Has Financial Reporting Quality Converged Under IFRS? International Differences in Conditional Conservatism

Abstract

Using a large sample of firms that report under mandatory IFRS from 51 countries, this study examines the association between conditional conservatism, institutional quality, and Big 4 audits. We hypothesize and find that the degree of conditional conservatism is higher in countries with better institutional quality. In contrast to popular belief, we provide evidence that Big 4 audits are not associated with the degree of conditional conservatism. Finally, we show that reporting differences between high and low institutional countries have not diminished over time. Thus, our findings suggest that the implementation of IFRS remains predictably uneven. These findings have implications for investors, standard-setting bodies, and corporate governance.