Does Trade in Goods Foster Trade in Accounting Practices? The Case of Mexican Firms Subsequent to the Adoption of the North American Free Trade Agreement

ABSTRACTAbnormal accruals might indicate earnings management. We investigate whether Mexican companies increased their abnormal accounting accruals in the years following the adoption of the North American Free Trade agreement [NAFTA]. This issue is of regulatory importance, as it examines changes in accounting practices internationally – particularly concerning practices in developing nations as firms adopt International Financial Reporting Standards. We find that overall, both discretionary and non-discretionary accruals increase slightly during the sample period. This indicates that while overall, Mexican firms may have chosen more aggressive accounting practices, certain firms may have instead adopted more conservative accounting approaches during the period