Effect Of International Financial Reporting Standards Adoption Research Articles

Accounting for transition: A literature review

The purpose of this paper is to provide a literature review analysing the effects arising from the adoption of International Financial Reporting Standards (IFRS) in former Soviet Union countries (FSUC). The benefits and challenges identified through international accounting studies are applied as a conceptual framework to analyse the existing literature on the effects of IFRS adoption in transition economies. The article adopts a mixed-method approach that explores content by performing a qualitative analysis with quantification using NVivo software. By integrating findings and perspectives from 46 academic papers published in the English language literature from 2005 to 2020, the study highlights key achievements and limitations in FSUC, making findings readily available for scholars, policymakers and practitioners. Although adoption of IFRS is shown in the article to have a non-significant impact on practices in FSUC, the study’s conclusions contribute to the international debate on the relevance of IFRS to the national needs of different countries, particularly for those transition economies with a strong codified legal tradition rooted in the previous administrative system associated with Soviet accounting.

The Effect of IFRS Adoption on the Business Climate: A Country Perspective

Based on the ten areas that are measured by the ease of doing business (EDB) and based on the getting credit (GC) indicator, this study seeks to analyze factors that lead to a more favorable business climate in different countries. The methodology of fuzzy-set qualitative comparative analysis (fsQCA) was used to determine the paths taken by configurations or conditions in which variables affect an outcome. The results showed that high EDB and GC scores may be obtained under specified levels of IFRS (International Financial Reporting Standards) adoption degree and user experience requirements. Therefore, the adoption of IFRS could result in a better business climate in a nation since it would increase the comparability of financial statements, which will lower costs for investors, draw in foreign investors, and boost trust. Finally, the findings indicated that, depending on the presence of specific levels of GDP per capita, entrepreneurship, income group, and foreign direct investment (FDI) inflows, low or high values of IFRS adoption and high experience in applying IFRS are necessary to achieve high GC scores.

The relationship between IFRS adoption and foreign direct investments in Gulf Cooperation Council countries

Purpose: This paper investigates the relationship between International Financial Reporting Standards (IFRS) adoption and Foreign Direct Investments (FDI) inflows in a sample of Gulf Cooperation Council (GCC) countries, namely Kuwait, Qatar, UAE, and Saudi Arabia over the period standing between 1990 and 2020. Methodology/approach: This study implements a statistical analysis, starting with a panel correlation matrix and then a panel unit root test to identify the integrating properties of variables. The Pedroni panel co-integration approach tests co-integration among variables, and the instrumental Generalized Method of Moments (GMM) estima-tion technique identifies the relationship among variables and their significance. Findings: The results imply that only Gross Domestic Product (GDP) per capita, exchange rate and trade enhance FDI inflows in the studied countries. Contrary to our expectations, the IFRS was found to be insignificant on FDI along with economic control variables. Originality/value: Using multiple control variables, this study provides original em-pirical evidence and statistical analysis on the effect of IFRS adoption on FDI inflows in the GCC area.

How does mandatory IFRS adoption affect tax planning decision? Evidence from tax avoidance distributions

ABSTRACT The extant literature has provided much evidence on the consequences of adopting the International Financial Reporting Standards (IFRS), but studies that pertain to taxes and the IFRS are rare. This study investigates whether IFRS adoption affects corporate tax avoidance and how the impact of IFRS varies with country-level institutions. We find that the effect of an IFRS mandate on corporate tax avoidance is conditional; that is, firms with a lower (higher) initial level of tax avoidance tend to be more (less) tax aggressive after IFRS adoption. In addition, this conditional impact is more pronounced in regimes with higher levels of investor protection. We also find that the strength of country-level tax enforcement might erode (bolster) the positive (negative) effects of IFRS adoption.

