 2000s major corporate scandals, including WorldCom and Enron in 2002, some corporate financial reporting laws were established in some countries to ensure best financial practices and reporting quality financial statements. The Sarbanes-Oxley Act (or US-SOX) was implemented and recognised in the US. The US-SOX was formulated to lessen opportunistic reporting through ensuring: manager’s vetting of financial report accuracy, both managers’ evaluation and auditors’ audit of internal controls, and sanctioning legitimate penalties for CFOs and CEOs for manipulations. The Japanese approved the Financial Instruments and Exchange Act of 2006 (or the Japanese SOX, J-SOX) after major scandals including Seibu Railway, Kanebo and Livedoor (Enomoto & Yamaguch, 2017; Kerstein & Rai, 2018). A number of countries require listed firms to report their statements based on regulated standards and policies, such as the international financial reporting standard (IFRS). The IFRS allows flexible in reporting, which makes some managers to communicate bias earnings for their own benefits. IFRS gains popularity when the EU requires that all listed companies in member countries to adopt and comply with the Standards in presenting their consolidated accounts from January 1, 2005. Recent reports show that about 65 percent of the IFRS jurisdictions have converged or adopted the standard worldwide (IFRS, 2023a). Researchers Gusau Journal of Accounting and Finance, Vol. 4, Issue 1, April, 2023 277 have conducted studies on the convergence, adoption, compliance and consequence of IFRS on organisation (Cho, Kim et al., 2021; Shruti & Thenmozhi, 2023). There is evidence that IFRS likely impacts accounting quality, and in particular, earnings management (Isaboke & Chen, 2019; Chimonaki & Konstantinos, 2020; Adedokun et al., 2022). Some authors examine the effect of accounting policies and reporting framework in formation of discontinuity (Gilliam, Heflin, & Paterson, 2015; Enomoto & Yamaguchi, 2017; Trimble, 2018; Piosik, 2021). Before IFRS-adoption, the Financial Reporting Council in Nigeria (FRCN) permits firms to use the Nigeria GAAP (N-GAAP). In July 2010, the Government ordered quoted firms to set up financial reports through the IFRS effective from January 1, 2012 (IFRS, 2023b, 2023c). Many prominent cases of financial scandals have been reported for Nigeria, but so far empirical evidence to investigate the link with IFRS are based on discretionary accrual’s earnings management (Adedokun et al., 2022; Kajola et al., 2020; Madugba & Ogbonnaya, 2017; Olayinka et al., 2017). In relation to the IFRS adoption in Nigeria, the paper examines the discontinuity evidence by focusing on whether the adoption has triggered discontinuities on earnings distributions. Providing the evidence of discontinuity provides a unique research view for discontinuity-related literature because currently, there is no known study that has attempted the aim for the country’s sample. Hence, discontinuity evidence will provide guidance for policy formulation on the capital market. The findings suppose evidence for increase in discontinuity, indicating increased in small profits’ earnings management, after the adoption of IFRS. Contrary, the evidence is not sufficient to conclude that the discontinuity has increase for the earnings-change. It can be argued that the IFRS has not achieve much in ensuring firms are monitored against earnings management to avoid losses. For the remainder of the work, section 2, 3, 4 and 5, accordingly, provide the literature review and hypotheses, the data and methodology, the results and conclusions. 2. Literature Evidence Existing evidences on earnings discontinuity focus on different areas. Earlier studies show that the discontinuity is due to managers’ manipulations of earnings to avoid losses (Beatty et al., 2002; Hayn, 1995). There is discontinuity in forecast (error) distribution, supposing firms manipulate earnings to attain analysts’ forecast earnings (Donelson et al., 2013; Koh et al., 2008). A strand of studies assumes that the discontinuity depends on the earnings metrics used (Durtschi & Easton, 2005; https://www.sciencedirect.com/science/article/abs/pii/S1061951818302118#! Gusau Journal of Accounting and Finance, Vol. 4, Issue 1, April, 2023 278 2009). Relative to smoothness in earnings distributions, the various studies provide extensive evidence on two main earnings thresholds, which include the profit/loss benchmark (Enomoto & Yamaguchi, 201; Pududu & De-Villiers, 2016;) and earnings from preceding-year (Donelson et al., 2013; Enomoto & Yamaguchi, 2017). For studies that consider analyst forecast errors, Koh et al. (2008) show that managers’ dependence on income-increasing accruals (positive earnings) to meet analyst forecasts declined in the post-SOX/scandals periods compare to the pre- scandals period (1987Q1-2001Q2). Bartov and Cohen (2009) examine fraud cases in the U.S. firms between 1996 and 2004 and find an overall fall in practice of beating analyst forecasts in post-SOX period (2002Q3 to 2006Q4) relative to the late pre-SOX regime (1994Q1 to 2001Q2). Donelson et al. (2013) use restated earnings to provide evidence of earning discontinuity to earnings management via comparing distribution of restated and originally-reported earnings of listed firms that resolve accounting-linked securities litigation and restate managed earnings from alleged local GAAP violation period. The study found that the kinks are present in the originally-reported earnings but absence in the earnings distribution of earnings levels, earnings surprise and analyst forecast errors using the restated earnings. Some studies examine whether accounting policies or frameworks are responsible for the discontinuities on earnings distribution (Bird et al., 2019; Caylor, 2010; Enomoto & Yamaguchi, 2017; Gilliam et al., 2015; Lobo & Zhou, 2006; Piosik, 2021; Shuto & Iwasa, 2015; Trimble, 2018). Lobo and Zhou (2006) identify that firms become conservative and report slightly lower discretionary accruals since the implementation of the US-SOX. Caylor (2010) offers evidence that firms prefer to apply discretion in deferred income compare to accounts receivable in order to circumvent negative earnings shocks, but that the implementation of the US-SOX continuously mitigated this preference. Both Shuto and Iwasak (2015) and Gilliam et al. (2015) reveal that sample selection, neither scaling as well as income taxes and any other special items explain discontinuity evidence. Gilliam et al. (2015) find that zero-earnings discontinuity vanishes due to the passage of the Sarbanes–Oxley (SOX) Act. Neither the discontinuity nor the disappearance of discontinuity requires the effects of non-earnings management drives for the zero-earnings kink. Discontinuity was found in all except a year before 2002, and