IFRS convergence and revisions: value relevance of accounting information from East Africa

Abstract

Purpose The purpose of this paper is to examine the relative value relevance of accounting information arising from the adoption of converged and revised International Accounting Standards (IAS)/International Financial Reporting Standards (IFRS) in East Africa. Design/methodology/approach The research applies “same firm year” design for identification of the effects of changes in accounting standards. A model similar to Ohlson’s price model and random-effects GLS are used to estimate R2 of the regressions of share prices on book values and earnings. Findings The results show that accounting information prepared from revised and converged IAS/IFRS display higher value relevance and also increased following the revision and convergence of IAS/IFRS. The cross-product term is more significant in the post-revision/convergence period thus providing further evidence for increased value relevance after the revision of IAS/IFRS. The results are robust to various models and show that value relevance in East Africa is relatively lower than that of the developed markets. Originality/value The current study provides empirical evidence that value relevance increases with converged/revised IAS/IFRS based on quasi natural experimental setting in East Africa. The authors also extend the debate on whether value relevance is relevant in emerging markets, which are regarded as imperfect markets with few regulations, weak enforcement and limited sources of information. The results may be useful to accounting preparers, regulators, investors, standard setters and countries seeking to adopt IAS/IFRS in developing countries.

The Accounting Conservatism of the Adoption of IFRS in Indonesia

“…There is a large body of evidence from prior studies that the adoption of the IFRS in developed countries increases earnings quality (Chen et al, 2010;Houqe et al, 2015;Manganaris et al, 2016;Okafor et al, 2016). This result seems consistent with many of the studies conducted in developing countries (Ismail et al, 2013;Chebaane & Othman, 2014;Krismiaji et al, 2016;Outa et al, 2017).…”

“…The conservatism level of financial reporting immediately recognizes the possibility of loss, so that the loss is recognized following the fair value. The IFRS does not disregard conservatism as it follows the guideline of value relevance (Chen et al, 2010;Ismail et al, 2013;Chebaane & Othman, 2014;Houqe et al, 2015;Krismiaji et al, 2016;Manganaris et al, 2016;Okafor et al, 2016;Outa et al, 2017). In the IFRS, the possibility of loss is recognized on time, similar to the conservatism principle.…”

The value relevance of accounting information in the MENA region

“…Value relevance is, therefore, the statistical association between accounting numbers and the market value of equity (Beisland, 2009). Outa et al (2017) highlight the importance of value relevance research by explaining that the financial statements prepared by firms provide investors and other decision-makers with valuable accounting information to enable them to make informed decisions. This is important particularly in relation to developing economies where there is a scarcity of capital and a high degree of investment risk.…”

Konvergensi IFRS di Indonesia: Apakah Relevansi Nilai Relatif dan Inkremental Informasi Akuntansi Terdampak?

“…Selain itu, konvergensi IFRS yang juga memberi perhatian pada pengungkapan informasi menarik untuk dibahas, dimana tingkat pengungkapan informasi keuangan terbukti terkait dengan relevansi informasi akuntansi (Shamki & Rahman, 2013). Outa, Ozili, and Eisenberg (2017) juga menemukan bahwa perbaikan standar akuntansi berbasis IFRS berhasil meningkatkan relevansi nilai informasi akuntansi. Secara umum, informasi-informasi akuntansi juga mengalami kenaikan relavansi nilai pada masa sesudah adopsi IFRS (Kouki, 2018).…”