International Financial Reporting Standards Adoption Research Articles

Growth Opportunities, Information Asymmetry, and Dividend Payout: Evidence from Mandatory IFRS Adoption

We study how the relationship between a firm’s growth opportunities and its dividend policies shifts in response to a reduction in information asymmetry between investors and firms. Existing literature suggests a negative relationship between growth opportunities and dividend payouts in the presence of information asymmetry. Using the mandatory adoption of IFRS (International Financial Reporting Standards) as an exogenous shock to the information environment of a firm, we document that the negative relationship between growth opportunities and dividend payout strengthens. This suggests IFRS adoption improves capital allocation by shifting dividend demand towards low-growth firms and reducing dividend demand from high-growth firms.

The impact of IFRS on earnings management: evidence from Mexico

PurposePrior literature investigating the adoption of International Financial Reporting Standards (IFRS) finds that managerial incentives, capital market institutions and accounting standards interact to endogenously determine accounting outcomes. In this paper, we investigate the impact of changing from local GAAP to IFRS in 2012 on earnings management by public firms in Mexico. Given the institutional environment and managerial incentives in Mexico, there is not a clear theoretical prediction for the impact of Mexico's adoption of IFRS on earnings management. Thus, it is an empirical question whether a change in accounting standards had any effect on earnings management.Design/methodology/approachWe use three measures of earnings smoothing and one measure of upwards earnings management. Logistic regression analysis along with t-tests across two time periods, pre-IFRS (2009–2011) and post-IFRS (2013–2015) are used to determine if there is a significant change in the earnings management of Mexican firms, and if this change is different for companies cross-listed in the US and companies listed only in the Bolsa.FindingsWe hypothesize and find that adopting IFRS is associated with lower earnings management via earnings smoothing in Mexico, and the reduction is greater for firms cross-listed in the United States. Our results support the contention that strong institutions and enforcement aid in the implementation of new accounting standards.Originality/valueFirst, we contribute to the literature on the adoption of IFRS around the world. The consensus in the literature is that the impact of IFRS on financial reporting is country-specific. To our knowledge, we are the first to conduct such research on Mexico. Second, our findings indicate that IFRS adoption is associated with a reduction in earnings management through income smoothing by firms in Mexico. This contributes to a small but growing body of literature documenting consequences of improvements in Mexican capital markets. Results of research in this area provide important insights to capital market participants and regulators in Mexico.

Earnings management to avoid earnings decreases and losses

This study evaluates the prevalence of earnings management to avoid losses and earnings decreases across the World. This practice was first documented by Burgstahler and Dichev (1997) for United States firms from 1976 to 1987. We replicate their study for a more recent and global sample. Firms that do not seem to manage earnings do avoid reporting earnings decreases, but we found persistent evidence of earnings management to avoid reporting losses. The results are consistent across different geographical regions, countries, and before and after International Financial Reporting Standards (IFRS) adoption. Unlike Burgstahler and Dichev (1997), however, we were not able to find evidence on which components of earnings (cash flow from operations, changes in working capital, or other accruals) firms mainly manage to increase earnings, concluding they likely use a bundle of all these components. Our results are important mainly to financial analysts and general investors, who should be careful in giving good prospects to firms who presented small profits since they are likely small losses artificially managed to look better, a practice widely spread across time and geographical regions among IFRS adopters and non-adopters.

Earnings management to avoid earnings decreases and losses

This study evaluates the prevalence of earnings management to avoid losses and earnings decreases across the World. This practice was first documented by Burgstahler and Dichev (1997) for United States firms from 1976 to 1987. We replicate their study for a more recent and global sample. Firms that do not seem to manage earnings do avoid reporting earnings decreases, but we found persistent evidence of earnings management to avoid reporting losses. The results are consistent across different geographical regions, countries, and before and after International Financial Reporting Standards (IFRS) adoption. Unlike Burgstahler and Dichev (1997), however, we were not able to find evidence on which components of earnings (cash flow from operations, changes in working capital, or other accruals) firms mainly manage to increase earnings, concluding they likely use a bundle of all these components. Our results are important mainly to financial analysts and general investors, who should be careful in giving good prospects to firms who presented small profits since they are likely small losses artificially managed to look better, a practice widely spread across time and geographical regions among IFRS adopters and non-adopters.

