Abstract
The objective of this study is to examine the relevance and reliability aspects of accounting with respect to earnings’ usefulness which is measured as the association between earnings and share returns. Motivated by the lack of this research in emerging markets, this paper is focused on the companies listed on the stock exchanges in the Visegrad Group (V4) countries. Multiple regression analyses are used to establish links between accounting attributes on the sample of 64 listed firms for the time period between 2005 and 2017. This study shows that relevance is a more dominant accounting attribute than reliability. Companies listed in the V4 markets share this feature with companies listed in more mature markets. However, neither trade-off between relevance and reliability nor any trend in these accounting attributes was detected. The lack of these dynamics may be explained by different financial statements’ information needs of users in the V4 countries compared to users operating in more mature markets.
Highlights
Relevance and reliability are important characteristics of accounting information
Financial information is capable of making a difference in decisions if it has predictive value, confirmatory value, or both
As this paper will focus on the V4 listed firms, for which IFRS became mandatory as of 2005 following the earnings usefulness (EU) Regulation No 1606/2002, we firstly review literature investigating the effects of IFRS adoption and how the replacement of local GAAP by internationally recognised standards contributed to the perception of relevance and/or reliability of information presented in financial statements
Summary
Relevance and reliability are important characteristics of accounting information. On the other hand, is information that financial users can trust. 2.1 Theoretical background Accounting information possessing usefulness for decision-making shall have certain qualitative characteristics. The Conceptual Framework to International Financial Reporting Standards mentions relevance and faithful representation as fundamental characteristics. The Conceptual Framework defines relevance as: “Relevant financial information is capable of making a difference in the decisions made by users. Financial information is capable of making a difference in decisions if it has predictive value, confirmatory value, or both. The predictive value and confirmatory value of financial information are interrelated.” (Conceptual Framework for Financial Reporting, 2018)
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