Empirical study reveals increased earnings management and reduced reporting lag in ERP adopters, indicating enhanced accounting discretion alongside faster disclosures.
ERP systems have become the system of choice for the majority of publicly traded companies and have radically changed the way accounting information is processed, prepared, audited, and disseminated. In this study, we examine whether ERP system implementations have affected the extent to which firms manage earnings amounts and release dates. We find, for a sample of ERP adopters, that implementations led to increases in the absolute value of discretionary accruals (i.e., greater earnings management). We also find a positive relationship between the extent of ERP module adoption and the extent of earnings management. With respect to earnings release dates, firms with incentives to increase the timeliness of their release dates experienced a decrease in reporting lag after implementing ERP systems. These results should be of interest to financial statement preparers initially adopting or implementing new versions of ERP applications, auditors serving clients with ERP systems, and regulators overseeing the financial markets and consolidation in the ERP industry.
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Brazel et al. (2008) studied this question.
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