The Moderating Role of International Financial Reporting Standards Adoption in the Effect of Tax Pressure on Financial Earnings Management: Evidence from Companies Listed on the Iraq Stock Exchange

Hasan  Mohsin; Sahar Sepasi; Behrooz  Khodarahmi

Authors

Hasan Mohsin PhD student, Department of Accounting, Faculty of Management and Economics, Tarbiat Modares University, Tehran, Iran Author https://orcid.org/0000-0003-1538-9832
Sahar Sepasi Associate Professor, Department of Accounting, Faculty of Management and Economics, Tarbiat Modares University, Tehran, iran https://orcid.org/0000-0001-7870-7231
Behrooz Khodarahmi Assistant Professor, Management Studies and Technology Development Center, Tarbiat Modares University, Tehran, Iran Author https://orcid.org/0009-0002-0655-5501

Keywords:

Tax pressure, financial earnings management, International Financial Reporting Standards, IFRS adoption, moderating effect, Iraq Stock Exchange, financial reporting quality

Abstract

This study aimed to examine the effect of tax pressure on financial earnings management and determine whether the adoption of International Financial Reporting Standards moderates this relationship among companies operating within the Iraq Stock Exchange environment. An explanatory sequential mixed-methods design was employed. The quantitative phase included 200 accounting, auditing, taxation, and financial-management professionals drawn from 150 Iraqi companies representing different ownership structures, organizational sizes, industries, levels of experience, and geographical locations. Data were collected using a structured questionnaire measuring tax pressure, IFRS adoption, and financial earnings management. Instrument validity was evaluated through expert review, exploratory factor analysis, and confirmatory factor analysis, while reliability was assessed using Cronbach’s alpha and composite reliability. Quantitative data were analyzed through Pearson correlation, hierarchical multiple regression, interaction analysis, simple-slope testing, and the Johnson–Neyman procedure. The qualitative phase involved semi-structured interviews with a purposively selected subsample, and interview data were analyzed using thematic analysis to explain the statistical findings. Tax pressure had a positive and statistically significant effect on financial earnings management, β = 0.51, p < 0.001, whereas IFRS adoption had a negative and statistically significant direct effect, β = -0.29, p < 0.001. The interaction between tax pressure and IFRS adoption was also negative and significant, β = -0.19, p < 0.001, and increased the explained variance by 3.4%. Simple-slope analysis showed that the effect of tax pressure on earnings management was strongest at low IFRS adoption, B = 0.62, p < 0.001, lower at the mean level, B = 0.49, p < 0.001, and weakest at high IFRS adoption, B = 0.36, p < 0.001. Qualitative findings indicated that disclosure requirements, documentation, audit scrutiny, and standardized recognition rules explained this moderating effect. Tax pressure increases financial earnings management, but substantive IFRS adoption weakens this effect by restricting accounting discretion and strengthening transparency, documentation, comparability, and professional oversight.

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