Does Mandatory Adoption of IFRS Improve Accounting Quality? Preliminary Evidence

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.

IFRS adoption and investor perceptions of earnings quality: evidence from Korea

“…We expect 1 β of IFRS to be positive (negative) when investors perceive earnings from financial statements for the periods of post-IFRS adoption to be more (less) risky information than those in the periods of pre-IFRS adoption. In other words, if there is no difference of investor perception of earnings quality over the IFRS adoption periods, 1 β of IFRS is expected be zero or statistically insignificant, supporting our null hypothesis.…”

“…There exist previous studies that document the change in earnings quality in the post-IFRS period in terms of value relevance and earnings persistence; however, the results of these studies are mixed. Ahmed et al (2013) investigate whether the mandatory adoption of IFRS influences earnings quality, following Barth et al (2008). The researchers show that firms in post-IFRS adoption reveal higher smooth earnings, higher earnings management based on accruals, and lower sensitivity regarding early recognition of loss.…”

Accounting Manipulations and IFRS: Evidence from French Companies

“…Following Barth et al (2008) and Ahmed, Neel and Wang (2013), we use the ratio of the standard deviation of the change in net income (ΔΝΙ*) to the standard deviation of the change in cash flows (ΔCF*) residuals, from the two regression models (2):…”

“…Ahmed et al (2013) declare that if managers use accruals to smooth the changes in cash flows when reporting income, the variance of the change in net income should be less than the variance of the change in cash flows. So, we interpret a smaller value of this ratio as suggestive of earnings smoothing and manipulation.…”

Persistência e Value Relevance dos Resultados Contábeis com a Adoção das IFRS: Um Estudo em Empresas de Países do GLENIF

“…Enquanto algumas pesquisas apontaram que as IFRS permitiram uma melhor reflexão da substância econômica dos eventos -maior tempestividade dos resultados, lucros mais informativos, demonstrativos contábeis mais úteis e a redução na manipulação dos resultados (WU; LI; LIN, 2014;CHEN et al, 2014;DASKE et al, 2013;ISMAIL et al, 2013;ZEGHAL;CHTOUROU;FOURATI, 2012;LANDSMAN;MAYDEW;THORNOCK, 2012;LI, 2010;BARTH;LANDSMAN;LANG, 2008) outros estudos argumentaram que as IFRS por si só não são suficientes para o aumento da qualidade dos resultados contábeis, sendo necessários diversos conjuntos de fatores institucionais que facilitem as melhorias informacionais (BRYCE; ALI; MATHER, 2015;GARANINA;KORMILTSEVA, 2013;AHMED;NEEL;WANG, 2013;WATRIN;ULLMANN, 2012;HOUQE et al, 2012;ATWOOD et al, 2011 Com base no exposto, apesar das limitações observadas, é evidente que as empresas dos países em desenvolvimento têm amenizado as influências dos padrões contábeis nacionais e tornado mais presente a padronização internacional.…”