International Financial Reporting Standards Research Articles

Does mandatory IFRS adoption improve risk disclosure quality? Evidence from the European insurance industry

Purpose This study aims to investigate the effect of mandatory international financial reporting standards (IFRS) adoption on the risk disclosure quality by listed European insurers. Design/methodology/approach The study used a content analysis of the annual reports and consolidated accounts of 13 insurance companies listed in the European market between 2002 and 2007 based on two regulatory frameworks, Solvency and IFRS. Findings The results showed a significant effect of the mandatory adoption of IFRS and a clear improvement in the quality of risk disclosure. Moreover, risk disclosure is positively associated with the size of the company. Research limitations/implications The authors can consider the relatively limited size of the sample as a limitation of this study. Moreover, the manual content analysis used to be considered subjective. Practical implications The findings of this study provide useful insights to professional and regulatory bodies about the consequences of IFRS adoption to enhance transparency and particularly risk disclosure. Originality/value The research contributes to the existing literature. First, the authors have shown that companies are improving in the quality of risk disclosure even before 2005. Second, the authors have shown that the year 2005 is distinguished by a marked improvement in disclosure trends, with companies aligning themselves with coercive and mimetic regulatory forces. Third, the authors highlight the significant effect of mandatory IFRS adoption even in highly regulated industries, such as the insurance industry.

Summary on the Development of Accounting and Auditing Practises towards IFRS-IAS/ISA in Jordan: Historical and Theoretical Perspective

In this article, we take a look at the evolution of accounting in the Middle East [ME] region, with a focus on Jordan. We shall examine the major events in this region’s history and see how they relate to the global accounting agenda, changes in the local and international economic landscape, and other relevant developments. Pay close attention to how cultural and historical factors, in addition to worldwide accounting principles, impact the local accounting environment. The adoption of “International Financial Reporting Standards” [IFRS] by MENA nations is examined, along with the reasons and motives behind it, and the effects on the auditing and accounting professions as a whole. This marks a significant milestone in recent history. This article looks at the history of accounting and auditing in Jordan and how it has developed in relation to the International Accounting and Auditing Standards. It also discusses potential future advances in this field.

Современные подходы к измерению финансового результата деятельности организации

The work is devoted to the formation of indicators of the financial performance of an organization and their use for analytical purposes. It examines methods for generating the Financial Results Report and analyzes approaches to the formation of profit indicators in Russian and foreign accounting practice (in accordance with Russian Accounting Standards and International Financial Reporting Standards). In addition, in the practical activities of analysts, additional indicators for assessing financial performance are widespread, which are also reflected in this article. As a result of the analysis, the authors concluded that indicators reflecting the financial results of organizations are incomparable. This fact makes a necessity to develop a single, unified system of profit indicators or analytical purposes.

Global investor responses to the International Sustainability Standards Board draft sustainability and climate-change standards: sites of dissonance or consensus

Purpose This paper aims to examine sites of dissonance or consensus between global investor responses to the draft standards, International Financial Reporting Standards S1 (IFRS) (General Requirements for Disclosure of Sustainability-related Financial Information) and IFRS S2 (Climate-related Disclosures), issued by the International Sustainability Standards Board (ISSB). Design/methodology/approach A thematic content analysis was used to capture investor views expressed in their comment letters submitted in the consultation period (March to July 2022) in comparison to the ex ante position (issue of draft standards, March 2022) and ex post summary feedback (ISSB staff papers, September 2022) of the ISSB. Findings There was investor consensus in support of the ISSB and the development of the draft standards. However, there were sites of dissonance between investors and the ISSB, notably regarding the basis and focus of reporting (double or single/financial materiality and enterprise value); definitional clarity; emissions reporting; and assurance. Incrementally, the research further highlights that investors display heterogeneity of opinion. Practical and Social implications The ISSB standards will provide a framework for future sustainability reporting. This research highlights the significance of such reporting to investors through their responses to the draft standards. The findings reveal sites of dissonance in the development and alignment of draft standards to user needs. The views of investors, as primary users, should help inform the development of sustainability-related standards by a global standard-setting body apposite to current policy and future reporting requirements, and their usefulness to users in practice. Originality/value To the best of the authors’ knowledge, this paper makes an original contribution to the comment letter literature, hitherto focused on financial reporting with a relative lack of investor engagement. Using thematic analysis, sites of dissonance are examined between the views of investors and the ISSB on their development of sustainability reporting standards.

