Abstract
The harmonization of accounting standards has been an international trend in the past two decades. As of 2018, 144 of 166 profiled jurisdictions require the use of International Financial Reporting Standards (IFRS). Nevertheless, there is mixed evidence on the effect of IFRS on sustainable accounting information. This study examines whether IFRS adoption improves earnings sustainability, focusing on emerging markets. Specifically, it tests the effect of IFRS on earnings quality by comparing earnings management and financial statement comparability of Korean listed firms for the pre- and post-IFRS periods. The results show that firms report less managed earnings in the post-IFRS period than in the pre-IFRS period. Furthermore, the results suggest the enhancement of financial statement comparability in the post-IFRS period compared to the pre-IFRS period. In particular, this paper documents that the effect of IFRS on sustainable accounting information is more pronounced in competitive industries. Moreover, it shows that small firms benefit more from adopting IFRS. Overall, this study finds that IFRS adoption in Korea improves the overall sustainability of accounting information.
Highlights
This study examines whether earnings sustainability differs between pre- and post-International Financial Reporting Standards (IFRS) periods
It tests the effect of IFRS on earnings quality by comparing the earnings management and financial statement comparability of Korean listed firms between the pre- and post-IFRS periods
This study examines whether the adoption of IFRS improves earnings sustainability
Summary
This study examines whether earnings sustainability differs between pre- and post-International Financial Reporting Standards (IFRS) periods It tests the effect of IFRS on earnings quality by comparing the earnings management and financial statement comparability of Korean listed firms between the pre- and post-IFRS periods. The purpose of establishing and adopting a new international standard is in order to enhance the quality of financial reporting and increase its comparability across firms and countries [1]. Investors willing to invest in the Korean stock market could benefit from the results of this study as it shows that IFRS adoption has improved the comparability of financial statements among firms in Korea. Previous studies found a positive association between IFRS adoption and accounting quality mostly by focusing on European Union countries, there is little evidence from the emerging market.
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