Effect Of International Financial Reporting Standards Adoption Research Articles

Effect of IFRS Adoption on Corporate Performance Measurement: Analysis of Japanese Manufacturing Companies

The International Financial Reporting Standards (IFRS) are becoming the leading principles and a special driver for the convergence of financial and management accounting in over 130 countries including the voluntary adoption. The purpose of this study is to examine the impact of the adoption of IFRS on management accounting. More specifically, this study investigates the differences in the importance of strategy goals, and financial and nonfinancial measures that have changed after its adoption. The results of a questionnaire survey conducted on Japanese manufacturing companies indicate that the effects of respondent firms provide with management accounting practices and techniques before and after the adoption of IFRS. My findings suggest that there seem to be considerable differences in the importance of strategy goals, and financial and nonfinancial measures before and after IFRS adoption.

Introduction and Rationale for IPSAS and IFRS Implementation

The global wind of economic integration has now reached the doorstep of accounting profession with intense pressure on nations state to apply unified accounting Standards in government undertakings. This effort could be seen as a centaury reform to the profession. The reform agenda was perceived as way forward towards harmonizing public sector with private sector liked system and principle of financial reporting, which for long experts had been advocating on the believed that both sectors should operate at the same level of efficiency. The need for high quality standards to enhance sound and consistent financial reporting and the fact that the inefficiency and ineffectiveness of public sector extended to a belief that public and private sectors did not have to be managed in fundamentally different ways, fostered a wide-ranging discussion about the harmonization of public sector accounting systems and their convergence towards the private sector financial reporting standards. There is no doubt that applying universal high quality standards can promote efficiency, transparency which in long run may promote public accountability. However, the process of adopting a uniform set of accounting standards, as a part of the international convergence of financial reporting systems, is perceived as a very complex, time consuming and difficult task. The trend of international convergence and harmonization policy of private sector accounting and financial reporting standards has also made the influence on the process of entire public sector reform that has been progressing worldwide. According to Ball (2006), since accounting is shaped by economic and political factors, harmonization of accounting standards and practices is almost an inevitable consequence of the increasing integration of markets and policies. This has been witnessed by the mandatory adoption of the International Financial Reporting Standards (IFRS) in several countries in the last decade. The International Accounting Standards Board (IASB) is a private organization of international scope established in 1973. It has issued a set of standards to be used when preparing financial statements, namely 41 International Accounting Standards (IAS) and 13 International Financial Reporting Standards (IFRS). The IAS are standards issued by the IASB by 2001 and IFRS are standards issued after that year. Nevertheless, currently, the expression IFRS is commonly used alone to designate this set of rules (IAS and IFRS). This IFRS adoption worldwide is a significant economic transformation and it gave rise to a major line of research. This paper reviews the empirical literature on the effects of IFRS adoption on financial management and economic transformation with the focus on Cameroon. Empirical research allows evaluating the impact of changing standards on the financial reporting quality, as well as the effects of such a change on the capital market (Douala Stock Exchange), it can also contribute to understanding the factors that influence the consequences of change. This knowledge is important for regulators in Cameroon that are preparing to change standards, but also for national regulators that have already done it when considering ways to improve IFRS implementation. This paper will revisit some cases studies encouraging the implementation of IFRS and IPSAS worldwide and attempt to domesticate the concepts in Cameroon. The first part provides the rationale of IFRS and IPSAS implementation, while the second part gives some international cases studies on IFRS implementation. The last part of the paper gives a roadmap for effective and efficient implementation of IFRS in Cameroon.

Mandatory IFRS Adoption and Changes in Default Prediction Accuracy

The study tests for changes in default prediction accuracy following the country-level switch to International Financial Reporting Standards (IFRS) in 20 European Union (EU) and nonEU jurisdictions. Using a default prediction model that combines both accounting and market inputs, we find that compared to a control group of non-adopters, IFRS adopters do not benefit from the international standards in terms of default prediction accuracy. Further cross-sectional analyses of companies from adopting jurisdictions in the post-adoption period show that voluntary adopters and companies domiciled in jurisdictions with large distances between their local GAAP and IFRS have higher default prediction accuracy. Higher enforcement is associated with higher default prediction accuracy in the EU and with lower default prediction accuracy in non-EU jurisdictions. The results add to the literature on the consequences of IFRS adoption and speak to the performance of default prediction models across jurisdictions, given a change in accounting regulation.