Market concentration and financial statement comparability: what is the role of state ownership? Evidence from SYS GMM and fsQCA

Purpose This paper aims to explore the moderating role of state ownership variables on the relationship between market concentration (MC) and financial statement comparability (FSC) in Vietnam. Design/methodology/approach This study uses data from the financial statements of 475 nonfinancial listed companies for the period from 2010 to 2019. This study uses both the system generalized method of moments and fuzzy-set qualitative comparative analysis (fsQCA) to consider the correlation and causal–effect relationships of the variables in the model. Findings The results show that MC has a positive relationship with FSC, and MC tends to exert a stronger impact on FSC for firms with higher state ownership. In addition, this study suggests that some combinations help improve FSC. This study has important implications for investors, managers and especially state-owned organizations when market power becomes fierce. Originality/value This study contributes to the literature on the comparability of financial statements in the context of developing countries that have not fully adopted International Financial Reporting Standards. Furthermore, this study applies the fsQCA method to complement the linear regression method.

Factors Influencing Income Smoothing Practice Among Manufacturing Firms in Kenya

This research aims to assess the factors influencing income smoothing practices among manufacturing firms in Kenya. Income smoothing, a financial management strategy used by organizations, intentionally manipulates reported earnings to achieve stable and predictable financial performance. This practice, driven by management incentives and regulatory frameworks, impacts decision-making processes and stakeholder perceptions. This study examines income smoothing practices among manufacturing firms in Kenya and recognizes the unique challenges they face, including fluctuating raw material costs and evolving regulatory environments. Based on theoretical frameworks such as agency theory and signaling theory as well as empirical findings, the factors that influence income smoothing behavior are examined. The most important influencing factors include regulatory frameworks, management incentives, industry competition and economic conditions. The study shows that during economic volatility, companies tend to adopt income smoothing measures to increase stakeholder confidence, while regulatory changes such as the introduction of International Financial Reporting Standards (IFRS) increase transparency and reduce income smoothing. In addition to the compensation structures for executives, competitive pressure and access to capital markets also shape income smoothing practices. Understanding these influencing factors provides insights into the dynamics of income smoothing and its impact on financial transparency and decision-making in the manufacturing sector in Kenya.

The Effect of Mandatory Adoption Pressures of International Financial Reporting Standards (IFRS/IAS) on Irregular Auditing Practices

The Effect of Mandatory Adoption Pressures of International Financial Reporting Standards (IFRS/IAS) on Irregular Auditing Practices

Corporate Governance and Related Party Transactions in Global Supply Chains

Problem definition: As related party transactions (RPTs) increase in global supply chains, understanding the impact of corporate governance on such transactions becomes crucial for businesses. RPTs often lead to operational diversion due to power disparities between parent and its subsidiaries. In this study, we explore how operational diversion in RPTs within multinational firms is affected by the roles of foreign subsidiaries and corporate governance mechanisms. Methodology/results: Using a unique data set on RPTs of Korean multinational firms from 2006 to 2013, we compare the performance of multinational firms engaging in RPTs with two types of foreign subsidiaries: vertical and horizontal. We conduct our empirical analysis based on the adoption of International Financial Reporting Standards (IFRS) in Korea in 2011, which acts as a policy shock affecting corporate governance and deterring operational diversion. Our results show that the improvement in operational performance of a multinational firm following the IFRS adoption is more significant when the parent firm engages in transactions with vertical subsidiaries compared with horizontal ones. We further show that strong corporate governance mechanisms, such as internal governance, institutional ownership, and large shareholders, play a crucial role in restraining operational diversion in RPTs involving vertical subsidiaries. Managerial implications: The implications of our study extend to shareholders and auditors, highlighting the importance of prioritizing monitoring efforts concerning a parent firm’s RPTs with vertical subsidiaries, especially when corporate governance mechanisms are weak. In contrast, RPTs with horizontal subsidiaries are relatively robust against operational diversion, making them a natural deterrent to such malpractices. Funding: This work was supported by the Institute of Management Research at Seoul National University, the Hankuk University of Foreign Studies Research Fund [2023], and the Research Fellowship Fund of the Sangnam Institute of Management, Yonsei University [2020-22-0007]. Supplemental Material: The online appendix is available at https://doi.org/10.1287/msom.2022.0372 .

Does a consistently capitalized R&D ratio improve information effects of capitalized development expenditures?

