Is K-IFRS Accounting Information Quality Different by Industries?

Abstract

The vast change of business environment in recent times requires a strong need to enhance accounting consistency and quality throughout the world. To meet this demand Korea has adopted IFRS(International Financial Reporting Standards) for all listed public companies from the year 2011. However, the effects of application of IFRS on financial reporting quality has been inconsistent. Further, since IFRS emphasizes economic substance and accounting principles, it has been considered that the application of IFRS will have different impact in different industries. The purpose of this study is to evaluate the effect of IFRS application on the quality of accounting information in different industries. This study examine the quality of accounting information in different industries for KSE(Korean Stock Exchange) listed companies during years from 2007 to 2013(three years before adoption of IFRS in 2011 and three years since IFRS adoption). Using discretionary accruals calculated with modified Jones model, this study examine by industries the difference between actual and tentative earnings and the prediction error of current accruals. This study documents that after IFRS adoption the quality of accounting information improved in general. Analysis of discretionary accruals by industries shows that accounting quality is higher in production industry. Discretionary accruals is lower in advanced technology industries, implying accounting quality in those industries is higher. Also, this paper provides an evidence that manufacturing industries exhibits higher accounting quality, whereas cultural industry(ind-16) appears to have poor accounting quality. After IFRS adoption, companies in the similar categories of industries appears to use similar accounting procedures. These findings suggest that to increase the comparability of accounting information it is demanding to establish category-oriented accounting principles and practices which can reflect the economic substances of the each business category.