Investigating the Effects of the EU Mandatory Adoption of IFRS on Accounting Quality: Evidence from Italy

Abstract

The European Community Regulation No. 1606/2002 required all EU listed companies to prepare their consolidated financial statements in accordance with IFRS as from 1 January 2005. This paper studies the impact of the IFRS mandatory adoption in a typical code-law European country such as Italy. It aims to investigate how and whether the accounting information quality changes following IFRS implementation. The focus is on value relevance which is considered as one of the basic attributes of accounting quality. An empirical analysis is performed on a sample of 960 firm-year observations concerning Italian listed companies observed from 2002 to 2007. Results confirm the expected overall increase in the value relevance under IFRS. The research also documents changes in Italy’s country-specific factors in the period surrounding IFRS adoption that may contribute to an improvement in accounting quality. Such a concern is consistent with previous literature supporting the idea that accounting quality does not depend only on the high quality of accounting standards, but it is also a function of the country’s complex institutional setting

International financial reporting standards and financial reporting quality in Nigeria

“…The result of improvements of financial reporting quality in terms of value relevance was in consonance with the work of Palea (2013); which concluded on the improvement of financial reporting quality after the adoption of IFRS based on a meta-analysis. The finding is also in agreement with the works of Muller (2014), Kargin (2013), Lin et al (2012), and Paglietti (2009). The result was however in contrast with the findings of Garanina and Kormiltseva (2013) which found no evidence of increased value relevance of accounting data to external users of financial information.…”

“…The empirical works of Muller (2014), Kargin (2013), Palea (2013), Lin et al (2012), Karampinis and Hevas (2009) and Paglietti (2009) investigated the association between IFRS adoption and value relevance and they indicated that value relevance of accounting information improved during the post-IFRS period. The studies of Garanina and Kormiltseva (2013) and Outa (2011) however negated the positive effect of IFRS adoption on the value relevance of accounting information.…”

Mandatory adoption of IFRS in emerging markets: the case of Turkey

“…Reporting positive or negative earnings and size effects on the value relevance are the essential issues that need to be clarified (Khanagha et al, 2011;Paglietti, 2009 …”

IFRS Adoption in Italy: Which Effects on Accounting Figures and Subjectivity?

“…Therefore, a number of studies focused on technical aspects related to the IFRS adoption (i.a., Andrei, Marchini, & Tibiletti, 2005;Corbella, Florio, Lionzo & Tessitore, 2007;Corbella & Florio, 2010), on the different informative content of financial statements (i.a., Paglietti, 2009;Capkun, Cavazan-Jeny, Jeanjean & Weiss, 2010;Mauro & Catuogno, 2010;Pieri, 2010;Veneziani, Carini, Bendotti & Teodori, 2010) and on the competing issues mentioned above (i.a., Mattei, 2006;Quagli, Avallone & Ramassa, 2007;Aussenegg, Inwink & Schneider, 2008;Cai, Rahman, & Courtenay, 2008;Capkun et al, 2008;Paglietti, 2009;Callao & Jarne, 2010). Our study aims at contributing to the literature on IFRS adoption in Italy shedding light on the actual impacts of the transition to IFRS on financial statements, on the relevance of such impacts on main accounting figures, and on the different degree of subjectivity arising from the adoption of those evaluation criteria which had great impacts on the financial statements presented by Italian companies.…”