The effect of IFRS adoption on accrual-based and real earnings management: emerging markets' perspective

PurposeThis study analyzes the effect of the mandatory adoption of the International Financial Reporting Standards (IFRS) on the level of both accruals-based (AEM) and real earnings management (REM) in a comprehensive sample of firms from emerging markets. It also analyzes whether this effect differs depending on the nature/extent of IFRS adoption (full versus modified).Design/methodology/approachSome previous studies predominantly made up of samples from developed countries suggest a substitution of AEM for REM in the post-IFRS period. The authors test whether this trade-off among the two earnings management strategies is also evident in emerging markets, based on a sample of 27,789 firm-year observations from 18 countries between 2000 and 2018.FindingsThe results suggest that IFRS adoption in emerging markets is associated with the replacement of REM by AEM, unlike previous overall evidence in developed countries where firms appear to do the opposite. The results also show that this replacement is lower in the emerging markets fully applying IFRS, when compared to those applying a modified version of these international standards.Practical implicationsPossibly due to the poor institutional environment of emerging markets, coupled with greater flexibility inherited of IFRS principles-based approach, the authors reiterate an imminent concern about IFRS encouraging substitution of REM for AEM in emerging countries, namely in those applying a modified version of IFRS.Originality/valueWhile the predominant IFRS literature in emerging markets remains focused on analyzing only single-country studies, promoting clearly mixed results, the authors enhance such discussion and foster this debate on a more international level by analyzing the joint effect of IFRS in 18 emerging markets and by comparing the effect of full and modified IFRS adoption.

한국채택국제회계기준의 도입 이후의 자본시장 안전성

Purpose This study examines the effect of the International Financial Reporting Standards (IFRS), which has been mandatory since 2011 for listed companies, on the stock price crash through conservatism. Design/Methodology/Approach The stability of the capital market was measured by stock price crash, and Khan and Watts (2009)’s method of measuring the level of conservatism was used. To verify the mediating effect, regression analysis was performed 3 times, and the results of the sobel test were also confirmed. Findings As a direct effect, IFRS adoption was found to increase the stock price crash in the stock market. The level of conservatism has decreased due to IFRS adoption. Conservatism has been found to be a parameter between IFRS adoption and the stock price crash. Research Implication This study is meaningful in that it examines the effect of IFRS adoption on the changes in the information environment of Korean companies, that is, the stock price crash. It was revealed that the level of conservatism after IFRS adoption is an important factor in the stability of the capital market.

IFRS Adoption and Financial Reporting Quality in Nigeria: A Conceptual Approach

The adoption of International Financial Reporting Standards (IFRSs) in different countries of the world have become a contemporary issue particularly with regard to the reliability of financial reports. The conceptual and empirical examination of the IFRS adoption and financial reporting quality across different sectors and countries. The study established that some studies used positive approach and some used positive paradigm. Studies used either of primary or secondary source of data, while some used mixed approach. The study found that IFRS adoption are determined by comparing the parameters concerned between pre and post IFRS regimes in given jurisdictions. The review concept and empirical evidences of IFRS adoption and financial reporting quality from many countries reveals that economic consequences of IFRS adoption significantly differ across jurisdictions though its impact has been reported to be positive in majority of studies. Also, few studies report indifferent and negative effects of IFRS adoption on financial reporting quality. The study found that it is argued that IFRS is more financial position focused. It is also observed that the impact of mandatory adoption of IFRS tends to be greater disputed than that caused by voluntary IFRS adoption. In addition, IFRS adoption are found to supersede many other domestic financial reporting standards such as Statement of Accounting Standard (SAS) in Nigeria.