not in any other years after. Shuto and Iwasak (2015) reveals clear existence of discontinuities at the zero threshold in distribution of earnings for Japanese firms. They hypothesise that institutional factors, including tax and https://www.sciencedirect.com/science/article/abs/pii/S1061951818302118#! Gusau Journal of Accounting and Finance, Vol. 4, Issue 1, April, 2023 279 financial regulations, are the cause of the breaks in the earnings distribution. They note that firms that have high marginal tax rates, and very tight interactions with their respective banks would more likely to engage in earnings management. Trimble (2018) examine the impact IFRS adoption on accounting quality based on the earnings distributions. The study found that while the distribution discontinuity does not completely fade but it severely decreases amongst the firms. Bird et al. (2019) show that policy such as SOX Act lessen earnings managed by 36%, if costs increased. This reduction is bound to occur undermining an increase in benefits, consistent with the market expectations. Piosik (2021) finds that the introduction of IFRS 15 lessens the increase of discretionary revenue, especially, when pre- managed operating income is marginally lower than the fourth quarter consensus analyse forecast and operating income. Adedokun et al. (2022) report significant difference between pre- and post- IFRS discretionary accruals, and based on the panel corrected standard errors analysed, they find only few firms characteristics including the IFRS adoption dummy affect earnings management. Hypotheses Prior research on earnings management practice post regulations and implementation of reporting framework provide evidence of improved in earnings quality after the passage of SOX (Lobo & Zhou, 2006; Cohen et al., 2008; Caylor, 2010; Gilliam et al., 2015; Shuto & Iwasak, 2015; Trimble, 2018; Piosik, 2021). Lobo and Zhou (2006) recognise that SOX and its resultant SEC requirement changed management’s reporting pattern. They note that managers reported lower abnormal accruals the first two years of post-SOX than the fourth preceding SOX. For Cohen et al. (2008) there is decline in misreporting, but increase shift from accruals to real earnings management after SOX. Caylor (2010) argues the implementation of the SOX mitigated the preference to use discretion in deferred revenue compare to accounts receivable. Gilliam et al. (2015) find that zero-earnings discontinuity vanishes due to the passage of the Sarbanes–Oxley (SOX) Act. Shuto and Iwasak (2015) reveals clear existence of discontinuities at the zero threshold in distribution of earnings for Japanese firms and identify that institutional factor (e.g., tax and financial regulations) are the cause of the breaks in the earnings distribution. Trimble (2018) argues that while the distribution discontinuity does not completely fade but it severely decreases amongst the firms after the IFRS adoption. Piosik (2021) finds that the introduction of IFRS 15 lessens the increase of discretionary revenue, when pre-managed operating net income is lower than the fourth quarter analyse forecast and income. https://www.sciencedirect.com/science/article/abs/pii/S1061951818302118#! https://www.sciencedirect.com/science/article/abs/pii/S1061951818302118#! https://www.sciencedirect.com/science/article/abs/pii/S1061951818302118#! Gusau Journal of Accounting and Finance, Vol. 4, Issue 1, April, 2023 280 Some studies argue that because reporting earnings losses may draw unanticipated adverse attention from investors for small stock exchange, most firms in developing financial market would report earnings increase, and more so, after the implementation of reporting standard that support managerial use of discretion to report earnings (Ugrin, 2017; Ozili & Outa, 2019). Regarding precursory study, Adedokun et al. (2022) identify significant difference between the pre- and post- adoption’ discretionary accruals. For the multivariate evaluation, the IFRS adoption was found significant, supposing that earnings is more managed after IFRS. Given tighter regulations on reporting under IFRS, managers’ earnings management practice could decrease, and hence, discontinuity may not be formed. Following Gilliam et al. (2015), the study does not expect increase in discontinuity in the earnings distribution after IFRS implementation for the Nigerian firms, similar to the experienced by the U.S. (Lobo & Zhou, 2006; Caylo, 2010; Gilliam et al., 2015). Hence, to verify whether there is discontinuity in earnings distribution after IFRS use in Nigeria, the following hypotheses are tested: H1: There is increased discontinuity in earnings after the implementation of IFRS H2: There is increased discontinuity in earnings-change after the implementation of IFRS Earnings Distribution’s Discontinuity Tests Empirical histogram method This literature that focuses on discontinuity of earnings rely on the distributional approach using empirical (albeit, asymmetric) histogram bin frequencies of earnings (level) and earnings-change surprise distributions to detect discontinuities. The empirical histogram method is mostly applied to examine the properties of those observations just above the zero threshold and to detect existence of earnings management (Enomoto & Yamaguchi, 2017). Figure 1 (2) provides an example of the prevalence of small losses (earnings decreases) amongst the US non-financial service, from Burgstahler and Dichev. The Figures identify the existence of a noticeable peak in the earnings interval to just the immediate right of zero, implying the prevalence of small profits. Since the bin-width controls the smooth characteristic of the baseline histogram, the precise bin-width must be determined. As noted by McNichols (2002), the optimal bin-width holds under the principal assumption that unmanaged earnings population is Gaussian noise. Scott (2009) suggests to compute the optimal Bin- width using 2𝑄𝐼𝑅 (𝑋𝑖 ) √𝑁 3 ⁄ , where 𝑋𝑖 is the pooled cross-sectional of earnings (for Gusau Journal of Accounting and Finance, Vol. 4, Issue 1, April, 2023 281 𝑖 = 1, … , 𝑛), 𝑄𝐼𝑅 is the interquartile range 𝑄3(upper quartile) minus the 𝑄1(lower quartile), and N is the number of firm-year. One advantage for using the ‘distribution of reported earnings’ method to detecting discontinuity and earnings management is that it does not require the estimate of noisy abnormal accruals. Figure 1a Figure 1b Figure 1a: Equity-scaled net income at year t [Earnings𝑡/MVE𝑡] Figure 1b: Equity-scaled net income-change [(Earnings𝑡 – Earnings𝑡−1)/MVE𝑡−2]. Source: Burgstahler and Dichev (1997) Standardise difference test method The jumps in earnings distributions at zero is recognised as evidence of earnings management but statistical test is proposed to confirm the discontinuity at the benchmark. There are different variants of the standardize difference tests. Standardized difference score is a unified index that measure the magnitude of difference between groups on baseline variable. Relative to the t-test, the standardized difference test is independent of sample size, hence, the statistics is recommended to compare baseline covariates. In earnings distribution literature, some variants of the test are proposed. The earnings management (𝐸𝑀) statistic is the ratio of difference between the actual (𝐴𝑄𝑖) and expected (𝐸𝑄𝑖 ) Nobs for the interval immediately to the right of zero over the estimated standard deviation of the difference. 