Financial Statements Effects of Adopting IFRS: Evidence from Listed Manufacturing Firms in Sri Lanka

Accounting Information would be beneficial only if it is relevant to the decisions being made. According to International Accounting Standards Board (IASB), the usefulness of accounting information depends on the fundamental qualitative characteristics of relevance and faithful representation. As a result of harmonization and standardization, International Financial Reporting Standards (IFRS) were adopted in Sri Lanka as a developing country from 1st January 2012. Given the differences that exist between developed and developing countries in the context of the accounting profession and other contextual differences, the impact of IFRS adoption in developing countries remains as an empirical gap in the accounting literature. Therefore, the main purpose of the current study is to examine the impact of IFRS adoption on the accounting information quality, in terms of value relevance and the effect on key financial measures of financial statements in Sri Lanka. Data for the current study are collected from audited annual financial statements and Colombo Stock Exchange (CSE) reports for all the listed manufacturing companies in Sri Lanka, for the period of 10 years from 2008/2009 to 2017/2018. Based on the regression estimates obtained, the study concludes that the value relevance of book values of equity is increased upon IFRS adoption. Further the findings reveal that there are favourable impacts of financial statement measures upon IFRS adoption in listed manufacturing firms in Sri Lanka. These results would be pertinent and significant to both Sri Lankan investors and to accounting standard setting bodies such as the IASB and CA Sri Lanka. Further, the study might also be of value to emerging nations with an investment environment similar to that of Sri Lanka and where IFRS reporting have recently been or will be adopted. Keywords: IFRS Adoption, Value Relevance, Financial Statements Effects, Listed Manufacturing Companies, Sri Lanka.

The effect of the adoption of International Financial Reporting Standards on foreign portfolio investment in Africa

The adoption and implementation of International Financial Reporting Standards (IFRS) are anticipated to enhance the quality and credibility of financial statement in terms of reliability, transparency and comparability. Consequently, it presupposes improving the functioning of the capital market and influence foreign investments to flow into adopting countries. This study examines the effect of the adoption of IFRS on foreign portfolio investment (FPI) in Africa. Annual FPI data from the Balance of Payments and International Investment Position from 1994 to 2015 were employed. The panel data regression considered fixed-effects and random-effects models. Besides, the system generalised method of moments estimator is employed for the robustness of the model and to address the problem of endogeneity. In correspondence with the decision-usefulness theory, our findings indicate that FPI is promoted in the African countries that apply IFRS-based financial statement. The adoption of IFRS is assumed to be an informational change that would eliminate information barriers facing the users of financial statements. Therefore, the development of IFRS is aimed at improving the usefulness of financial reporting by facilitating the comparability and reliability of financial information in African countries. This will influence foreign investors to shift their capital to such an economy, consequently increasing the inflow of FPI.

Do high-quality standards ensure higher accounting quality? A study in India

Purpose The study aims to investigate the impact of International Financial Reporting Standards (IFRS)-converged standards (Indian Accounting Standards (INAS)) on the accounting quality of Indian firms. The phased manner approach of implementing INAS provides us a unique setting to investigate the issue in India. Design/methodology/approach The study used difference-in-difference (DiD) methodology, where the accounting quality is compared between test firms and benchmark firms during the pre-and post-INAS adoption period. Accounting quality is operationalized through four different constructs, namely, earnings smoothing, discretionary accruals, earnings timeliness and value relevance of earnings. Findings The findings deduced from the empirical results demonstrate that accounting quality has been significantly reduced after the adoption of INAS. In particular, results show that the degree of earnings smoothing, and the magnitude of discretionary accruals have been increased among test firms in the post-adoption year. Besides, findings provide evidence that timely recognition of losses and value relevance of earnings has been reduced for test firms relative to benchmark firms after the adoption of INAS. Practical implications The results suggest that the mere adoption of high-quality standards does not ensure higher accounting quality in countries with a weaker enforcement mechanism. Hence, stringent enforcement mechanisms are needed to ensure full compliance with accounting standards. This study serves as a case study for other emerging countries that are in the process of IFRS convergence and make them aware of the unintended consequences of IFRS adoption. Originality/value Indian authorities implemented INAS in a phased manner that provides a unique setting to use DiD methodology. DiD helps to control the impact of concurrent economic shocks, while examining the impact of the particular regulatory shock. Besides, this is the first attempt to investigate the impact of INAS on the accounting quality of Indian firms.