The effect on the BTD of IFRS adoption and the end of the Transitional Tax Regime (RTT) in Brazil

ABSTRACT This paper aimed to evaluate the moderation by variables related to incentives for earnings management (indebtedness, profitability, and size) over the effect of the change in standards (accounting or tax) on the book-tax differences (BTD). The end of the Transitional Tax Regime (RTT) enables us to evaluate the symmetry between the divergence and reconvergence of the accounting and tax standards, helping to identify the moderating effect of characteristics such as size, leverage, and profitability over the use of the discretion allowed by the International Financial Reporting Standards (IFRS). Studying the effects of changes in the standards contributes to understanding how they affect accounting information quality, particularly when we observe symmetrical movements of divergence of the accounting and tax standards, such as IFRS adoption, and of reconvergence, with the end of the RTT. The analysis conducted enables us to separate effects of divergence between the tax and accounting standards from the innovations introduced by the IFRS. An understanding of the effect of the standard over accounting information quality contributes to the quality of the work of financial analysts, tax authorities, and regulators. Event studies are conducted to evaluate the effect of IFRS adoption, as well as the end of the RTT, over the BTD (a proxy for earnings management), in cross sections of companies. We use explanatory variables related to incentives to manage book and taxable income (indebtedness, profitability, and size), which could explain the ambiguity of the results in the literature. The article provides evidence that the indebtedness and size of companies influence the effect of IFRS adoption, as well as of the end of the RTT. We observed a negative relationship of indebtedness and size with the impact of changes in standards over differences between book and taxable income (BTD).

INTERNATIONAL FINANCIAL REPORTING STANDARDS ADOPTION, INVESTOR PROTECTION, AND FOREIGN PORTFOLIO INVESTMENT: A REVIEW

This paper aims to analyze the impacts of International Financial Reporting Standards (IFRS) adoption on foreign portfolio investment (FPI) in relation to investor protection based on existing empirical literature. This study uses a historical approach and focuses on thirty-six relevant articles published in accounting and finance journals. The author provides a theoretical groundwork of the association between IFRS adoption and FPI and summarizes the results. The findings are critically analyzed by employing developed vs. developing country lens. The review study reveals that the effects of IFRS adoption on FPI significantly differ between developed and developing countries. Although the positive impact of IFRS adoption on FPI is documented in existing literature, not all countries (particularly developing countries), firms, and users have benefited or equally benefited from IFRS adoption regarding FPI. In addition, the positive impacts of IFRS adoption on FPI are associated with the country's regulatory environment, such as level of investor protection. The findings of the study suggest that developing countries should ensure a proper regulatory environment to reap the full benefits of IFRS adoption. This review contributes to the existing literature by providing a comparative analysis of IFRS adoption effect on FPI between developed and developing countries while also suggests future research avenues.

The diffusion of innovation theory and the effects of IFRS adoption by multinational corporations on capital market performance: a cross‐countryanalysis

AbstractThis article seeks to contribute to International Financial Reporting Standards (IFRS) literature by examining the effects of adopting IFRS on stock market performance worldwide from the diffusion of innovation theory perspective. Our study revealed several interesting findings after using combinations of unique panel data sets from 110 countries worldwide and conducting a robust empirical analysis from 1995 to 2014. First, we found a positive association between late mandatory IFRS adoption and stock market integration in Europe. Second, our findings indicate a significant negative association between early IFRS adoption and the following financial indicators: stock market trading volumes, stock market capitalization, market turnover, and market return. Third, our study reveals an insignificant association between early IFRS adoption and stock price volatility alongside stock market development. Our findings are robust and have significant practical and policy implications for regulators and policymakers of multinational corporations.

Macroeconomic evidence on the impact of mandatory IFRS adoption on FDI in the Gulf Cooperation Council (GCC) countries

