THE ROLE OF EARNINGS QUALITY IN FINANCIAL STATEMENT RESTATEMENTS: EVIDENCE FROM THE IRAQ STOCK EXCHANGE​

The research paper examines the contribution of earnings quality in the explanation of financial statement restatements in the case of industrial listed companies in the Iraq Stock Exchange (ISX). The study is based on the results of a sample of 25 industrial firms monitored during the years 2019-2024 and evaluated the quality of earnings is a timely signal of the failure of financial reporting in an emerging economy with a changing regulatory and governance framework. The quality of earnings is obtained with accrual-based discretionary accruals and financial statements restatements are obtained with binary indicator and a frequency-based measure. Using correlation analysis and panel regression models such as the logistic regression, the results show that there is a significant negative relationship between earnings quality and financial statements restatements. Companies with a better quality of earnings will not have as many restatements and restatement incidents. The regression findings also affirm the presence of statistically significant negative impact of earnings quality on the probability of restatement following firm size, leverage and audit quality. These results are in line with the previous evidence that earnings management undermines the reliability of reporting and makes the correction more likely in the future. This research also adds to the literature by offering new evidence within the Iraqi setting, in the role of earnings quality as a viable early-warning indicator among regulators, auditors, and investors. The findings highlight the need to increase audit quality, governance and enforcement practices to improve financial reporting credibility and alleviate the restatement risk in emerging economies.