Effect of non‐IFRS earnings reporting guidelines on underlying earnings reporting quality: The case of Australian listed firms

Abstract

This study investigates Australian Securities Exchange (ASX) 200 firms in the post–Australian Securities and Investments Commission (ASIC) period (2011–2014) to examine how listed firms follow the non–International Financial Reporting Standards (IFRS) earnings reporting guidelines issued by ASIC to communicate underlying earnings reporting quality. We find that firms that do not comply with the ASIC guidelines have lower underlying earnings reporting quality than do firms that comply with these guidelines. Firms that do not follow the ASIC guidelines are found to exclude income‐increasing underlying earnings adjustments to make underlying earnings appear more profitable than IFRS earnings when they miss earnings targets or make current losses, and that they report underlying earnings opportunistically by excluding recurring expenses that persist into future operating earnings. Unlike ASIC non‐compliance firms, ASIC compliance firms attempt to act as responsible reporters by reporting underlying earnings in a responsible manner to demonstrate a judicious use of discretion in informing shareholders. Further, we find that underlying earnings reported by non‐compliance firms are less value‐relevant than underlying earnings reported by compliance firms.

Determinants of Voluntary International Financial Reporting Standards Adoption in Poland

“…There is a positive capital markets' reaction and increased value relevance of accounting information from an investor perspective after IFRS adoption (Kouki, 2018, Petera et al, 2019. Previous studies reported that IFRS adoption have a greater impact on the quality of financial statements in countries with less advanced accounting systems (Hope et al, 2006;Rehman et al, 2014), IFRS also reduce the earnings management practices (Yang & Abeysekera, 2018. ) It was claimed that IFRS adoption in countries with less advanced accounting systems, like Poland may enhance the reliability and quality of financial reporting (Borowski & Kariozen 2007;Waniak-Michalak et al, 2012).…”