PurposeThe present paper seeks to investigate the impact of International Financial Reporting Standards (IFRS) adoption on the foreign direct investment (FDI) in the Gulf Cooperation Council (GCC) region for the period 1980–2017. This study relies on the information asymmetry theory, according to which IFRS adoption, as a positive signal for investors, should attract more FDI. This research is crucial and presents an interesting framework for providing a major motivation for empirical insights since the macroeconomic evidence on the impact of IFRS adoption on FDI is still unclear in the GCC region and no empirical evidence has been provided in the existing related literature.Design/methodology/approachThe analysis was conducted based on panel data from GCC countries over the period 1980–2017 and using the autoregressive distributed lag (ARDL) modeling approach and the pooled mean group (PMG) estimation method.FindingsThe findings indicate that the decision of adopting IFRS in GCC countries has a positive impact of 3% on FDI inflows in the short run. However, the adoption of IFRS in the region leads to a decrease of 10.4 % in FDI inflows in the long run.Practical implicationsThese findings should be of a major interest to regulators and policymakers in GCC countries, practitioners and academic researchers, international investors, managers and any other interested groups about the accounting environment in GCC countries and other developing countries having an interest in the economic consequences of IFRS adoption, as a driver of FDI, in developing countries.Originality/valueThis investigation provides original empirical evidence on the effect of IFRS adoption on FDI inflows within the context of the GCC area. In fact, the current international literature is lacking empirical evidence on the effect of IFRS adoption on FDI inflows for the GCC countries as a whole. Furthermore, this study offers an original methodological contribution to the macroeconomic impact of IFRS adoption literature by using the PMG estimator since there has been no research works to date that has used this method of estimation.

Do IFRS Promote Transparency? Evidence from the Bankruptcy Prediction of Privately Held Swedish and Norwegian Companies

The purpose of our paper is to investigate whether any differences between International Financial Reporting Standards (IFRS) and local Generally Accepted Accounting Principles (GAAP) impact the transparency of financial reporting of non-listed companies through bankruptcy prediction. This contributes to extant research that has focused on the effects of IFRS adoption in the context of listed companies. For our investigation, we used logistic regression, well-established accounting-based predictors, and a sample of financial statements from privately held Swedish companies using IFRS, and Norwegian companies using Norwegian GAAP. The results indicate that financial statements made under IFRS may be better suited for bankruptcy prediction than those made under Norwegian GAAP. Our findings suggest that the use of IFRS could aid in increasing the informativeness of financial reports by promoting transparency and prevent managers of firms facing insolvency from engaging in creative accounting practices. Our results should, however, be applied with caution, as they may be due to the differences in characteristics across firms that are not captured by our research design. We leave this issue open to future research.

An Empirical Evidence of the Value Relevance and Timeliness of Financial Reports in the Post Adoption of IFRS in Nigeria

The emergencies of the globalization of accounting standards and other critical issue have been reported to reduce the cost of enhancing comparability, understandability, and producing supplementary information, and analysis of the accounting reports. This allowed many developing nations who do not want to be left behind to take a cue from the world's major economies to meet the international financial reporting standards (IFRS) that Nigeria has taken measures to converge equally. The study examines the effect of IFRS adoption on financial reporting quality of listed non-financial companies in the Nigerian stock exchange. Particularly, in the area of value relevance and timely loss recognition. The study used 63 non-financial companies’ annual reports listed on the Nigerian Stock Exchange (NSE) for the period of 2008 to 2018 (i.e., 5years pre-adoption and 5years post adoption). Multiple linear regression was used in analyzing the collected data via STATA software. The result shows a significant increase in the value relevance of financial reports after IFRS adoption. The study also showed that the identification of significant losses increased in the post-IFRS adoption era. Based on the result, the study suggests that the relationship between accounting measures on IFRS adoption and financial reporting quality indicates that both foreign and local investors can predict the future of market value of individual securities. Therefore, investor receives considerable information by knowing the price information on time that shows more value relevant. Finally, this study contributed to the theory and practice, as well as direction for further studies related to the financial reporting standards and the reporting quality.

Consequences of International Financial Reporting Standards Adoption in Africa: Evidence From Foreign Direct Investment

International Financial Reporting Standards (IFRS) Adoption makes financial reporting transparent by enhancing the comparability and the quality of the financial information which reduces the transaction cost and attract foreign direct investment (FDI). This consequently facilitates the effective economic decisions of investors and other market participants. In light of this, many developing countries, in Africa, have resorted to the mandatory-IFRS adoption to enhance the inflow of foreign capital. The study, therefore, aims at finding out the effect of IFRS adoption on FDI inflows. We investigate whether the adoption of IFRS really enhances the inflow of foreign direct investment in developing countries. We use the Fixed Effect regression model, and the sample consisted of 45 (30 IFRS adopted and 15 IFRS non-adopted) African countries from the period of 2000 to 2017. The evidence from our study shows that the adoption of IFRS leads to increased FDI inflows. Most research on international financial reporting standard and foreign direct investment did not control the time period. By conducting further analysis using the difference-in-difference analysis to control the time period, our results highlighted that FDI inflows is higher after the adoption of IFRS. The increase in the value of FDI is influenced by the time period.