This study examines whether a consistently capitalized R&D ratio provides value relevant information that is faithfully represented to investors. Given that R&D investment generally remains stable over time to create sustainable competitive advantages, we posit that a high consistency in the R&D capitalization ratio represents less bias and lower error in the accounting choice of R&D expenditures. To measure the extent of consistency, we use the coefficient of variation of a firm-level ratio of capitalized development costs to total R&D expenditures over five consecutive years. Using a sample of publicly listed Korean firms from 2003 to 2019, we find that capitalized development expenditures are value relevant only for firms with a high level of consistency in their capitalization ratios. Moreover, stable R&D capitalization ratios also allow stock returns to better reflect more information about future earnings. Finally, we observe that the positive effect of consistent capitalization ratios on the value relevance of capitalized development expenditures and informativeness of stock prices becomes more pronounced after the adoption of International Financial Reporting Standards (IFRS). Overall, our findings suggest that maintaining a stable R&D capitalization ratio conveys value relevant financial information to the market, thus improving the quality of accounting information for investors by representing the economic reality of R&D activities faithfully.

Market Synchronicity Among African Markets: is IFRS Adoption an Augmentor or Inhibitor?

Abstract This paper investigates the dynamics of market synchronicity and International Financial Reporting Standards (IFRS) adoption in Africa. It seeks to determine whether or not IFRS is an augmentor or inhibitor of market synchronicity in Africa. This study is not only a foundational study that unfolds the dynamics of market synchronicity and IFRS adoption in Africa but also extends the scope of synchronicity from firm-level assessment to country-level market synchronicity. It is one of the few studies which have shifted the literature on synchronicity from one largely limited to firm-level synchronicity to country-level synchronicity through analyses of cross-border market synchronisation. It employs Dynamic Ordinary Least Square (DOLS) and Generalised Method of Moments (GMM) to investigate the market synchronicity-IFRS nexus. The study uses monthly data from March 2005 to November 2021 in five African markets: Botswana, Ghana, Namibia, Nigeria, and South Africa generating 1005 observations in an 18-year data span. The paper reveals a significant negative consequence of IFRS on market synchronicity. Thus, IFRS exhibits an inhibition role in market synchronicity (reduces synchronicity) and improves price informativeness. A decreasing pattern was also observed immediately after IFRS was adopted by the stock markets and persisted for about five years. It implies that the price informativeness of stock markets through IFRS makes them good candidates for intra-Africa portfolio diversification due to reduced investors’ risk exposure to market synchronicity.

The IFRS adoption, corporate tax avoidance and the moderating effect of family ownership

Purpose This paper aims to examine the influence of the International Financial Reporting Standards (IFRS) adoption on corporate tax avoidance (CTA). In addition, this study aims to explore whether family ownership moderates the impact of IFRS adoption on CTA. Design/methodology/approach The authors used a sample of 1,856 firms from various countries around the world, covering the period between 2010 and 2022. To estimate the proposed econometric models, the authors applied both fixed and random effects regression methods. Findings The present findings show that IFRS adoption has a negative impact on CTA, as measured by the effective tax rate and book-tax differences. This negative impact is more pronounced in “common law” countries than in “civil law countries.” Additionally, the authors found that family ownership plays a moderating role by positively affecting the impact of IFRS adoption on CTA. Practical implications The findings have practical, regulatory and academic implications for fostering accountability and fairness in taxation. This study suggests that implementing IFRS reduces tax avoidance and emphasizes the need for firms to evaluate the implications of IFRS adoption on their tax-planning strategies. It highlights the importance of aligning financial reporting practices with international standards to enhance transparency and minimize tax avoidance opportunities. The differential impact of IFRS adoption between “common law” and “civil law” countries underscores the role of legal and regulatory frameworks. In addition, family ownership plays a significant role in shaping tax-planning strategies. From an academic perspective, this research provides a foundation for further exploration into the relationship between IFRS adoption and tax avoidance. Originality/value The existing literature has predominantly concentrated on examining the effect of IFRS adoption on CTA, and the empirical findings have been inconsistent. This study introduces a novel perspective by considering the moderating influence of family ownership in determining the impact of IFRS adoption on CTA.

A bibliometric review of IFRS adoption and compliance research in Africa

PurposeThis article aims to identify and review existing studies on the adoption and compliance of International Financial Reporting Standards (IFRS) in Africa.Design/methodology/approachThe methodology involves a sole focus on studies conducted with an African sample, using a bibliometric method and data from the Web of Science (WoS) database. Visualizations from VOSViewer and Biblioshiny software are employed to identify the dominant authors, journals and countries contributing to research in the region.FindingsThe findings reveal existing collaborations among authors in the field. However, the study emphasizes the need for additional research to enhance the intellectual structure of the research domain, as the majority of related documents are concentrated within twenty articles with at least one citation.Practical implicationsThe practical implications underscore the importance of collaboration in practice, emphasizing the need for cooperation among corporations, experts and regulatory agencies involved in IFRS adoption and compliance in Africa. By fostering collaborative efforts and knowledge-sharing among corporations, experts and regulatory agencies, practitioners can enhance their understanding, streamline implementation processes and improve compliance methods.Originality/valueThis review is one of the few to explicitly conduct a bibliometric review of IFRS adoption and compliance studies in Africa, providing a foundation for future research to determine the current direction of IFRS studies in this region.

