Article

Does Mandatory Adoption of IFRS Improve Accounting Quality? Preliminary Evidence

Contemporary Accounting Research (Impact Factor: 1.43). 07/2012; 30(4). DOI: 10.2139/ssrn.1502909

ABSTRACT

We provide evidence on the preliminary effects of mandatory adoption of International Financial Reporting Standards (IFRS) on accounting quality for a relatively broad set of firms from 20 countries that adopted IFRS in 2005 relative to a benchmark group of firms from countries that did not adopt IFRS matched on the strength of legal enforcement, industry, size, book-to-market, and accounting performance. Relative to these benchmark firms, we find that IFRS firms exhibit significant increases in income smoothing and aggressive reporting of accruals, and a significant decrease in timeliness of loss recognition; however we do not find significant differences across IFRS and benchmark firms in meeting or beating earnings targets. Our findings contrast with findings in earlier studies which suggest that IFRS adoption leads to increased accounting quality. Our findings primarily hold for firms in strong enforcement countries which suggests that enforcement mechanisms in these countries were not able to counter the initial effects of greater flexibility in IFRS relative to domestic GAAP.

Full-text preview

Available from: SSRN
  • Source
    • "They attributed the IFRS failure to the lack of the effective control systems in China, to monitor additional information produced under international standards. By conducting a comparative study between companies from 20 countries that have adopted IFRS in 2005 and companies from countries that have not adopted IFRS, (Ahmed et al. 2010) show the inexistence of significant differences between these two sets of firms in the informational quality of accounting data. We contribute to this literature with a different approach that attempts to verify the impact of IFRS on the informational content of earnings through their impact on the properties of financial analysts' forecasts as a measure of asymmetric information. "
    [Show abstract] [Hide abstract]
    ABSTRACT: This paper examines the impact of IFRS / IAS (International Financial Reporting Standards / International Accounting Standards) mandatory adoption on the earning's information content apprehended by the level of information asymmetry and whether this impact differs from one company to another with regard to its level of indebtedness. The information asymmetry is measured by the properties of financial analysts’ forecasts (error and dispersion).This study is conducted over 11 years from 2002 to 2012 by taking as a sample all the companies that belong to the CAC all tradable indexes. The results show a significant effect of these international's standards on financial analysts' forecasts, which stress informational content improvement. In addition, high level of indebtedness associated with IFRS adoption reduces forecast dispersion. By contrast, low level of indebtedness associated with IFRS adoption reduces forecast error.
    Preview · Article · Jan 2016
    • "and are more likely to change their reporting practices to a greater extent than mandatory adopters. For instance,Barth et al. (2008)reported that firms issuing financial reports based on the International Accounting Standards (IAS) have less of a tendency to smooth earnings than those using domestic Generally Accepted Accounting Principles (GAAP).Ahmed et al. (2013)showed that mandatory adopters of 12 In contrast to these studies,Hope et al. (2006)reported a negative association between IFRS adoption and investor protection, indicating that countries with weaker investor protection may use IFRS to make their capital markets more accessible to foreign investors. IFRS tend to use earnings smoothing c"
    [Show abstract] [Hide abstract]
    ABSTRACT: Using Japanese data, this paper investigates (1) market reactions to events that promote the adoption of International Financial Reporting Standards (IFRS), (2) the characteristics of firms that voluntarily adopt IFRS, and (3) market reactions to adoption announcements. Applying a probit model, we find that the probability of voluntary IFRS adoption is higher for firms that are younger, larger, and less leveraged; are audited by a Big Four audit firm; and have a higher foreign shareholders ratio. An event study also shows that the stock prices of firms that announce IFRS adoption tend to increase compared with those of firms with a similar probability of such adoption.
    No preview · Article · Jan 2016
  • Source
    • "Timeliness of loss recognition was investigated by Ahmed et al. (2013), Zeghal et al. (2012), Paanamen and Lin (2009), Christensen et al. (2008), Chen et al. (2010) and Uyar, (2013) "
    [Show abstract] [Hide abstract]
    ABSTRACT: The wide application of IFRS around the word, boosted in the context of the IAS Regulation in 2002, opened the field for many empirical studies that analyzed different perspectives on the voluntary or mandatory IFRS adoption. In order to achieve the intended benefits of IFRS adoption, related to increased comparability and transparency of financial reporting, IFRS application should result in improved quality of accounting information. The main objective of our paper is to analyze the effect of the transition from the national accounting standards to IFRS on accounting quality in Europe, based on the research literature. Our study presents the metrics used by researchers in order to measure accounting quality and summarizes the determinants of accounting quality.
    Full-text · Article · Dec 2015 · Procedia Economics and Finance
Show more