Information Shock and Dividend Policy in Family-controlled Firms: Evidence from Korea

ABSTRACT This paper aims to investigate whether the International Financial Reporting Standards (IFRS) used as an exogenous information shock relates to a firm’s dividend policy as a result of the improved information environment in the emerging Korean market. More specifically, utilizing a large sample of KOSPI-listed firms over the period 2000–2018, we examine whether the propensity and the level of dividend payments around the Korean IFRS (K-IFRS) adoption have changed and further how the family involvement affects such association. Our results show that firms tend to decrease the propensity and the level of dividend payments after the mandatory K-IFRS adoption. Moreover, we find that family-controlled firms have a significantly positive association with dividend payouts after the K-IFRS adoption. Our evidence can be shared with other emerging markets, where prevailing family firms have the characteristics of concentrated ownership and strong control power in an immature market with weak legal protection for outside shareholders.

The Comparability of IFRS Accounting Information: Evidence from Korea

The purpose of this study is to examine whether the international convergence of Korean accounting information improves via the adoption of International Financial Reporting Standards (IFRS) in the year 2011. To achieve this purpose, I empirically examine whether the international and domestic comparability of Korean firms’ accounting information improves after IFRS adoption. In addition, I investigate whether the degree of improvement in comparability varies depending on corporate governance scores. I draw samples from 15 European Union (EU) firms adopting IFRS, United States (US) firms applying US GAAP, and Korean firms adopting IFRS. I employ the comparability measures developed by De Franco et al. (2011) and the corporate governance score provided by the Korea Corporate Governance Service (KCGS). The results suggest that not only the comparability between EU and Korean firms but also the comparability between US and Korean firms improve after IFRS adoption, and the degree of improvement is greater for firms with poor corporate governance in both. The results also suggest that the comparability among domestic firms improves after IFRS adoption, and the worse the corporate governance, the greater the degree of improvement. Overall, these findings provide empirical evidence that Korean firms secure the international convergence of accounting information, the main purpose of adopting IFRS, as expected. I also find evidence that firms with poor corporate governance experience the greater effect of IFRS adoption. However, my findings do not infer that accounting information quality has necessarily improved by IFRS adoption. This is because accounting information quality improves only when both external auditing and accounting supervision operate properly, together with enhancing accounting standards quality.

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.

Adopting and Imlementation of International Finacial Reporting Standard In Iraq Atheoretical Perspective

Proper adoption of International Financial Reporting Standard (IFRS) has been inextricably linked to global financial market penetration and economic development. Yet most of the developing countries still face some challenges in its adoption. Various studies have examined the benefits and challenges of IFRS adoption.
 The organization and culture, resistance to change, knowledge of IFRS and government policy has dominated the discourse on the challenges of IFRS adoption in developing countries. As we consider the shift in discourse towards the developing countries, this paper explore the empirical analysis studies that analyzing the challenges hindering the proper adoption of IFRS, and its implication for financial market development and economic growth. This paper develops the main issues that pose a challenge to IFRS adoption in developing country like Iraq by reviewing the existing empirical evidence in the literature

TheRole of Electronic Auditing in Verifying the Principles and Approaches of Accounting Measurement for Financial Instruments When Adopting International Financial Reporting Standards Ifrs

TheRole of Electronic Auditing in Verifying the Principles and Approaches of Accounting Measurement for Financial Instruments When Adopting International Financial Reporting Standards Ifrs

Stated Preferences for the Adoption of IFRS and UK GAAP: Case Study Vignettes

Our aim is to see if the adoption of International Financial Reporting Standards (IFRS) is beneficial. Our methodology involved both quantitative methods (with non-parametric tests) and qualitative methods (with case study vignettes) in a complementary way, as in the ‘mixed method’. Our objective was to use a formal metric, adapted from economic choice theory, to analyze choosing behavior in firms over financial reporting standards, using calculated ratio and net utilities. Our evidence and analysis are based on a random sample of twenty-one UK firms. From these firms, primary source data were collected, using questionnaires and fieldwork interview tools, to enable the testing of our hypothesis that the adoption of IFRS was beneficial. Using robust non-parametric statistical tests, we found that public firms which had to adopt IFRS, as a matter of necessary policy compliance, often perceived this imposed choice to be unbeneficial, refuting our null hypothesis. This finding is highly statistically significant. The implication of our qualitative evidence was that this perception of lack of benefit in adopting IFRS created a voice for regulatory change.

