The effect of the new revenue recognition principle (IFRS 15) on financial statement comparability: Evidence from Korea

Abstract

This study investigates the initial impact of International Financial Reporting Standards (IFRS) 15 by comparing the financial statement comparability of the effective years of its implementation with those of the pre-IFRS 15 periods. Given that private firms are exempt from the IFRS 15 amendment, we use them as the control group for public firms. Specifically, we use Korean firms from 2015 to 2020 and employ a difference-in-differences approach. This study finds an increase in financial statement comparability for public firms after the IFRS 15 application relative to the change of private firms that are not subject to the IFRS 15. We interpret that the enhancement in financial statement comparability is caused by the following two aspects of IFRS 15: discretion reduction effect and harmonization of multiple standards effect. Furthermore, an increase in comparability is greater for firms that are clients of industry-specialist auditors and those that operate in less-competitive industries, unlike their counterparts. We also find that discretionary revenues are lower in the post-IFRS 15 period than in the pre-IFRS 15 period. Overall, the results of this study suggest that IFRS 15 can deliver the outcomes aimed for by regulators, at least during its initial implementation.