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

Abstract

AbstractThis study examines whether the mandatory adoption of International Financial Reporting Standards (IFRS) affected the earnings quality of Canadian public firms. We compare the pre‐IFRS versus the post‐IFRS earnings quality, as measured by discretionary accruals, performance‐matched discretionary accruals, small positive earnings, earnings persistence, and the earnings response coefficient. Using a sample of 274 firms, we find no significant difference in discretionary accruals, performance‐matched discretionary accruals, the likelihood of small positive earnings, and the earnings response coefficient between the pre‐ and post‐IFRS periods, despite the finding that firms have more persistent earnings in the post‐IFRS period than in the pre‐IFRS period. Overall, results from this study are mixed and suggest that there has been no significant change in earnings quality for public Canadian firms after the adoption of IFRS.