Abstract
PurposeThis study aims to examine whether the impact of international financial reporting standards (IFRS) on audit fees differs between early and late adopters.Design/methodology/approachThe authors use robust econometric estimation on a sample of 314 firms from both early and late IFRS adopting countries.FindingsThe authors find that IFRS is positively and significantly associated with an increase in audit fees for early adopters, but the impact is very weak for late adopters and insignificant in some cases. The results on auditing time suggest that increase in audit fees around IFRS adoption is due to an increase in audit reporting lags. After accounting for pre- and post-years, the authors find that the relationship between IFRS and audit fees, as well as audit time for late adopters, is significant only in the adoption year. However, early adopters experience a significant increase in audit fees and audit time in the transition year to one-year post-adoption.Practical implicationsThe findings imply that countries that are yet to adopt IFRS are less likely to experience a significant increase in audit fees audit time. Hence, is probable that the benefit of IFRS will outweigh the cost.Originality/valueThe results, therefore, suggest that early adopters paid a premium for been the first users of IFRS, which is consistent with any innovation. The study provides new insights by demonstrating that the consequences of IFRS differ between early and late adopters.
Highlights
There is considerable literature on the effect of international financial reporting standards (IFRS) on the auditing market, these studies are limited in explaining how the effect differs between early and late adopters (De George et al, 2013; Dinh and Piot, 2014; Griffin et al, 2009; Kim et al, 2012; Risheh and Al-Saeed, 2014; Yaacob and Che-Ahmad, 2012)
We find that IFRS is positively and significantly associated with an increase in audit fees for early adopters, but the impact is very weak for late adopters and insignificant in some cases
We find that the positive relationship between IFRS and audit fees and auditing time is significant in transition year through to one-year post-IFRS adoption
Summary
There is considerable literature on the effect of international financial reporting standards (IFRS) on the auditing market, these studies are limited in explaining how the effect differs between early and late adopters (De George et al, 2013; Dinh and Piot, 2014; Griffin et al, 2009; Kim et al, 2012; Risheh and Al-Saeed, 2014; Yaacob and Che-Ahmad, 2012). Existing studies largely ignore Africa, probably due to the low adoption of IFRS[1] but with a unique mix of early and late adopting countries (Boolaky et al, 2020). The full terms of this licence maybe seen at http://creativecommons.org/licences/by/4.0/legalcode
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