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In recent years, Initial Public Offerings (IPOs) have increased vastly. IPOs provide an easy way to increase initial investors’ wealth and to raise cash for future expansion of the company. Accrual accounting provides management with discretion in the reporting of earnings, and thus provides opportunity for managers to engage in earnings management in an IPO. This paper presents the first study of earnings management by initial public offering (IPO) firms in Iran. Besides, this paper seeks to determine whether Iranian managers exercise discretionary accruals to reach earnings forecast targets they voluntarily specify in conjunction with initial public offerings (IPOs). We examine a sample of 90 Iranian firms that issue voluntary management earnings forecasts in connection with IPOs that occur between 1993 and 2006. We investigate the pattern of discretionary current accruals (DCA) over time. We show that IPO firms choice to accruals-based earnings management in the year before the IPO and in the first year as a public company. The results show that pre-IPO earnings management by issuers is positively related to subsequent firm performance. The evidence strongly suggests that Iranian IPO firms engage in accruals management to reach their voluntary earnings forecast targets.