Impact of IFRS in New Zealand on Accounts and Earnings Quality

Abstract

The impact of the adoption of International Financial Reporting Standards (IFRS) on the accounts and the quality of earnings of New Zealand firms is examined. Our analysis of IFRS adjustments for the last period under pre‐IFRS NZ Generally Accepted Accounting Principles (GAAP) reveals that total assets, total liabilities and net profit were significantly higher under IFRS than under pre‐IFRS GAAP. Profit and equity under IFRS were increased by adjustments for goodwill and other intangibles and investment property, and decreased by adjustments for employee benefits and share‐based payments. Using data for 2002–2009, we find that absolute discretionary accruals were significantly higher under IFRS than under pre‐IFRS NZ GAAP, suggesting lower earnings quality under IFRS than under pre‐IFRS NZ GAAP. However, we find no significant differences in signed discretionary accruals and the ability of earnings to predict one‐year‐ahead cash flows between pre‐IFRS NZ GAAP and IFRS. These results are consistent across alternative measures of accruals quality, sample selection and whether firms elected to adopt IFRS in 2005 rather than comply with them in 2007.

Does IFRS Convergence Promote the Value Relevance of Accounting Information?

“…Some of the benefits are increasing accounting quality (Barth et al, 2007), decreasing of income smoothing (Gebhardt and Novotny-Farkas 2011), promoting investment efficiency (Biddle et al, 2011), and improving the market's intermediating function (Horton et al, 2008). In contrast, non value added results also found as the IFRS adoption, no improvement of information's value relevance (Negash (2007) in Negash (2008)) and decreasing earning quality (Kabir et al, 2010).…”

The Impact and Implications of International Financial Reporting Standards in the United Kingdom: Evidence from the Alternative Investment Market

“…Outside Europe, the evidence presented in Goodwin and Ahmed () is based on the Australian market; three other recent research papers (Kabir et al. ; Stent et al. ; Trewavas et al.…”

The impact of IFRS-based accounting standards on earnings management: evidence from Malaysia

“…We start by studies of the countries belonging to European Union Kabir (2010) pointed out that the adoption of IFRS is associated with an increase in absolute value of discretionary accruals using a sample of 118 New Zealanders companies.…”

“…This historical innovation has received much attention from both practitioners and academics. One stream of literature examines the effects of the IFRS adoption and convergence on earnings quality (for example, Chen et al, 2010; Kabir et al, 2010;Zeghal et al, 2012;Pelucio-Grecco et al, 2014). Most of these studies focus on European and developed countries whilst research on emerging economies is very scarce.…”