Comparability Effects of Mandatory IFRS Adoption

Abstract

research assistance. Joachim Gassen acknowledges the financial support of the German research foundation (DFG) under project A7 of the collaborative research center SFB 649 at Humboldt University. Stefano Cascino thanks the SFB 649 for co-founding his research visit at Humboldt University. Comparability Effects of Mandatory IFRS AdoptionABSTRACT: The mandatory adoption of IFRS by many countries worldwide fuels the expectation that financial accounting information might become more comparable across countries. This expectation is opposed to an alternative view that stresses the importance of incentives in shaping accounting information. We provide early evidence on this debate by investigating the effects of mandatory IFRS adoption on the comparability of financial accounting information around the world. Using two comparability proxies based on De Franco et al. [2011], our results suggest that the overall comparability effect of mandatory IFRS adoption is marginal at best. To investigate the reasons for this finding, we first hand-collect data on IFRS compliance for a sample of German and Italian firms and find that firm-, region-, and country-level incentives systematically shape accounting compliance. We then use the identified compliance incentives to explain the variance in the comparability effect of mandatory IFRS adoption and find it to vary systematically with firm-level incentives, suggesting that only firms with high compliance incentives experience substantial increases in comparability.

IFRS and Secrecy: Assessing Accounting Value Relevance Across Africa

“…Our results are consistent with Barton et al. () thesis that investors around the world place different value relevance on earnings and book values according to individual country characteristics (see also Cascino and Gassen, ), and that secrecy plays a strong role in accounting quality (Hope et al., ). We conjecture that the more conceptual focus of IFRS induced an increased demand for higher‐quality accounting professionals, and this has had a second‐order effect of improving managerial decision making (Albu et al., ).…”

An Empirical Study of the Method Effect in Analysing the Adoption of IFRS

“…Studies looking at financial reporting effects are grouped into three subcategories: compliance and accounting choice studies, studies analysing the properties of accounting numbers, and value relevance studies. The analysis shows that in compliance and accounting choice studies there is often limited access to appropriate data but a general conclusion is that there exists a cross-country variation (Glaum Schmidt, Street, & Vogel, 2013;Verriest, Gnaeremynck, & Thornton, 2013;Cascino & Gassen, 2012;Kvaal & Nobes, 2010;2012). In regard to studies analysing the properties of accounting numbers the results are inconsistent.…”

“…For example, there are studies focusing on common earning properties, finding that mandatory adoption of IFRS has no significant impact (Atwood, Drake, Myers, & Myers, 2011) or even a negative impact (Ahmed, Neel, & Wang, 2013;Callao & Jarne, 2010). Analysing the studies focusing on comparability shows results all the way from an increase in comparability (Cascino & Gassen, 2012) and a decrease in comparability (Lang, Maffett, & Owens, 2010) to results showing that it depends on time, i.e., an adoption of IFRS gives more comparability the first year but the effect diminishes over time (Liao, Sellhorn, & Skaife, 2012).…”

Ten Years of IFRS: Practitioners’ Comments and Suggestions for Research

“…Brüggemann et al (2012) cite three studies (Ahmed et al 2012; Atwood et al 2011; Callao and Jarne 2010) on earnings transparency, all of which present evidence that is not consistent with EU IFRS adoption objectives 10 . They also cite two studies (Cascino and Gassen 2011; Lang et al 2010) on earnings comparability. Only the former provides some evidence in support of the EU IFRS objectives.…”