The effect of IFRS adoption on financial reporting quality: evidence from listed manufacturing firms in Ghana

Abstract

This paper sought to examine the pre- and post-IFRS adoption effects on the financial reporting quality (FRQ) of manufacturing firms listed on the Ghana Stock Exchange (GSE) via means of correlation analysis, as well as regression analysis using a standard Fixed Effect (FE) model and the Ordinary Least Squares (OLS) technique. Data was sourced from the audited annual reports of eleven manufacturing firms observed over the period 2001 to 2006 for the pre-adoption era, and 2007 to 2014 for the post adoption era, making 148 firm-year observations. Using earnings management, measured by modified Jones’ discretionary accruals, as a proxy for FRQ, the regression results showed a significant negative effect of IFRS adoption on earnings management, thus indicating an improvement in the FRQ. On the extent of earnings management practices both pre- and post-IFRS adoption, the study finds a decrease in the post-adoption era as against the pre-adoption era, also signifying an improvement in accounting quality after the adoption of IFRS. The findings of this study indicate that, IFRS adoption enhances the quality of firms’ financial reports within the Ghanaian capital market, which is envisaged to boost investor confidence and attract more capital.