Re-examining the impact of mandatory IFRS adoption on IPO underpricing

In the mid-2000s, the European Union adopted a number of regulatory reforms intended to increase transparency and disclosure for IPO firms, including mandating the use of International Financial Reporting Standards (IFRS). The reforms also included (1) adoption of the Prospectus Directive, which mandated increased IPO prospectus disclosures and (2) increased accounting enforcement. These new regulations apply only to IPOs listing on “EU-regulated” markets; firms admitted to trading on “exchange-regulated” markets are exempt. We examine the impact of these regulations on IPO firms. For firms listing on EU-regulated markets, we find no association between IFRS and IPO underpricing; however, we find a significant decrease in IPO underpricing associated with adoption of the Prospectus Directive in countries that also increased accounting enforcement. Further, we confirm that, after 2005, most IPOs on exchange-regulated markets went public using domestic accounting standards, not IFRS. Our findings suggest that mandatory IFRS adoption did not play a major role in reducing IPO underpricing and contrast sharply with prior results, which failed to account for IPOs on exchange-regulated markets. Our evidence highlights the importance of controlling for contemporaneous changes in regulations and details of the institutional setting before attributing major economic consequences to a switch from domestic accounting standards to IFRS.

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.

Role and Importance of Ifrs in the System of Improving the Quality of Accounting (РОЛЬ И ЗНАЧЕНИЕ МСФО В СИСТЕМЕ ПОВЫШЕНИИ КАЧЕСТВА БУХГАЛТЕРСКОГО УЧЕТА)

English Abstract: This document expands on the understanding of International Financial Reporting Standards (IFRS) and their role in the quality accounting system. Based on the fact that in science there are many approaches to assessing quality in accounting, the study aimed to confirm the impact of IFRS on this quality by analyzing 101 research results of the impact of the adoption of IFRS on the quality of accounting and financial reporting. The results contain a classification of approaches to assessing the quality of accounting in the following groups: a) the importance of relevance; b) credit compliance; c) the ability to manage profits and d) the timeliness of recognition of losses. This study contains a combination of accounting and mathematical analysis and the method of grouping research results. In particular, IFRS is an important element of influence on accounting practice. As a result, a unified concept of “accounting quality” was proposed, and factors other than IFRS that could affect the quality of accounting and financial reporting were identified. Russian Abstract: Аннотация: Этот документ расширяет представление о понимании международных стандартов финансовой отчетности (IFRS) и их роли в системе качественного бухгалтерского учета. Исходя из того, что в науке существует множество подходов в оценке качества в учете, исследование было нацелено подтвердить влиятельность МСФО на это качество путем анализа 101 результатов научных исследований влияния принятия МСФО на качество бухгалтерского учета и финансовой отчетности. Результаты содержат классификацию подходов оценки качества бухгалтерского учета в следующие группы: а) важность уместности; б) кредитная соответственность; в) возможность управления прибылью и г) своевременность признания убытков. Это исследование содержит сочетания учетно-математического анализа и метода группирования результатов исследований. В частности, МСФО выступают важным элементом влияния на практику бухгалтерского учета. В результате предложено унифицированное понятие «качества бухгалтерского учета», выделены факторы, кроме МСФО, способные влиять на качество бухгалтерского учета и финансовой отчетности.

Translation of International Financial Reporting Standards and implications for judgments and decision-making

Finance professionals are dependent on accounting information provided in annual reports. Companies located in over 144 countries base the preparation of their annual reports on International Financial Reporting Standards (IFRS). This widespread adoption of IFRS has been supported by the assertion that it is an important means of enhancing comparability of financial statements across countries. IFRS are developed in English and translated into 48 languages. Importantly, it is mainly assumed that all translated IFRS convey the same consistent information and that comparability of financial information is not compromised when different languages are used. However, we show in this short communication that differences exist between the IFRS language versions. Our discussion on relevant linguistic effects on the interpretation and application of IFRS helps future research to systematically analyze why equally qualified professionals exercise their professional judgments differently.