How Badly Do Listed Firms Want to Avoid IFRS? Delisting Decisions in the Post-IFRS Adoption Period

This paper provides evidence on the net effect of country-level adoption and implementation of International Financial Reporting Standards (IFRS). We use firm-years from 18 IFRS-adopting jurisdictions to examine the association between the country-level adoption of IFRS and the overall probability of delisting in the post-adoption period. We further examine how mandatory IFRS adoption relates to the probability of voluntary delistings (including delistings caused by mergers and acquisitions, privatizations, and company requests) and involuntary delistings (including delistings due to reorganization and bankruptcy filings and delistings by the exchange). We also test the association between regulatory quality and delisting in IFRS-adopting jurisdictions. Our findings indicate that the probability of delisting is higher for IFRS-adopting jurisdictions in the post-adoption period for companies delisting both voluntarily and involuntarily. We also find that the probability of delisting increases only in strong-enforcement jurisdictions, which we attribute to higher IFRS compliance costs in these jurisdictions. Our findings extend the literature on the association of accounting regulation with firms’ delisting decisions and shed light on the possible effects of IFRS adoption on stock exchange competitiveness.

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

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

IFRS Adoption - Evidence from a Regulator

We provide descriptive evidence on the enforcement of International Financial Reporting Standards (IFRS) adoption in New Zealand. Although there remains a voluminous literature on the consequences of IFRS adoption, very little is known about the securities regulators’ enforcement actions in case of non-compliance with IFRS. In this paper we document the matters raised by the Securities Commission of New Zealand in their Financial Reporting Surveillance Program for the period 2007 and 2010. The results show that main enquiries related to financial statement presentation, financial instruments disclosures, and related party disclosures. Regulators adopt a different perspective to auditors on the importance of various IFRS. This suggests that private enforcement (auditing) and public enforcement (regulation) are complementary activities. We also discuss the implications for current IASB issues, such as materiality and professional judgment in principles-based standards.

International Financial Reporting Standards, board governance, and accounting quality

PurposeThe purpose of this paper is to discuss empirical research examining the impact of International Financial Reporting Standard (IFRS) adoption and board governance on the accounting quality, in terms of relevance and faithful representation.Design/methodology/approachThe research uses a sample of 454 observations of publicly listed companies on the Indonesian Stock Exchange for the fiscal year that ends on December 31, 2008 through 2011. Relevance is measured by predictive value, whereas faithful representation is measured by absolute discretionary accrual as an inverse measure. Board governance is measured by the board of commissioner score whereas IFRS adoption is measured by the percentage of IFRS adopted. The data used in this study are obtained both from Indonesian Capital Market Directory, Indonesian Stock Exchange database, and from company annual reports.FindingsThis research found evidence of a positive association of IFRS adoption on the relevance of accounting information quality. With respect to faithful representation, this study proves a positive association after IFRS adoption. This research also found that board governance has a positive impact on accounting information quality after IFRS adoption both in relevance and faithful representation. This result is in line with investor’s expectations that fair value IFRS adoption enhances the relevance of accounting information.Originality/valueThis study provides further evidence on the effect of IFRS adoption and board of governance on accounting information quality using data from Indonesia. Moreover, this study measures and tests both dimensions of earnings quality which are relevance and faithful representation and portrays a complete story about the quality of earnings. This study uses the qualitative characteristics of accounting information as proxies for accounting quality, so that it enriches the accounting literature about the role of accounting standards in financial reporting quality.