𝐸𝑀1 = (𝐴𝑄𝑖 − 𝐸𝑄𝑖 ) 𝑆𝐷𝑖⁄ (1) Where, 𝑆𝐷𝑖 = [𝑁𝑝𝑖 (1 − 𝑝𝑖 ) + 0.25𝑁(𝑝𝑖−1 + 𝑝+1)(1 − 𝑝𝑖−1 − 𝑝𝑖+1)] 1/2 is standard deviation of the difference between (𝐴𝑄𝑖) and (𝐸𝑄𝑖 ) around interval i; 𝐸𝑄𝑖 = (𝐴𝑄𝑖−1 + 𝐴𝑄𝑖+1)/2; 𝑁 is the total number of firm-years observations; 𝑝𝑗 = 𝐴𝑄/𝑁, is the ratio of the actual Nobs for interval 𝑖 to the firm-years; 𝐴𝑄𝑗−1/𝑁 = 𝑝𝑗−1 and 𝑝+1 = 𝐴𝑄+1/𝑁. The test null assumes no discontinuity in earnings distribution. Gusau Journal of Accounting and Finance, Vol. 4, Issue 1, April, 2023 282 Degeorge et al. (1999) provide an alternative distribution discontinuity statistic to test earnings management of the underlying histogram. Under the null of no earnings management, then the distribution is smooth and continuous at the (zero earnings or zero earnings-changes) threshold point (Burgstahler & Eames, 2006). The test statistics is statistics: 𝐸𝑀2 = [𝛥𝑝𝑖 − 𝐸(𝛥𝑝−𝑖 )] 𝑆𝐷(𝛥𝑝−𝑖 )⁄ (2) Where 𝑝𝑖 is the proportion of the actual Nobs for interval 𝑖 to firm‐years, and change in 𝑝𝑖 [𝛥𝑝𝑗 = 𝑝𝑗 − 𝑝𝑗−1]. E(𝛥𝑝−𝑖 ) is the expected (average) value of 𝛥𝑝, excluding 𝑝𝑖, and 𝑆𝐷(𝛥𝑝−𝑖 ) is standard deviation of (change in 𝑝𝑖 ) 𝛥𝑝, excluding 𝛥𝑝𝑖 . Logit-based test approach Unlike the histogram-based test which detects distribution discontinuity, and examines properties of earnings (Roychowdhury, 2006), the ‘logit-based tests’ is conditional probability multiple explanatory variables model to detect the possible determinants of distribution discontinuity (or earnings management) around the benchmark (Shuto & Iwasaki, 2015). Empirical literature on the determinants of discontinuity in earnings management has been verified in isolation of an existing formal economic theory. In absence of an extent formal theory, empirical investigations conducted often have to depend on some assumptions, related or not related to with and earnings management, about the firms’ distinctive business operations and about the functional (accounting) form of the earnings (Dechow & Dichev, 2002). Conditional discontinuity test The test, from Byzalov and Basu (2019), is based on the existence of multiple explanatory variables to detect possible determinants of earnings management. The discontinuity tests based on Burgstahler and Dichev (1997)’s framework does not accommodate multiple explanatory variables. In detecting discontinuity, Burgstahler and Dichev test allows to compare histograms of two asymmetric partitions for just one variable (e.g., earnings-losses versus earnings-profits of firms). Byzalov and Basu (2019) estimate a relatively smooth frequency distribution of pre-managed earnings with each model’s component conditioned on some explanatory variables. The discontinuity is verified with standard t-test for each coefficients estimated. Relative to the standard logit model, the simulation from this test provides better Type-I errors and greater statistic power of test. The test has not been well exploited in empirical applications due to the complexities of implementation. Gusau Journal of Accounting and Finance, Vol. 4, Issue 1, April, 2023 283 Monte Carlo simulation approach Takeuchi (2004) applies to Monte Carlo simulation to detect discontinuity in an empirical distribution of reported earnings. Takeuchi (2004) follows that reported earnings (𝑋𝑖) is a random variable (for 𝑖 = 1, … , 𝑛) with a function defined as, 𝐹. If the distribution is evenly spaced with space points −∞ = 𝑔0 < 𝑔1 < ⋯ < 𝑔𝑘 = ∞, where (𝑔𝑗 − 𝑔𝑗−1 = ℎ) for 𝑗 = 2, …, 𝑘 − 1, then an empirical distribution, 𝑌𝑗 , defined by the empirical process ∑ 𝑙 𝑛 𝑖=1 {𝑋𝑖 ∈ (𝑔𝑗−1, 𝑔𝑗 ]} (𝑗 = 1, … , 𝑘) ] in (𝑔𝑗−1, 𝑔𝑗] would assume a multinomial probability function, 𝑝𝑗 = 𝑃(𝑋 ∈ (𝑔𝑗−1, 𝑔𝑗 ]) = 𝐹(𝑔𝑗 ) − 𝐹(𝑔𝑗−1). Where the mean of 𝑌𝑗 is 𝐸(𝑌𝑗 ) = 𝑛𝑝𝑗 , and the variance is 𝐸(𝑌𝑗 − 𝑌) 2 = 𝑛𝑝𝑗 (1 − 𝑝𝑗 ). The degree of the empirical smoothness of the distribution is [𝑝𝑗 = (𝑝𝑗−1 + 𝑝𝑗+1) 2⁄ ]. The Burgstahler and Dichev (1997)’s B-D statistic (𝜏𝐵𝐷) is denoted: 𝜏𝐵𝐷 = (( 𝑝𝑗−1+𝑝𝑗+1)/2)−𝑝𝑗) √𝑣𝑎𝑟((( 𝑝𝑗−1+𝑝𝑗+1)/2)−𝑝𝑗) (3) Where; �̂� = 𝑌𝑗 /𝑛; (4) 𝑣𝑎𝑟(((�̂�𝑗−1 + �̂�𝑗+1) 2⁄ ) − �̂�𝑗 ) = 1 𝑛 𝑝𝑗 (1 − 𝑝𝑗 ) + 1 4𝑛 (𝑝𝑗−1 + 𝑝𝑗+1)(1 − 𝑝𝑗−1 − 𝑝𝑗+1) (5) + 1 𝑛 𝑝𝑗 (𝑝𝑗−1 + 𝑝𝑗+1) The statistic (𝜏𝐵𝐷) detects the ‘disjointness’ in the distribution (density) function under a null of standardize normality in the distribution of earnings. Takeuchi (2004) formulate 𝜏𝐵𝐷 for three different bin-width h [h = 0.20σ, 0.10σ, & 0.05σ, where σ is standard error of 𝑋𝑖] to confirms ‘disjointness’ in the density under the null of normality of the earnings. He conducted Monte Carlo experiment to indicate discontinuity for the jump in earnings continuous distribution. The test has not been well exploited in empirical applications due to the rigour require in conducting the bootstrap simulations. 3. Methodology The paper uses data (2001–2021) from the Nigerian Exchange (NGX) and other financial records, for assets-scaled profit after tax as a proxy for accounting earnings. The focus on 2001 was to ensure a substantial number of years are captured in the pre-IFRS periods (2001–2011). The post-IFRS periods (2012– 2021), which information is assumed to have been applied under greater flexibility and discretions toward the improvement of earnings quality based on the Gusau Journal of Accounting and Finance, Vol. 4, Issue 1, April, 2023 284 international framework are well captured. Because the number of NSE firms is small relative to studies for advanced economies with large capital market and firm size (Shuto & Iwasa, 2015; Enomoto & Yamaguchi, 2017), the study uses all firms, including financial and non-financial industries in accordance with Pududu and De- Villiers (2016). Table 1: Industry-wise Breakdown of sample Industry #Firms #Firm-year %Firms Agriculture 10 200 6.41% Conglomerates 5 100 3.21% Construction/Real Estate 8 160 5.13% Consumer Goods 21 420 13.46% Financial Services 45 900 28.85% HealthCare 7 140 4.49% ICT and Tech 11 220 7.05% Industrial Goods 16 320 10.26% Natural Resources 5 100 3.21% Oil and Gas 9 180 5.77% Services 19 380 12.18% Total 156 3,120 100.00% Note: N# = No. of firm-year. #Firms = No. of firm in indicated industry. %Firms = Industry percent of firm of total sample [#Firms/155]. The sample for financial (non-financial) service is 29% (71%), and