The Impact of Applying International Financial Reporting Standard 9 (IFRS 9) on the Quality of Financial Reports of Iraqi Commercial Banks1

Abstract

This research aims to examine the impact of the mandatory adoption of International Financial Reporting Standard 9 (IFRS 9), specifically the Expected Credit Loss (ECL) model, on earnings management practices in Iraqi commercial banks listed on the Iraq Stock Exchange. IFRS 9 represents a fundamental shift from the incurred loss model under the previous standard, IAS 39, to a forward-looking model that heavily relies on extensive managerial estimates. This shift raises questions about whether such flexibility constraints or enhances earnings management. The study adopts a rigorous quantitative methodology utilizing panel data regression for a sample of listed commercial banks during the period (2016–2023), covering both the pre- and post-mandatory implementation phases of the standard. Earnings management was quantitatively measured using the Modified Jones Model, with a particular focus on loan loss provisions (LLPs) as the primary tool for earnings management in the banking sector. The findings indicate that the implementation of IFRS 9 has exerted specific effects on earnings management practices, suggesting that the forward-looking expected credit loss model has influenced the quality of financial reporting. The study recommends the necessity of enhancing regulatory oversight over the managerial estimates used in calculating expected credit losses, alongside developing disclosure mechanisms to ensure greater transparency in the application of this standard.