Effect of IFRS adoption on financial reporting quality

Purpose The purpose of this paper is to investigate whether International Financial Reporting Standards (IFRS)-based data improve bankruptcy prediction over Australian Generally Accepted Accounting Principles (AGAAP)-based data. In doing so, this paper focuses on intangibles because conservative accounting rules for intangibles under IFRS required managers to write off substantial amounts of intangibles previously capitalized and revalued upwards under AGAAP. The focus on intangibles is also motivated by empirical evidence that financially distressed firms are more likely to voluntarily capitalize and make upward revaluations of intangibles compared with healthy firms. Design/methodology/approach This paper analyses a sample of 46 bankrupt firms and 46 non-bankrupt (healthy) firms using a matched-pair design over the period 1991 to 2004. The authors match control firms on fiscal year, size (total assets), Global Industry Classification Standard-based industry membership and principal activities. Using Altman’s (1968) model, this paper compares the bankruptcy prediction results between bankrupt and non-bankrupt firms for up to five years before bankruptcy. In the tests, the authors use financial statements as reported under AGAAP and two IFRS-based data sets. The IFRS-based datasets are created by considering the adjustments on the AGAAP data required to implement the requirements of IAS 38, IFRS 3 and IAS 36. Findings This paper finds that, under IFRS, Altman’s (1968) model consistently predicts bankruptcy for bankrupt firms more accurately than under AGAAP for all of the five years prior to bankruptcy. This greater prediction accuracy emanates from smaller values of the inputs to Altman’s model due to conservative accounting rules for intangibles under IFRS. However, this greater accuracy in bankruptcy prediction comes with larger Type II errors for healthy firms. Overall, the results provide evidence that the switch from AGAAP to IFRS improves the quality of information contained in the financial statements for predicting bankruptcy. Research limitations/implications Small sample size and having data available over the required period may limit generalizability of findings. Originality/value Although bankruptcy prediction is one of the primary uses of accounting information, the burgeoning literature on the benefits of IFRS adoption has so far neglected the role of IFRS data in bankruptcy prediction. Thus, this paper documents a new benefit of IFRS adoption. In this paper, the authors demonstrate how the restrictions on the ability to capitalize and revalue intangibles enhance the quality of information used to predict bankruptcy. These results provide evidence to international standard setters of what they can expect if their efforts to remove non-restrictive accounting practices for intangibles are abandoned.

IFRS Adoption and Financial Reporting Quality: A Review of Evidences in Different Jurisdictions

Conventional and commonly held wisdom with respect to the adoption of International Financial Reporting Standards (IFRS) is that they lead to improved financial reporting quality and comparability and thereby favorable economic consequences. There are however contradicting evidences disproving this conventional wisdom or rejecting its gross generalization over the entire jurisdictions harmonizing on IFRS. Driven by this fact, quests for knowledge about the dynamics and contexts that lead to differential effects of IFRS get momentum. In an attempt to explore the insight into the effects of international accounting harmonization by way of IFRS adoption, this paper reviews selected literatures on the consequences of IFRS adoption. This review discusses some empirical evidences that have been reported in various countries that include Europe, USA, United Kingdom, Germany, Spain, Norway, Greece, Poland, Belgian, France, Italian, Turkey, United Arab Emirates (UAE), Kuwait, Jordan, China, Malaysia, Australia, Hong Kong, New Zealand, Kenya and Nigeria. Our review focuses on the aspects of value relevance, disclosure quality, cost of capital, earning management and financial statement impact due to the IFRS adoption. This review reveals that the economic consequences of IFRS adoption is significantly different though its impact reported to be positive in majority of cases. There are also notable number of studies that report indifferent and or negative effects of IFRS adoption. When IFRS studies report mixed evidence with respect to value relevance of book value of equity and earing, book value of equity supersedes the earning parameters. IFRS are found to supersede many other domestic financial reporting standards in terms of amount and the quality of disclosures in financial statement. This review also obtains that IFRS’s impact on the reduction of cost of capital depends on financial reporting incentives, law enforcement, types of legal systems and various other country-specific and capital market characteristics. Further, though there are some evidences to the contrary, the quality of earnings reported under IFRS has been established to be superior to other local standards.