The effects of IFRS adoption and firm size on audit fees in financial institutions in Ghana

PurposeThis study aims to investigate the effects of international financial reporting standards (IFRS) adoption and firm size on auditors’ fees determination in the Ghanaian financial industry.Design/methodology/approachThe authors use the annual report of 52 listed and non-listed firms spanning from 2003 to 2014. Guided by the hypotheses, the authors conditioned audit fees on IFRS adoption and firm size and execute robust fixed effects panel regression.FindingsThe results show that IFRS adoption has a positive coefficient with audit fees suggesting that the adoption of IFRS, indeed, increases the audit fees paid by banks and insurance firms, as well as the industry as a whole. The results are consistent with the idea that IFRS adoption increases auditor efforts with respect to time and complex nature of some aspect of the standards. Again, as expected, the coefficient of size is positively and significantly related to audit fees. This indicates that the size of the auditee plays a vital role in determining audit fees.Research limitations/implicationsThe study is limited by industry (i.e. the financial services industry) and geography (i.e. Ghana). The authors propose further research that will widely consider other sectors and countries to improve the current scanty literature in this area. Besides, theoretically, the study is limited to the lending credibility theory and feels compelled to reiterate the importance of considering alternative theoretical perspective(s) in future research.Practical implicationsThis study is significant to practitioners as it demonstrates the importance of the determinants of the auditors’ fees. It helps auditors to apply the relevant charging formula when determining audit fees, while it helps managers to improve upon the quality of reporting to control audit bill and forecasting their audit expenditure.Originality/valueThe results of the study extend the literature on the cost side of IFRS adoption by investigating the financial services industry and non-listed firms in a new context, i.e. a developing country where this research is uncharted. The existing studies based their analysis on either cross-section or pooled analysis and shorter post-adoption period (Cameran and Perotti, 2014). However, using an extended post-adoption period data, the authors base the study on analytical panel model, which directly examine the cost side of IFRS adoption with size as joint key explanatory variables with emphasis on financial institutions and external auditors.

Dampak Adopsi IFRS terhadap Panjang Laporan Keuangan Perusahaan yang terdaftar di Bursa Efek Indonesia

As a member of G-20 Forum, Indonesia starts to adopts the International Financial Reporting Standard (IFRS) as a requirement to fulfill the demands and needs of financial statements users. The adoption of international accounting standards into national accounting standards aim to create financial statements that have high level of credibility and accountability. IFRS requests the requirement of high level of disclosure items so the value of companies will increase, management will have high level of accountability to run the company, that allows changes on the financial statements, for example that can change the length of financial statements. The purpose of this study is to know the effect of IFRS adoption on the length of financial statements, and to know the content of financial statements before and after IFRS adoption. This study was conducted by dividing financial statements into two sections, which are major statements and notes to the financial statements. The financial statements used in this study are 2008 and 2013. The sample was selected by purposive sampling method and analyzed using parametric and non-parametric tests. Results of this study show that major statements and notes to the financial statements experienced an increase in length after adopting IFRS. Notes to financial statements experiencing the most significant increase in length after adopting IFRS. On the major statements, the increase is caused by other comprehensive income account. While on the notes to the financial statements, increase is caused by implementation of PSAK 1 which requires the high level of disclosures. The increase mainly occured in accounting policy on the financial statements.