pre- and post- IFRS include 1,560 firm-years. From the full sample, firms with incomplete observations for the considered periods are eliminated. The final sample relapsed to 156 firms, with a total of 3,120 observations, and to 2,964 firm-years for the earnings change variables after taking the difference between earnings for current year (t) and the preceding year (t–1) for each firm, with the pre-IFRS. Table 1 presents the breakdown of Sample according to the sectors included in the final sample. The financial sector constitutes about 29% of the sample compositions. Empirical Procedure The paper focuses on investigating discontinuity on actual earnings due to the implementation of IFRS. Previous paper (e.g., Gbadebo et al., 2022) tests the significance of IFRS on discretionary accruals to examine earnings management believed to be the cause of discontinuity. Because there is wide range in the firms’ profits earnings and assets due to their different sizes, this may infuse outliers on the earnings-distribution if the actual profit is used. According to literature Gusau Journal of Accounting and Finance, Vol. 4, Issue 1, April, 2023 285 standard, the paper computes the normalised (i.e., asset-scaled) PAT for the firm- years of profits (Gbadebo et al., 2022; Kent & Routledge, 2015). The study normalises 𝑃𝐴𝑇𝑖,𝑡 earnings measures, as supposed by literature (Durtschi & Easton, 2009; Donelson et al., 2013; Kent & Routledge, 2015; Gbadebo et al., 2022) by scaling with the lagged of total assets (𝑇𝐴𝑖,𝑡−1) as denoted by Equation (6). 𝑃𝐴𝑇𝑖,𝑡 ∗ = 𝑃𝐴𝑇𝑖,𝑡 𝑇𝐴𝑖,𝑡−1⁄ (6) And the earnings change is computed using the difference between earnings for current year t and preceding year t–1 for each firm 𝑖 and at time 𝑡 as depicted: ∆𝑃𝐴𝑇𝑖,𝑡 ∗ = 𝑃𝐴𝑇𝑖,𝑡 ∗ − 𝑃𝐴𝑇𝑖,𝑡−1 ∗ (7) Equation (6) is the assets-scaled profit (𝑃𝐴𝑇𝑖,𝑡 ∗ ), and Equation (7) is the assets- scaled profits (𝑃𝐴𝑇𝑖,𝑡 ∗ ). The normalised results are pooled and control for outliers’ effects on the cross-section of the 𝑃𝐴𝑇𝑖 ∗ and ∆𝑃𝐴𝑇𝑖 ∗ metrics1. This is implemented by completing winsorisation at the first (1st) and penultimate (99th) percentiles. Because, the focus is on the interval to left and right of the various category to conjecture the possible existence of discontinuity, the process excludes the zeros PAT according to standard requirement. The exclusion eliminates complexity links with the zero-samples. The study presents preliminary assessment of the distributions of earnings using basic statistics. Afterward, the empirical histogram, t-tests (mean and median tests), standardised difference tests, and permutation tests are applied to evaluate the hypotheses. The procedure for the permutation test is presented. The permutation test The permutation test, in particular the Kolmogorov-Smirnov (KS), is a non- parametric method that often used when the assumption of the parametric distribution is unknown or when the distribution is skewed (i.e., normality does not hold). The permutation (Kolmogorov-Smirnov, KS) test provides statistic to evaluate the formulated null hypotheses, H1 and H2. The test is based on the highest absolute difference between two empirical distributions with a common function, 𝐹. Suppose two independent distributions of observations with sizes 𝑛 and 𝑚, which may not necessarily be equal represent the earnings metrics (𝑃𝐴𝑇𝑖,𝑡 ∗ and ∆𝑃𝐴𝑇𝑖,𝑡 ∗ ) for the before [𝑋1𝑖 (𝑖 = 1, … , 𝑛)] and after [𝑋2𝑗 (𝑗 = 1, … , 𝑚)] the implementation of the IFRS, have common cumulative distribution function (cdf), 𝐹, with distribution function: Gusau Journal of Accounting and Finance, Vol. 4, Issue 1, April, 2023 286 𝐹𝑛 (𝑥) = 1 𝑛 ∑ 1(𝑋𝑖≤𝑥) 𝑛 𝑖=1 , − ∞ < 𝑥 < ∞ (8) Assume 𝐹0(𝑥𝑗 ) is the hypothesised 𝑐𝑑𝑓 and 𝐹𝑛 (𝑥) is the empirical 𝑑. 𝑓, the KS statistic evaluates the hypothesis 𝐻0 against 𝐻1, using these steps:  Formulation of the hypotheses (𝐻0 against 𝐻1): Hypotheses { 𝐻0: 𝐹(𝑥) = 𝐹0(𝑥) − ∞ < 𝑥 < ∞. 𝐻1: 𝐹(𝑥) ≠ 𝐹0(𝑥) for some 𝑥. (9)  Estimation of the observed test statistic using: 𝐷0 = 𝜃(𝑋1, 𝑋2) = sup |𝐹𝑛(𝑥) − 𝐹𝑛 (𝑥)|. (10)  Generate a pooled sample, 𝑍𝑖 = (𝑋1𝑖 , 𝑋2𝑖 ), where 𝑍𝑖 [𝑖 = 1, 2, … , ( 𝑛 + 𝑚)] are the ordered set for 𝑋1 and 𝑋2 and apply the index 𝑟 (𝑟 = 1, 2, … , R), which is replicated for the index.  Take a resample of size ℎ from 𝑍𝑖 (without replacement) to represent 𝑋1, use the remaining observations from 𝑍𝑖 to represent 𝑋2 and then compute 𝐷 ∗ = 𝜃(𝑍𝑖 ).  If large values of estimated 𝐷0 holds for the 𝐻1, compute the empirical p-value denoted: �̂� = (1 + ∑ 𝐼(𝐷∗ ≥ 𝐷0 𝑅 𝑟 ) 𝑅 + 1⁄ (11) �̂� is then multiplied by 2 to accommodate the two-sided test, and the decision rule is such that the paper rejects the null at 𝛼 (significant level), if and only if �̂� ≤ 𝛼. 4. Results Earnings Information Before the required tests to evaluate the hypotheses, the paper presents (Table 2) the basic statistical characteristics of the annual assets-scaled profits after tax’s earnings and earnings change. Following the winsorisation to regularised the earnings information for possible outliers, the data identify that for the full sample (2002-2021), the mean (𝜇) and median (𝑚𝑒𝑑) of the asset-scaled 𝑃𝐴𝑇𝑖 are respectively 0.067 and (0.075), while the mean and median of the e change in tasset- scale (∆𝑃𝐴𝑇𝑖) are 0.001 and (0.002). The normalised 𝑃𝐴𝑇𝑖 relates to a lower spread of 0.145 relative to the PAT with spread of 0.172. For the pre-IFRS, the data recognize a mean (median) of the asset-scaled 𝑃𝐴𝑇𝑖 as 0.057 (0.073), with a lower spread of 0.144, for the earnings levels, whereas the mean (median) of the asset- scaled 𝑃𝐴𝑇𝑖 of 0.003 (0.003) with a higher spread of 0.172, for the earnings change distribution. Gusau Journal of Accounting and Finance, Vol. 4, Issue 1, April, 2023 287 (0.076), with a higher spread of 0.148, for the earnings levels, which point at the earnings management hypothesis, and therefore suppose possible existence of increase discontinuity, for the Assets-scaled PAT. This is not the case for the earnings-change, which indicate a lower mean (0.001) but higher median (0.005), and therefore supposes possible existence of decrease earnings management and discontinuity, for the change in assets-scaled PAT. 𝑃𝐴𝑇𝑖 shows some degree of skewness (-0.577) and kurtosis (4.688), while ∆𝑃𝐴𝑇𝑖 shows skewness and kurtosis’ coefficients as -0.026 and 3.245, respectively, which not be significant. Table 2: Assets-scaled PAT (Earnings and earnings-change) Full Sample 2002-2021 Pre-IFRS 2002-2011 Post-IFRS 2012-2021 Statistics 𝑃𝐴𝑇𝑖 ∆𝑃𝐴𝑇𝑖 𝑃𝐴𝑇𝑖 ∆𝑃𝐴𝑇𝑖 𝑃𝐴𝑇𝑖 ∆𝑃𝐴𝑇𝑖 N 3120 2964 1560 1560 1560 1404 𝑚𝑖𝑛 -0.669 -0.876 -0.669 -0.876 -0.659 -0.831 �̃�1 0.011 -0.055 0.011 -0.051 0.010 -0.057 𝑚𝑒𝑑 0.075 0.002 0.073 0.003 0.076 0.003 �̃�3 0.130 0.059 0.130 0.056 0.130 0.064 𝑚𝑎𝑥 0.669 0.944 0.669 0.842 0.648 0.944 𝜇 0.067 0.001 0.057 0.001 0.068 0.005 𝜇se 0.003 0.003 0.004 0.004 0.004 0.005 𝜎 0.146 0.172 0.144 0.172 0.148 0.173 𝜇𝑠𝑘𝑒𝑤 -0.577 -0.026 -0.529 -0.246 -0.620 -0.205 𝜇𝑘𝑢𝑟𝑡 4.688 3.245 4.681 5.096 4.671 4.978 Note: Table 2 shows the statistics for full sample, and the Pre and Post IFRS scaled profits [𝑃𝐴𝑇𝑖] and change in scaled profits [∆𝑃𝐴𝑇𝑖]. 