Effect of IFRS adoption on reported earnings: Empirical study on Germany and Spain

Since 2005, when the IFRSs were mandatorily adopted for publicly traded companies within the European Union, their influence on accounting quality began to grow in importance. This paper examines the effect of the International Financial Reporting Standards (IFRSs) on earnings quality during the period 2000–2013. The research sample consists of 358 companies from 2 European countries – Germany and Spain. The sample contains companies that firstly used local accounting standards and later on switched to reporting under IFRSs. This paper contributes to the current academic discussion more empirical evidence from a typically strong European economy (Germany) and from an opposite representative (Spain). It investigates the IFRSs’ influence on earnings quality by small reported profits to small reported losses ratios. The research findings do not support the aim of the IFRSs to improve the reporting quality in the examined countries.

The Effect of IFRS Adoption on Accounting Quality and Market Liquidity: The Impact of Family Control

Previous studies suggest that firm-level reporting incentives play a significant role for heterogeneous effects on the adoption of International Financial Reporting Standards (IFRS) (e.g., Daske et al., 2013; Ball et al., 2003; Leuz et al., 2003; Burgstahler et al., 2006). In this study, we focus on family ownership control, which arguably creates severe agency problems between controlling and minority shareholders as well as weaker incentives for quality financial reporting and transparency. We examine whether the effect of full IFRS adoption on accounting quality and market liquidity is significantly mitigated by family control by comparing accounting quality metrics and market liquidity metrics between family-controlled and non-family-controlled firms listed in Hong Kong for the period before mandatory IFRS adoption and the period after adoption. We show that accounting quality and market liquidity generally improve after full IFRS adoption. However, when we take into consideration of family control, higher accounting quality in the post-IFRS period is only substantiated in the non-family-controlled firms. The accounting quality actually gets worse in the post-IFRS period for family-controlled firms. We also find that improvements in market liquidity after the adoption of IFRS are moderated by family control. The results indicate that the expected benefits of IFRS adoption are realised in non-family-controlled firms, but such desirable outcomes are severely moderated by family ownership control. Given that family control is a common phenomenon in Asia and other emerging economies, our findings are useful for policy makers and investors to better understand the impact of IFRS adoption.

The effects of mandatory IFRS adoption: A review of evidence based on accounting standard setting criteria

The present article attempts to provide a broad picture regarding the consequences of the mandatory adoption of the International Financial Reporting Standards (IFRS) around the world by reviewing extant empirical evidence relating to four comprehensive accounting standard setting criteria: decision usefulness, reduction of information asymmetry, economic consequences of standards and political aspects of standard. The review reveals that mixed evidence exists regarding the decision usefulness of accounting numbers under the IFRS. The majority of the extant studies reviewed find that the value relevance of accounting numbers and financial reporting comparability is enhanced following the adoption of the IFRS. However, mixed evidence exists regarding the effect of IFRS adoption on earnings management, timely loss recognition and other properties of accounting quality. The majority of the extant empirical studies reviewed find a reduction in information asymmetry (enhanced analysts forecast accuracy, consensus and other properties). Generally, the extant studies reviewed provide evidence regarding favourable economic consequences (lower cost of equity and increasing foreign investment) under the IFRS regime. Certain studies provide evidence regarding the role of political pressures and lobbying activities in the development of a number of standards by the International Accounting Standards Board. A number of studies find that the favourable consequences following the adoption of the IFRS regime dependent on the strength of reporting incentives for a firm and the strength of a country’s enforcement system. In the absence of sufficient evidence regarding the consequences of IFRS adoption in developing countries and the significant differences in the institutional features of such countries, the aforementioned conclusions are less likely to be generalizable to developing countries. The conclusion of the present study is likely to be useful for international and national authority bodies and the users of financial reports. The conclusions also provide significant suggestions for further research regarding the consequences of IFRS adoption.