The Impact of International Financial Reporting Standards on Corporate Governance, Board Size and Income Smoothing in the Nigerian Financial Market

Income smoothing as an accounting technique is an earnings management method that has recently piqued the interest of company boards of directors, accountants, and accounting researchers. Income smoothing is the application of financial reporting principles and standards to level out earnings volatility. This paper focussed on the theoretical investigation of the impact of the International Financial Reporting Standard on corporate governance and income smoothing. This study theoretically examined the link between board size and income smoothing, with an emphasis on the intervening effect of International Financial Reporting Standards (IFRS). This paper covers a period of 2003 to 2023 and which focussed on the Nigerian Financial Market. In this study, a systematic literature review (SLR) was performed, and the research revealed crucial impact of the International Financial Reporting Standard on corporate governance and income smoothing. The SLR was performed using a sample of 100 research articles chosen from a pool of 400 papers obtained from Scopus, Web of Science, Google Scholar, ABS journal and, among other sources. Following the findings of the many research evaluated, the study discovered significant divergence and inconsistency in the results, indicating that corporate governance has either a positive or negative association with income smoothing.

Probability of default for lifetime credit loss for IFRS 9 using machine learning competing risks survival analysis models

This study introduces a machine learning competing risks survival analysis model aiming at exploring the Probability of Default component of credit risk. Due to modeling of a cumulative probability of default over time, the model is applicable to assess Lifetime Expected Credit Loss under the International Financial Reporting Standard (IFRS) 9 regulation for financial institutions. Whilst most credit models focus on the default event itself, in many loan transactions, there is a competing event affecting risk: the possibility of the borrower prepay their debt before maturity. In this case, credit risk ceases to exist. We derive a statistical model that supports handling competing risks (credit risk and prepayment risk) in a machine learning survival analysis setup. As there is no available implemented computer package or library, we build the computational algorithm with subdistribution hazards using boosting as an ensemble method and componentwise least square models as base learners. Results of the model are generated using a dataset of credit card refinancing operations of a US financial institution. We observe, comparing different survival analysis techniques, that ComponentWise Gradient Boosting (CWGB) models showed competetive performance on both scenarios (subdistribution hazards and cause-specific models) compared to benchmark models. The derived model is useful to address the guidelines of the IFRS 9 for credit risk, taking into account the context of lifetime credit exposure.

Is accounting a matter for bookkeepers only? The effects of IFRS adoption on the financialisation of economy

Abstract The process of financialisation has been extensively studied and several stylised facts identified. Short-termism is one of these. This article analyses the role that changes in accounting rules have played in increasing short-termism in company management. Our study considers the adoption of the International Financial Reporting Standards in the European Union (EU), showing that the new accounting standards have altered companies’ sensitivity to investment opportunities, leading to underinvestment in the real economy. In doing so, our article highlights the public-policy profile of accounting standards setting and possible tensions with EU societal objectives. To the best of our knowledge, this is the first study empirically analysing the role of accounting rules in the financialisation of economy.

Comparative analysis of accounting standards in the Islamic banking industry: a focus on financial leasing

Purpose This study aims to evaluate Islamic bank compliance with the accounting and auditing organisation for Islamic financial institutions (AAOIFI), assess the impact of multiple accounting standards in Islamic banking, examine the need for private accounting standards and assess international financial reporting standards (IFRS) compatibility with Islamic banking and analyse financial leasing accounting in Islamic banking compared to IFRS 16. Design/methodology/approach A combination of comparative theoretical analysis, physical examination, and semi-structured interviews has been used as a research methodology. These methods are interconnected and complement each other to provide a comprehensive approach to address the research questions. Findings Islamic banks in various countries show varying compliance with AAOIFI accounting standards. Some fully comply, while others adopt a hybrid approach combining AAOIFI and IFRS. Differences in accounting treatments can result in conflicts, asset inflation and financial statement discrepancies. Challenges and criticisms faced by AAOIFI standards include violating the matching principle and lacking faithful representation. Collaboration among academics, standards-setting bodies and organisers is crucial for guiding the reporting of Islamic financial statements. Practical implications The research identifies gaps in implementing Islamic accounting standards and proposes strategies to enhance compliance, improve performance and increase transparency in Islamic financial institutions. It highlights the importance of a harmonised and universally accepted accounting framework for Islamic banking, considering the compatibility between IFRS and Islamic principles. Social implications Social implications have arisen regarding the global acceptance of Islamic finance, which leads to an increase in socially Islamic finance exchange. Originality/value This research examines the consequences of using multiple accounting standards in the Islamic banking industry and discusses the need for private accounting standards and compatibility with IFRS.