𝑁, 𝑚𝑖𝑛, �̃�1, 𝑚𝑒𝑑, �̃�3,𝑚𝑎𝑥, 𝜇, 𝜇se, 𝜎, 𝜇𝑠𝑘𝑒𝑤 and 𝜇𝑘𝑢𝑟𝑡 are respectively the No. of firm-years, minimum, 1 st quartile, median (2nd quartile), 3rd quartile, maximum, mean, standard error of mean, standard deviation, skewness and kurtosis. Source: Author (2023) Empirical Histograms The study depicts histograms for pooled cross-section of 𝑃𝐴𝑇𝑖 and ∆𝑃𝐴𝑇𝑖 for the full samples (Figure 2a and 2b); earnings-level for the pre-IFRS (Figure 3a) and post-IFRS samples (Figure 3b); and the earnings-change for the pre-IFRS (Figure 4a) and post-IFRS (Figure 4b). The focus is on distinct visual examination of the pattern of the distribution obtained according to defined optimal Bin-width (Scott, 2009). For 𝑃𝐴𝑇𝑖 (earnings-level) and ∆𝑃𝐴𝑇𝑖 (earnings change), the optimal bin- width of 0.0118 percent [0.0175] are applied, respectively, for the empirical Gusau Journal of Accounting and Finance, Vol. 4, Issue 1, April, 2023 288 configurations. In support of the basic statistic, Figure 2a shows that the distribution of 𝑃𝐴𝑇𝑖 appears less likely symmetrical at zero, exhibits some degree of skewedness and kurtosis, and discontinuity is affirmed, at least visibly. Contrarily, Figure 2b could not visibly depict discontinuity, although some degree of skewedness and kurtosis are noticeable, but they may not be significant upon testing. The immediate interval over zero (0 < 𝑃𝐴𝑇𝑖 ≤ 0.0118) exhibits higher frequency of firms reporting small positive 𝑃𝐴𝑇𝑖 compare to the just interval under zero. This is consistent with earnings discontinuity predictions of earnings management that indicates earnings slightly greater than zero, occurs unusually than would be expected, and that most earnings pattern has significantly too few observations immediately below zero than anticipated (Kent & Routledge, 2015). The distribution for ∆𝑃𝐴𝑇𝑖 looks likely symmetric with a bell shape. The evidence shows that the ∆𝑃𝐴𝑇𝑖 series has significantly too few observations immediately after zero than, hence, assuming no clear evidence of discontinuity. The paper compares the earnings-level distribution for the pre-IFRS (Figure 3a) and the post-IFRS samples (Figure 3b). Both Figures indicate discontinuities. Figure 3a shows the interval just left of the zero [-0.0118, 0.000] has unusually low regularity, and the just right of zero [0.000, 0.0118] exhibits remarkably high frequency. Figure 3b shows the interval just left of zero threshold [-0.0175, 0.000] has low frequency, and the just right of zero threshold [0.000, 0.0175] exhibits significantly high frequency. The distributions confirm the discontinuities consistent with earnings management predictions (Enomoto & Yamaguchi, 2017). Figure 2a: Asset Scaled PAT (Earnings level) Figure 2b: Asset Scaled PAT (Earnings-change) Gusau Journal of Accounting and Finance, Vol. 4, Issue 1, April, 2023 289 Figure 3a: Pre-IFRS Asset Scaled PAT Figure 3b: Post-IFRS Asset Scaled PAT (Earnings) (Earnings) Figure 4a: Pre-IFRS Asset Scaled PAT Figure 4b: Post-IFRS Asset Scaled PAT (Earnings-change) (Earnings-change) Source: Author’s plot (2023) Standardised Difference Tests However, as Gbadebo (2022) noted, the histogram plots are not sufficient to ascertain which is more discontinuous and therefore greater evidence of earnings management is required. Table 3 presents empirical evidence based on the standardised difference statistics. Because the interest is on the evidence of discontinuity in earnings (earnings-change) before and after the implementation of IFRS, the study focuses on the standardised difference tests in comparing only Figure 3a and 3b (Figure 4a and 4b). To compute standardised difference statistic for the small-loss (profit) based on the earnings levels (𝑃𝐴𝑇𝑖 ) for the pre-IFRS, the firm-years used is 311 (1,249), and for the post-IFRS, the firm-years used is 289 (1,271), a sign of possible increase small profit’s earnings management relative the pre-IFRS for the earnings-change. Likewise, for the earnings-change variable (∆𝑃𝐴𝑇𝑖), the small-earnings decrease (increase) for the pre-IFRS is 673 (809) and Gusau Journal of Accounting and Finance, Vol. 4, Issue 1, April, 2023 290 for the post-IFRS is 769 (713). This supposes decrease in increase earnings management relative the pre-IFRS for the earnings-change. Regarding the standardised difference test for earnings-level for the pre-IFRS period, the test for the interval just left of zero (small-loss test) has a test statistic of -18.183, and significantly negative, whereas the interval just right of zero (small- profit) has a test statistic of 3.161, and significantly positive. This reveals that the managers manage earnings to avoid earnings losses (small profit) during the GAAP periods. For the post-IFRS periods, the test for the interval just left of zero (small- loss test) has a statistic of -15.33, and significantly negative, whereas the interval just right of zero (small-profit) has a test statistic of 6.861, and significantly positive, therefore indicating that the managers manage earnings to avoid earnings losses despite the implementation of IFRS met to prevent such practices. When the paper compares the increase in small profit (interval just right of zero), since standardised difference statistic for the post-IFRS (6.861) is greater than that for the pre-IFRS (3.161), the finding indicates there has been increased in earnings management and discontinuity after the adoption of IFRS in Nigeria. The evidence supposes that the first null (H1) that discontinuity has increased for earnings after the implementation of IFRS holds. The result for earnings-change for the pre-IFRS shows that the statistic for the decrease (increase) is -0.669 (1.805), and not significant. This reveals that discretions are not utilised to avoid earnings decrease (increase) during the GAAP periods. The post-IFRS result shows that the standardised difference for the earnings decrease (increase) is -0.575 (1.449) and insignificantly, indicating no sufficient evidence that the earnings change is managed after the mandatory implementation. Comparing the earnings increase (i.e., for the interval just right of zero), since standardised difference statistic for the post-IFRS (1.449) is lesser than that for the post-IFRS (1.805), the study concludes there has been declined in existing discontinuity after the IFRS-ramification. The null (H2) that discontinuity has increased for earnings-change after the implementation is refuted. In sum, the tests suppose evidence for increase in discontinuity for the earnings-level, but not sufficient to conclude same for the earnings change. Gusau Journal of Accounting and Finance, Vol. 