What Firms’ Discretionary Narrative Disclosures Reveal About the Adoption of International Financial Reporting Standards

We use content analysis to investigate what discretionary narrative disclosures reveal about firms’ responses and attitudes to adoption of International Financial Reporting Standards (IFRS). Specifically, we apply a framework adapted from Smith and Taffler () to examine annual reports of first‐time adopters of IFRS from 2005 to 2008 in New Zealand. Our ‘form‐oriented’ results reveal that the extent of such disclosures is limited in spite of material differences to financial statement information caused by IFRS adoption. To the extent that this reflects the importance that firms attach to IFRS adoption, these findings are contrary to prior literature suggesting that IFRS adoption is a significant event in accounting history with potential important consequences for capital markets and the quality of accounting information. Applying meaning‐oriented analysis, we find that ‘importance’ of IFRS adoption is the most dominant theme and that specific descriptions of IFRS impacts on financial statements are more prevalent than vague or general descriptions. Evaluative comments regarding the consequences of IFRS adoption are predominantly negative. Early (voluntary) adopters provide approximately twice as much narrative disclosure as late adopters, offering significantly more information about IFRS importance and impacts. There is, however, no significant difference between early and late adopters with regard to evaluative comments.

Stock price volatility and informational efficiency following the mandatory adoption of IFRS in Europe

PurposeThe aim of this study is to examine the impact of mandatory International Financial Reporting Standards (IFRS) adoption on the informational efficiency, market stability, and price adjustment of underlying stocks in Europe.Design/methodology/approachThis study examines 1,187 stocks from 20 European countries to assess the impact of the mandatory adoption of IFRS on certain aspects of the market quality of the adopting firms.FindingsThe observed decrease in the first order autocorrelation and the permanent component of the conditional variance indicates that the mandatory IFRS adoption enhances informational efficiency and contributes to the market stability of the underlying stocks. The authors find no evidence that IFRS adoption affects the role old news has in determining the conditional variance of adopting firms. The effects of IFRS adoption on the equity cost of capital are shown to depend on the country‐specific characteristics. Specifically, IFRS adoption is more likely to increase (decrease) the betas of stocks that are listed in the common (civil) law countries.Research limitations/implicationsLike any empirical event‐study, the validity of the results depends on the absence of confounding events.Originality/valueTo the best of the authors’ knowledge, this paper is the first to use GARCH type models to empirically examine the effects of mandatory IFRS adoption on the informational efficiency and market stability of adopting firms.

Effects of IFRS Adoption on Tax-induced Incentives for Financial Earnings Management: Evidence from Greece

We investigate whether the adoption of International Financial Reporting Standards (IFRS) in Greece affected tax-induced incentives for financial earnings management. Prior to the implementation of IFRS, there were powerful incentives for firms facing higher tax pressure to restrict (exacerbate) upward (downward) financial earnings management due to direct tax implications. IFRS adoption reduced book–tax conformity, thereby releasing financial income from tax implications. As expected, we find that tax pressure is a significant negative determinant of discretionary accruals in the pre-IFRS period. However, this effect dissipates under the new IFRS regime.

The Effect of IFRS Adoption on Financial Reporting Pedagogy in South Africa

ABSTRACT:South Africa has for many years been involved in and supported the work of the International Accounting Standards Board (IASB) (formerly the International Accounting Standards Committee [IASC]). Accordingly, South Africa was an early adopter of International Financial Reporting Standards (IFRS). This paper highlights two significant effects that the adoption of IFRS has had on accounting education in South Africa. First, both “English” and “Afrikaans” universities have faced, to varying degrees, the challenge of shifting from rule-based pedagogy to framework-based teaching of financial reporting. Second, the Afrikaans universities' primary source of reference for their financial reporting students, namely the financial reporting standards, is no longer available in Afrikaans and as a result introduces the risks and complexities associated with the translation from English into Afrikaans.

The Effect of IFRS Adoption on the Financial Reports of Local Government Entities

This paper aims to analyse the changes in accounting surplus (loss), equity and assets, and liabilities as a result of accounting policy changes from the Australian Accounting Standards (AAS) to the International Financial Reporting Standards (IFRS) in Australian local government entities. Using the reconciliation notes disclosed by 117 local government entities, evidence is provided on the effects of IFRS adoption by identifying the key items that of difference between IFRS and AASB. The results show some differences between two sets of accounts prepared under these different accounting standards. While the average surplus (loss) of local councils has decreased, their equities, assets and liabilities have increased, with no major significant changes in their overall financial position, except for liabilities. These results indicate the possible consequences of the adoption of IFRS by local government entities in other countries on performance indicators who have or are yet to implement these standards.

