Did the Mandatory Adoption of IFRS Affect the Earnings Quality of Canadian Firms?

Abstract

This study examines whether the mandatory adoption of IFRS affected the earnings quality of Canadian public firms. We compare the pre-IFRS versus the postIFRS earnings quality, as measured by discretionary accruals, small positive earnings, earnings persistence, and earnings response coefficient. Using a sample of 461 firms that have the data availability in both the pre-IFRS and the post-IFRS periods, we find that income-increasing discretionary accruals have declined subsequent to the IFRS adoption, and that firms are less likely to have small positive earnings in the post-IFRS period than in the pre-IFRS period. We also find that earnings are more persistent after the IFRS adoption. Overall, our findings suggest that the mandatory adoption of IFRS in Canada leads to higher earnings quality to benefit accounting information users. We thank participants at the 2013 ASAC Annual Conference for their helpful comments on the earlier version of this paper. This research was supported by the CICA/CAAA Research Grant.