4, Issue 1, April, 2023 291 Table 3: Discontinuity (standardised difference) tests Earnings Pre-IFRS Post-IFRS Sdiff [Loss] Sdiff [Profit] Sdiff [Loss] Sdiff [Profit] 𝑃𝐴𝑇𝑖 -18.183* 3.161** -15.33* 6.861* Sdiff [-] Sdiff [+] Sdiff [-] Sdiff [+] ∆𝑃𝐴𝑇𝑖 -0.669 1.805 -0.575 1.449 Note: The Table reports the standardised differences (Sdiff) test based on BD. * ; ** indicates the test-statistics is significance at 1%, and 5%. Parametric and Permutation Tests Here, the paper uses statistical methods to test if the difference in the means and median for the scaled-earnings categories (levels and change) for pre- and post- IFRS is significant. For the parametric test, the mean differences for the considered asset-scaled profits (levels and change) is examined based on the Welch (Wilcoxon) statistics for a 2-side paired sample. For the non-parametric test, the distribution difference for the asset-scaled profits (levels and change) is examined based on one sample Kolmogorov-Smirnov (KS) test. Table 4 reports the results of the earnings difference tests. Table 4: Results of the earnings-statistic difference tests Parametric test Non-parametric Earnings Mean Difference Median Difference K-S permutation a (Welch) test (Wilcoxon) test 𝑃𝐴𝑇𝑖 -4.38* (0.000) -1.98** (0.028) (0.002) ∆𝑃𝐴𝑇𝑖 -1.29 (0.376) -2.93 (0.001) (0.561) The mean differences for the considered asset-scaled profits (levels and change) is examined based on the Welch (Wilcoxon) statistics for a 2-side paired sample, while the distribution difference for the asset-scaled profits (levels and change) is examined based on one sample Kolmogorov-Smirnov (KS) test. *, ** implies significant at 1%, 5% level. a The statistic tests the difference in distribution rather than testing the mean difference based on bootstrapping. The evidence based on the parametric testing indicates that the mean of the pre and post-IFRS earnings differs, but the difference in the mean of the earnings change is not significant, with a p-value of 0.376. For the distribution-based test, the Gusau Journal of Accounting and Finance, Vol. 4, Issue 1, April, 2023 292 asymptotic K-S test is significant for earnings (�̂� = 0.002 ) < (𝛼 = 0.05), hence, a rejection of the null of no significant difference in the managed earnings, between the two regimes (pre and post-IFRS). The null holds for the earnings change, implying there is no significant dissimilarity between the distributions of earnings for the two financial reporting regimes. That is there seems to be possible non- disappearance (disappearance) of the earnings discontinuity asset scaled profits (asset scaled profits change) distribution at zero threshold after IFRS implementation. The findings have far reached implications. The IFRS appears more effective than the GAAP in monitoring firms to ensure reduction of earnings management to avoid losses. More than the GAAP’s statement of accounting standards (SAS), the international standards involve stricter measures for organisation’s internal control and audit assessment. The IFRS replicates high standard quality financial information of firms on organised documentation and prediction of earnings, cash- flows, investments and capital inflow. The Standards attempt to improve the effectiveness of financial reports, ensure value for the information on financial statements, and enhance the comparability and transparency of financial statements among global capital markets. The discontinuity evidence provides guidance for policy formulation and regulators in enforcement processes in the capital market. In addition, the managers under the IFRS are much concern about the need to present trusted earnings of firms because of global integration since they comply with the implementation under expectations that the standards will heighten them towards global opportunities and lead to improved financial performance. Reporting earnings loss definitely spiral undesirable information for investment because the news surprises spread into the markets and triggers fall in the firm’ share price’ (Chowdhury et al., 2018), but this has undesirable on the firms, particularly, as it would discourage expected foreign investors. 5. Conclusion Earnings metric on the financial reports represent information that guide investors in making informed decisions in the capital market. The indicators have significant effect on the performance of stock price, and may largely influence the expected stock price. Researchers have observed that because reporting earnings increase may enhance firms’ stock price, many managers they consistently report increase earnings relative to certain threshold, particularly, greater than their previous earnings valuation. There is evidence that such practice has led to a situation of Gusau Journal of Accounting and Finance, Vol. 4, Issue 1, April, 2023 293 conspicuous upward shift in the frequency of observations, from left of identified earnings benchmark to the right. In addition, recent studies have shown that changes in accounting regulations may have effect on the shape of the distribution of earnings. The paper examines the discontinuity evidence for Nigeria, in relation to the adoption of IFRS. There is reduced discontinuity (increase discontinuity) for the earnings-level (earnings change). The evidence provides the existence of distribution, and by implication earnings management. The findings have research and regulatory implications. The established evidence offers new insight and guidance for policy formulation and regulators in enforcement processes in the capital market. Because the effectiveness of an accounting regulation depends on the institutional mechanisms available to implement and enforce the frameworks, the put in place effective institutions and stricter measure in monitoring firms’ earnings reports. Earnings manipulating firms should also be sanctioned, in order to maintain financial market integrity. In addition, the paper expands the frontier of extant literature, and offer references for future research. The study’s limitation is that it considers only the distributions of earnings and earnings-changes. The distribution of forecast errors is not investigated because such is influence by forecast management (Brown & Higgins, 2005). Future studies may consider this for improvement. References Adedokun, W. M., Gbadebo, A. D., Adekunle, A. O., & Akande, J. O. (2022). IFRS adoption and accrual-based managed earnings in Nigeria. Asian Economic and Financial Review, 12(12), 1041–1073. https://doi.org/10.55493/5002.v12i12.4669 Bartov, E. & Cohen, D. A. (2008). The 'numbers game' in the pre- and post-Sarbanes- Oxley Eras. Journal of Accounting, Auditing and Finance. Available at SSRN: https://ssrn.com/abstract=1329162 Bird, A., Karolyi, S. A. & Ruchti, T. (2019). Understanding the 'numbers game'. Journal of Accounting & Economics. http://dx.doi.org/10.2139/ssrn.2748220 Brown, L. D. & Higgins, H. N. (2005). Managers' forecast guidance of analysts: International evidence. Journal of Accounting and Public Policy, 24(5). http://dx.doi.org/10.2139/ssrn.314579 Burgstahler, D. & Dichev, I. (1997.) Earnings management to avoid earnings decreases and losses. Journal. of Accounting & Economics, 24, 99–126. https://doi.org/10.1016/S0165-4101(97)00017-7 Burgstahler, D., & Eames, M. (2006). Management of earnings and analysts’ forecasts to achieve zero and small positive earnings surprises. Journal of Business https://doi.org/10.55493/5002.v12i12.4669 https://ssrn.com/abstract=1329162 http://dx.doi.org/10.2139/ssrn.2748220 http://dx.doi.org/10.2139/ssrn.314579 https://doi.org/10.1016/S0165-4101(97)00017-7 Gusau Journal of Accounting and Finance, Vol. 4, Issue 1, April, 2023 294 Finance and Accounting, 33(5) & (6), 633–652. https://doi.org/10.1111/j.1468-5957.2006.00630.x Byzalov, D. & Basu, S. (2019). Modeling the determinants of meet-or-just-beat behavior in distribution discontinuity tests. Journal of Accounting & Economics. Available at http://dx.doi.org/10.2139/ssrn.3117088 Cadot, J., Rezaee, A. & Chemama, R. B. (2020). Earnings management and derivatives reporting: evidence from the adoption of IFRS Standards in Europe. Applied Economics. https://doi.org/10.1080/00036846.2020.1841085 Caylor, M. l. (2010). Strategic revenue recognition to achieve earnings benchmarks. Journal of Accounting and Public Policy, 29(1), 82-95, https://doi.org/10.1016/j.jaccpubpol.2009.10.008 Chimonaki, C. & Konstantinos, V. K. (2020). Evaluating the effect of IFRS adoption on earnings management in Greece: A logit approach. Portsmouth Business School, University of Portsmouth, UK. Monograph. http://dx.doi.org/10.1504/IJFERM.2019.101302 Cho, M., Kim, S., Kim, Y., Lee, B. B. & Lee, W. (2021). IFRS adoption and stock misvaluation: Implication to Korea discount. Research in International Business and Finance, 58, 101494. https://doi.org/10.1016/j.ribaf.2021.101494 Coates, J. C. & Srinivasan, S. (2014). SOX after ten years: a multidisciplinary review. Harvard Law and Economics Discussion Paper No. 758. http://dx.doi.org/10.2139/ssrn.2343108 Cohen, J. R. & Hayes, C., Krishnamoorthy, G. Monroe, G. S. & Wright, A. (2013). The effectiveness of SOX regulation: An interview study of corporate directors. Behavioral Research in Accounting, 25 (1). Available at SSRN: https://ssrn.com/abstract=2225505 Dechow, P.M., & Dichev, I.D. (2002). the quality of accruals and earnings: The role of accrual estimation errors. The Accounting Review, 77, 35-59. Dechow, P.M., Richardson, S.A. & Tuna, I. Why are earnings kinky? An examination of the earnings management explanation. Review of Accounting Studies 8, 355–384 (2003). https://doi.org/10.1023/A:1024481916719 Degeorge, F., Patel, J. & Zeckhauser, R. (1999). Earnings management to exceed thresholds. The Journal of Business, 72(1),1–33. https://www.jstor.org/stable/10.1086/209601 Donelson, D., McInnis, J. & Mergenthaler, R. (2013). Discontinuities and earnings management: Evidence from restatements related to securities litigation. Contemporary Accounting Research. 30(1), 242–268. https://doi.org/10.1111/j.1911-3846.2012.01150.x Durtschi, C. & Easton, P. (2005). Earnings management? The shapes of the frequency distributions of earnings metrics are not evidence ipso facto. Journal of Accounting Research, 43(4), 557-592. https://doi.org/10.1111/j.1475- 679X.2005.00182.x https://doi.org/10.1111/j.1468-5957.2006.00630.x http://dx.doi.org/10.2139/ssrn.3117088 https://doi.org/10.1080/00036846.2020.1841085 https://doi.org/10.1016/j.jaccpubpol.2009.10.008 http://dx.doi.org/10.1504/IJFERM.2019.101302 https://doi.org/10.1016/j.ribaf.2021.101494 http://dx.doi.org/10.2139/ssrn.2343108 https://ssrn.com/abstract=2225505 https://doi.org/10.1023/A:1024481916719 https://www.jstor.org/stable/10.1086/209601 https://doi.org/10.1111/j.1911-3846.2012.01150.x https://doi.org/10.1111/j.1475-679X.2005.00182.x https://doi.org/10.1111/j.1475-679X.2005.00182.x Gusau Journal of Accounting and Finance, Vol. 4, Issue 1, April, 2023 295 Durtschi, C. & Easton, P. (2009). Earnings management? Erroneous inferences based on earnings frequency distributions. Journal of Accounting Research, 47, 1249–1281. Available at: https://doi.org/10.1111/j.1475-679X.2009.00347.x Enomoto, M., & Yamaguch, T. (2017). Discontinuities in earnings and earnings change distributions after J-SOX implementation: Empirical evidence from Japan Journal of Accounting and Public Policy, 36(1), 82–98. https://doi.org/10.1016/j.jaccpubpol.2016.11.005 Francis, J., Schipper, K., & Vincent, L. (2003). The relative and incremental explanatory power of earnings and alternative (to earnings) performance measures for returns. Contemporary Accounting Research, 20(1), 121- 164. https://doi.org/10.1506/XVQV-NQ4A-08EX-FC8A Garrod, N. W. & Ratej, P. S. & Valentincic, A. (2006). testing for discontinuity or type of distribution. Mathematics and Computers in Simulation, 71(1). https://doi.org/10.1016/j.matcom.2005.09.002 Gilliam, T. A., Heflin, F. & Paterson, J. S. (2015). Evidence that the zero-earnings discontinuity has disappeared. J. Acct & Eco. 60, 117–132. http://dx.doi.org/10.1016/j.jacceco.2014.07.001 Gilliam, T. A., Heflin, F., & Paterson, J. S. (2015). Evidence that the zero-earnings discontinuity has disappeared. Journal of Accounting and Economics, 60(1), 117–132. http://dx.doi.org/10.1016/j.jacceco.2014.07.001. Graham, J. R., Harvey, C. R., & Rajgopal, S. (2005). The economic implications of corporate financial reporting. Journal of Accounting and Economics, 40(1–3), 3-73, https://doi.org/10.1016/j.jacceco.2005.01.002 Hayn, C. (1995). The Information Content of Losses. Journal of Accounting and Economics, 20, 125-153. http://dx.doi.org/10.1016/0165-4101(95)00397-2 IFRS (2023a). Why global accounting standards. https://www.ifrs.org/use-around-the- world/why-global-accounting-standards/ IFRS (2023b). IFRS 1 first-time adoption of international financial reporting standards. https://www.ifrs.org/issued-standards/list-of-standards/ifrs-1-first-time- adoption-of- ifrs/#:~:text=In%20June%202003%20the%20Board,IFRS%20Standards%2C %20including%20IFRS%201 IFRS (2023c) IFRS standards application around the world: Jurisdictional Profile - Nigeria. https://www.ifrs.org/content/dam/ifrs/publications/jurisdictions/pdf- profiles/nigeria-ifrs-profile.pdf Isaboke, C. & Chen, Y. (2019). IFRS adoption, value relevance and conditional conservatism: evidence from China. International Journal of Accounting & Information Management 27 (4). https://doi.org/10.1108/IJAIM-09-2018-0101 Kajola, S. O., Sanyaolu, W., Tonade, A. & Adeyemi, A. (2020). Corporate board attributes and earnings management in Nigerian banking sector. Journal of Sustainable Development in Africa, 