The European IFRS experiment: objectives, research challenges and some early evidence

This paper provides an academic perspective on the development of the EU's harmonisation project based on International Financial Reporting Standards (IFRS), on the costs and benefits of IFRS adoption in Europe, and on the research challenges that arise. The paper reviews the accumulating academic evidence, emphasizing the effectiveness and transparency of the enforcement framework, and documenting the main lessons to be learned from the research programme on EU IFRS implementation conducted within the INTACCT network. Results on the consequences of IFRS adoption and the quality of implementation are far from uniform across Europe, and depend on factors reflecting preparer incentives and the effectiveness of local enforcement. The paper also outlines a possible alternative proposal for the organisation and development of enforcement activities in Europe.

Labour cost disclosures: have IFRSs made a difference?

PurposeThis paper aims to investigate changes in corporate disclosures of labour‐related costs in financial statements arising from a change in the accounting regime from generally accepted accounting principles (GAAPs) to international financial reporting standards (IFRSs) in Australia.Design/methodology/approachAn archival empirical approach is taken. Data are sampled for 160 listed companies in Australia over seven years covering Australian GAAPs (2003‐2005) and Australian IFRSs (2006‐2009) periods. To measure disclosures, a classification and count is made of line items for labour‐related costs found on the face of and in the notes to financial statements. These disclosures are analysed against firm‐specific characteristics and industry categories.FindingsResults reveal companies disclosing “total labour costs” rose from about 60‐85 per cent, and the discretionary disaggregation of “total labour costs” became more prevalent. Companies providing disaggregated information in the post‐IFRSs period are characterized by lower total assets, lower sales and lower labour costs. Their return on equity and labour intensity are not found to be differentiating characteristics. Reasons for these phenomena are addressed.Originality/valuePrevious studies have not analysed the effect of IFRSs adoption on disclosures of labour‐related information. This study provides new evidence about the types of firms that have responded to IFRSs with new or enhanced labour‐related financial disclosures. It points to new opportunities for research and financial analysis from the enhanced availability of corporate‐level labour cost data.

National Adoption of International Accounting Standards: An Institutional Perspective

ABSTRACTManuscript Type: EmpiricalResearch Question/Issue: Effective corporate governance requires accurate and reliable financial information. Historically, each nation has developed and pursued its own financial standards; however, as financial markets consolidate into a global market, there is a need for a common set of financial standards. As a result, there is a movement towards harmonization of international financial reporting standards (IFRS) throughout the global economy. While there has been considerable research on the effects of IFRS adoption, there has been relatively little systematic study as to the antecedents of IFRS adoption. Consequently, this study seeks to understand why some economies have quickly embraced IFRS standards while others partially adopt IFRS and still others continue to resist.Research Findings/Results: After controlling for market capitalization and GDP growth, we find that foreign aid, import penetration, and level of education achieved within a national economy are all predictive of the degree to which IFRS standards are adopted across 132 developing, transitional and developed economies.Theoretical/Academic Implications: We found that all three forms of isomorphic pressures (i.e., coercive, mimetic, and normative) are predictive of IFRS adoption. Consequently, institutional theory with its emphasis on legitimacy‐seeking by social actors was relatively well supported by our data. This suggests that the IFRS adoption process is driven more by social legitimization pressures, than it is by economic logic.Practitioner/Policy Implications: For policy makers, our findings suggest that the institutional pressures within an economy are the key drivers of IFRS adoption. Consequently, policy makers should seek to influence institutional pressures that thwart and/or enhance adoption of IFRS. For executives of multinational firms, our findings provide insights that can help to explain and predict future IFRS adoption within economies where their foreign subsidiaries operate. This ability could be useful for creating competitive advantages for foreign subsidiaries where IFRS adoption was resisted, or avoiding competitive disadvantages for foreign subsidiaries unfamiliar with IFRS standards.