Issues and challenges of IFRS 9 in Malaysian Islamic financial institutions: recognition criteria perspective

Purpose The purpose of this paper is to investigate the effects and challenges of the new amendment of International Financial Reporting Standards (IFRS) 9 in Malaysia from the perspectives of regulators, auditors, accountants and academicians in Malaysian Islamic financial institutions. For the purpose of this study, this paper focuses on the recognition criteria perspective of the standard, which provides a basic understanding of the financial reporting framework. Design/methodology/approach Using 10 series of semi-structured interviews undertaken with key individuals in regulatory bodies, audit companies, full-fledged Malaysian Islamic Banks and Malaysian higher learning institutions. Findings The findings revealed that IFRS 9 strengthens International Accounting Standards 39 in terms of relevance and reliability, recognition of financial instruments and identification of business models. Nevertheless, Islamic financial institutions face challenges in terms of a faithful representation of fair value, substance over form, identification of financial instruments before recognition criteria and the extent of the role of risk management in reducing manipulation in identifying business models. Research limitations/implications This study provides implications to regulators and standard setters in Malaysia to enhance the quality of financial reporting framework and practices in Islamic financial institutions in this country using IFRS 9. Practical implications Practically, the findings of this study can be used by the regulators to resolve the issues that arise in adopting IFRS 9 among Islamic financial institutions to further enhance financial reporting quality. Originality/value The findings of this study are very important to ensure that the adoption of IFRS among Islamic financial institutions are in line with Sharīʿah principles. To date, no studies have been done on the challenges of adopting IFRS 9 among Islamic financial institutions in Malaysia.

International Financial Reporting Standards and Reporting Quality of Quoted Firms in Nigeria

This study examines the relationship between International Financial Reporting Standards (IFRS) adoption in Nigeria and the quality of annual financial reports of companies quoted on the NSE for a period of eight years 2008 to 2015. The data was derived from secondary sources from annual financial reports of the sampled firms which were in two panels; four pre-adoption and four post-adoption periods. The data on selected accounting quality metrics of earnings management, earnings smoothing, timely loss recognition, value relevance of accounting information was analysed using pool OLS. The results indicate a significant increase in all the accounting quality variables except variability in cashflow, and an insignificant relationship between financial performances on accounting quality. It is concluded that the adoption of IFRS has resulted in improvement in the quality of annual financial reports of quoted companies in Nigeria. The study therefore recommends that relevant regulatory institutions like Financial Reporting Council of Nigeria (FRCN), Central Bank of Nigeria (CBN), Securities and Exchange Commission (SEC), Nigeria Insurance Commission (NIC), Corporate Affairs Commission (CAC) should ensure consistent and appropriate compliance and adoption of every requirement of IFRS so far issued by IASB by way of a pre-presentation audit, and advance the adoption of same by all other business entities operating in Nigeria.

Impact of earnings management on agency costs: evidence from MILA markets

PurposeThe purpose of this article is to analyze the effects of accruals-based earnings management (AEM), International Financial Reporting Standard (IFRS) adoption and stock market integration for firms that belong to Latin-American Integrated Market (MILA).Design/methodology/approachThe GMM estimator was used according to Arellano and Bover (1995) for panel data on a sample of 478 non-financial companies between 2000 and 2016. Multilevel mixed models was used for the robustness analysis.FindingsAEM practices significantly and dynamically reduce agency costs. This result suggests companies use positive discretionary accruals to hide true agency costs and avoid shareholders monitoring, while negative discretionary accruals are ways to expropriate wealth and increase agency costs. This result implies that firms use AEM as a predetermined strategy to weaken corporate governance. The IFRS adoption and MILA implementation reduced agency costs. However, only IFRS adoption had the capability to mitigate the effects of AEM on agency costs.Originality/valueThese results reveal AEM constitutes a practice that managers use to weaken firms’ corporate governance and expropriate wealth from shareholders. These practices have effects at short-run and long-run. However, the IFRS adoption and market integration represented by MILA are mitigating factors for agency costs. These results have relevant implications for firms’ corporate governance because they guide investors and shareholders to strengthen corporate control and monitoring on business decision-making. These results also are relevant to policymakers because they orient the financial policies design to strengthen the benefits of IFRS and MILA.