The Effects of IFRS Adoption on the Unconditional Conservatism of Spanish Listed Companies

AbstractThis paper analyses the effects of the mandatory adoption of International Financial Reporting Standards (IFRS) by Spanish listed companies in January 2005 on unconditional conservatism. The lack of robustness in previous evidence justifies analysis of this issue from a different perspective. To this end, we use, for the first time in this context, Ahmed and Duellman's (2007) methodology. These authors consider the impact of growth options and other future income, controlling for the idiosyncratic factors that the literature has found condition this type of conservatism. Additionally, beyond the pooled regression techniques usually used, we use econometric panel data techniques, which minimise the possible effect of endogeneity in the estimation of the proposed models. The results provide new evidence which supports our hypothesis that the adoption of IFRS has reduced the unconditional conservatism of Spanish listed companies.

IFRS adoption and investor perceptions of earnings quality: evidence from Korea

This study examines the consequences of International Financial Reporting Standards (IFRS) adoption in terms of the investor perception of earnings quality in the Korean stock market. Building on evidence from Ecker et al. (2006) suggesting that return-based earnings quality (E-loading), as captured by the sensitivity of stock returns to accounting information risk, accurately represents investor perceptions of earnings information risk, the authors examine whether E-loading is different between the pre- and post-IFRS adoption periods. Using KSE-listed firms from 2006 to 2014, the authors find the evidence that the extent of stock return sensitivity to information risk embedded in financial statements is greater in the period of post-IFRS adoption than in the period of pre-IFRS adoption. This finding indicates that even though accounting-based earnings quality improves after the adoption of IFRS, investors perceive earnings information after the adoption of IFRS as riskier than before. In addition, the difference in investor perception is more pronounced for firms with low accruals quality as captured by discretionary accruals, indicating that the effect of IFRS adoption on return-based earnings quality is distinctive from that on accounting-based earnings quality. The paper contributes to the literature on IFRS by exploring the effect of IFRS adoption through a new perspective on earnings quality in capital market.

Effects of IFRS adoption on tax avoidance

ABSTRACT This study investigates the association between mandatory International Financial Reporting Standards (IFRS) adoption and corporate tax avoidance. In this study, tax avoidance is defined as a reduction in the effective corporate income tax rate through tax planning activities, whether these are legal, questionable, or even illegal. Three measures of tax avoidance are used and factors at the country and firm level (that have already been associated with tax avoidance in prior research) are controlled. Using samples that range from 9,389 to 15,423 publicly-traded companies from 35 countries, covering 1999 to 2014, it is found that IFRS adoption is associated with higher levels of corporate tax avoidance, even when the level of book-tax conformity required in the countries and the volume of accruals are controlled, both of which are considered potential determinants of this relationship. Furthermore, the results suggest that after IFRS adoption, firms in higher book-tax conformity environments engage more in tax avoidance than firms in lower book-tax conformity environments. It is also identified that engagement in tax avoidance after IFRS adoption derives not only from accruals management, but also from practices that do not involve accruals. The main conclusion is that companies engage more in tax avoidance after mandatory IFRS adoption.

The effects of the International Financial Reporting Standards (IFRS) adoption on earnings quality: evidence from Korea

This study investigates whether earnings quality of Korean listed firms was substantially improved after the IFRS adoption in long-term aspect and which firms listed in KOSPI or KOSDAQ market had been more enjoyed the benefit. Prior studies related to this subject don’t provide consistent results and have a limitation of insufficiency of research periods. Therefore, this study analyzes the positive effect of the IFRS adoption in Korea using long-term based approach and comparative analysis on each Korean stock market. Furthermore, this study considered Korean specific institutional environment in which main financial statements prepared and disclosed by listed firms were changed from individual financial statements to consolidated financial statements after the IFRS adoption. Results of the study found that earnings quality of Korean listed firms had been significantly improved during 5 years after the IFRS adoption. In addition, earnings quality on consolidated financial statements of KOSDAQ listed firms has improved more than that of KOSPI listed firms. The results provide meaningful implications to evaluate the effects of IFRS adoption on earnings quality and to assess accomplishment of fundamental purpose of the IFRS adoption in Korea.