22(4), 1520–5509. https://doi.org/10.1111/j.1475-679X.2009.00347.x https://doi.org/10.1016/j.jaccpubpol.2016.11.005 https://doi.org/10.1506/XVQV-NQ4A-08EX-FC8A https://doi.org/10.1016/j.matcom.2005.09.002 http://dx.doi.org/10.1016/j.jacceco.2014.07.001 http://dx.doi.org/10.1016/j.jacceco.2014.07.001 https://doi.org/10.1016/j.jacceco.2005.01.002 http://dx.doi.org/10.1016/0165-4101(95)00397-2 https://www.ifrs.org/use-around-the-world/why-global-accounting-standards/ https://www.ifrs.org/use-around-the-world/why-global-accounting-standards/ https://www.ifrs.org/issued-standards/list-of-standards/ifrs-1-first-time-adoption-of-ifrs/#:~:text=In%20June%202003%20the%20Board,IFRS%20Standards%2C%20including%20IFRS%201 https://www.ifrs.org/issued-standards/list-of-standards/ifrs-1-first-time-adoption-of-ifrs/#:~:text=In%20June%202003%20the%20Board,IFRS%20Standards%2C%20including%20IFRS%201 https://www.ifrs.org/issued-standards/list-of-standards/ifrs-1-first-time-adoption-of-ifrs/#:~:text=In%20June%202003%20the%20Board,IFRS%20Standards%2C%20including%20IFRS%201 https://www.ifrs.org/issued-standards/list-of-standards/ifrs-1-first-time-adoption-of-ifrs/#:~:text=In%20June%202003%20the%20Board,IFRS%20Standards%2C%20including%20IFRS%201 https://www.ifrs.org/content/dam/ifrs/publications/jurisdictions/pdf-profiles/nigeria-ifrs-profile.pdf https://www.ifrs.org/content/dam/ifrs/publications/jurisdictions/pdf-profiles/nigeria-ifrs-profile.pdf https://doi.org/10.1108/IJAIM-09-2018-0101 Gusau Journal of Accounting and Finance, Vol. 4, Issue 1, April, 2023 296 Kent R., & Routledge, J. 2015. Use of benchmarks in predicting earnings management? Accounting and Finance. https://doi.org/10.1111/acfi.12130. Kerstein, J., & Rai, A. (2018). Re-examination of earnings management before and after SOX: Evidence from SEC staff accounting bulletins 99-100. Journal of Accounting and Public Policy, 37(2), 146–166. https://doi.org/10.1016/j.jaccpubpol.2018.02.002. Koh, K., Rajgopal, S., & Matsumoto, D. A. (2008). Meeting or beating analyst expectations in the post-scandals world: Changes in stock market rewards and managerial actions. Contemporary Accounting Research, 25(4),1067–1098. https://doi.org/10.1506/car.25.4.5 Lobo, G. J. & Zhou, J. (2006). Did conservatism in financial reporting Increase after the Sarbanes-Oxley Act? Initial evidence. Accounting Horizons, 20 (1), 57-73. Available at SSRN: https://ssrn.com/abstract=859624 Madugba, J. U. & Ogbonnaya, A. K. (2017). Corporate governance and earnings management in money deposit banks in Nigeria. Journal of Finance and Accounting. 8(8), 147–153. https://www.iiste.org/Journals/index.php/RJFA/article/view/36783 McNichols, M. (2002), Discussion of the quality of accruals and earnings: The role of accrual estimation errors. The Accounting Review 77, 61–69. https://doi.org/10.2308/accr.2002.77.s-1.61 Olayinka, E., Paul, O., & Olaoye, O. (2017). Value relevance of accounting data in the pre and post IFRS era: evidence from Nigeria. International Journal of Finance and Accounting, 6(4), 95–103. http://dx.doi.org/10.5923/j.ijfa.20170604.01 Ozili, P. K., & Outa, E. R. (2019). Bank earnings smoothing during mandatory IFRS adoption in Nigeria. African Journal of Economic and Management Studies. 10 (1), 32–47. http://dx.doi.org/10.1108/AJEMS-10-2017-0266 Piosik, A. (2021). Revenue recognition in achieving consensus on analysts’ forecasts for revenue, operating income and net earnings: the role of implementing IFRS 15. Evidence from Poland. 25th International Conference on Knowledge- Based and Intelligent Information & Engineering Systems. Procedia Computer Science, 192, 1560–1572 Pretorius, D. & De-Villiers, C. (2013). The effect of share-based payments on earnings per share of South African listed companies. Meditari Accountancy Research, 21(2), 178–190. https://doi.org/10.1108/MEDAR-03-2013-0006 Pududu M., L. & De-Villiers, C. (2016). Earnings management through loss avoidance: Does South Africa have a good story to tell? South African Journal of Economic and Management Sciences, 19(1), 18-34. http://dx.doi.org/10.17159/2222- 3436/2016/v19n1a2 Roychowdhury, S. (2006) Earnings management through real activities manipulation. Journal of Accounting and Economics, 42, 335-370. http://dx.doi.org/10.1016/j.jacceco.2006.01.002 https://doi.org/10.1111/acfi.12130 https://www.sciencedirect.com/science/article/abs/pii/S0278425418300073#! https://www.sciencedirect.com/science/article/abs/pii/S0278425418300073#! https://www.sciencedirect.com/science/journal/02784254 https://www.sciencedirect.com/science/journal/02784254 https://www.sciencedirect.com/science/journal/02784254/37/2 https://doi.org/10.1016/j.jaccpubpol.2018.02.002 https://doi.org/10.1506/car.25.4.5 https://ssrn.com/abstract=859624 https://www.iiste.org/Journals/index.php/RJFA/article/view/36783 https://doi.org/10.2308/accr.2002.77.s-1.61 http://dx.doi.org/10.5923/j.ijfa.20170604.01 http://dx.doi.org/10.1108/AJEMS-10-2017-0266 https://doi.org/10.1108/MEDAR-03-2013-0006 http://dx.doi.org/10.17159/2222-3436/2016/v19n1a2 http://dx.doi.org/10.17159/2222-3436/2016/v19n1a2 http://dx.doi.org/10.1016/j.jacceco.2006.01.002 Gusau Journal of Accounting and Finance, Vol. 4, Issue 1, April, 2023 297 Scott, D. W. (2009). Sturges' rule. WIREs Computational Statistics. 1 (3), 303– 306. https://doi.org/10.1002/wics.35 Shruti, R., & Thenmozhi, M. (2023). Founder ownership and value relevance of IFRS convergence: Role of institutional investors. Pacific-Basin Finance Journal, 101989. https://doi.org/10.1016/j.pacfin.2023.101989 Shuto, A. & Iwasaki, T. (2015). The effect of institutional factors on discontinuities in earnings distribution: public versus private firms in Japan. Journal of Accounting Audit. Finance 25, 283–317. https://doi.org/10.1177/0148558X14544504 Takeuchi, Y. (2004). On a statistical method to detect discontinuity in the distribution function of reported earnings, Mathematics and Computers in Simulation, 64(1), 103-111, https://doi.org/10.1016/S0378-4754(03)00124-1 Trimble, M. (2018). A reinvestigation into accounting quality following global IFRS adoption: Evidence via earnings distributions. Journal of International Accounting, Auditing and Taxation, 33(C), 18-39. http://dx.doi.org/10.1016/j.intaccaudtax.2018.09.001 Ugrin, C. J., Mason, T. W., & Emley, A., (2017). Culture's consequence: The relationship between income-increasing earnings management and IAS/IFRS adoption across cultures. Journal of Advances in Accounting. http://dx.doi.org/10.1016/j.adiac.2017.04.004 https://doi.org/10.1002/wics.35 https://www.sciencedirect.com/journal/pacific-basin-finance-journal https://doi.org/10.1016/j.pacfin.2023.101989 https://doi.org/10.1177/0148558X14544504 https://doi.org/10.1016/S0378-4754(03)00124-1 http://dx.doi.org/10.1016/j.intaccaudtax.2018.09.001 http://dx.doi.org/10.1016/j.adiac.2017.04.004