The effect of IFRS adoption on bank internationalisation

AbstractBanking is one of the highly regulated industries, where a single set of global standards is likely to play a significant role in eliminating double reporting and reducing information asymmetry. Accordingly, we use data on 98 countries over 9 years to examine whether the use of International Financial Reporting Standard (IFRS) drives bank internationalisation. The results show that the use of IFRS is positively and significantly associated with an increase in foreign investment in the banking sector by easing regulatory compliance. However, in developing countries, the benefit of IFRS increasing foreign investment banks is associated with both easing regulatory compliance and reducing information asymmetry between banks and their clients. Our results are consistent across different sub‐samplings, including EU versus non‐EU, high versus low absence, and divergence between domestic standard and IFRS. These results provide reassurance and clear evidence of how IFRS facilitates the global flow of capital, even in a highly regulated industry such as banks. The results are robust to alternative measurements of variables and endogeneity tests using the Two‐Stage Least Square, Two‐step System Generalised Method of Moments and Propensity Score Matching.

Financial statements’ reliability affects firms’ performance: A case of Vietnam

This paper aims to estimate the effect of the reliability of financial statements on listed firms’ performance in Vietnam, especially on the Ho Chi Minh City Stock Exchange, from 2015 to 2022. Based on International Financial Reporting Standards, Generally Accepted Accounting Principles and theories, reliability is a key attribute of information quality in financial statements. Besides, using the quantitative method of feasible generalized least squares (FGLS), the findings show that reliability positively affects listed firms’ performance with a confidence interval of 95%. On the platform of agency theory, the reliability of financial statements is considered a tool to fulfill the duties and responsibilities of managers and the board of directors to external users, while stakeholder theory considers the advantages of the disclosure of reliable financial statements in terms of gaining performance.

Harmonization of capital accounting in Azerbaijan commercial enterprises in accordance with IFRS requirements

The topic of the research related to capital accounting in commercial enterprises is relevant, as the harmonization of this process in accordance with the requirements of International Financial Reporting Standards (IFRS) becomes an integral component for attracting investment, increasing the transparency of financial reporting, and maintaining competitiveness in the global market. The purpose of the study is to develop and implement the methodology of capital accounting in the accounting activities of commercial enterprises of the Republic of Azerbaijan. Among the methods used, analytical method, statistical method, functional method, method of system analysis, method of deduction, method of synthesis and method of comparison were applied. The research was aimed at in-depth analysis of the essence of capital accounting in Azerbaijani commercial enterprises in the context of modern conditions of market economy. The main attention was paid to the study of the legal and regulatory framework, peculiarities of the authorized capital of limited and joint stock organizations. Within the framework of the research, the key elements of development of financial accounting of capitals complying with IFRS requirements were identified. In addition, specific examples of synthetic accounting of business transactions for capital formation at commercial enterprises are provided, as well as the rules of their reflection in the financial statements are outlined. Special attention is paid to the fundamentals of new accounting rules developed to meet IFRS requirements. As a result of the study, solutions have been proposed to eliminate problems related to capital accounting in accordance with IFRS requirements in the activities of Azerbaijani commercial enterprises. These solutions are oriented to harmonize accounting practices with international standards, improve transparency of financial statements and increase attractiveness for potential investors. The results can be used for Azerbaijani commercial enterprises, contributing to the improvement of financial transparency, attractiveness for investors and harmonization of accounting practices with global standards

The Impact of Mandatory IFRS Adoption on the Value Relevance of Published Accounting Information: Evidence from Iraqi Private Banks

The study aimed to identify the impact of the International Financial Reporting Standards (IFRS) on the value Relevance of accounting information in a sample of banks listed on the Iraq Stock Exchange. The study dealt with the method of analyzing the information content of the annual financial statements published on the Iraq Stock Exchange website, which number (46). Banks. (15) Banks were chosen as a sample for the study for the period (2012-2021). This sample was determined according to two basic conditions: the availability of financial statements for the year 2021 and the banks’ continuation of disclosing their data for the specified years without interruption. The independent variable was measured by financial reporting standards. The international standard (IFRS) was set at a value of (1.0), and the second variable (value Relevance) was measured using the model (Ohlson, 1995). Data analysis was also conducted through the use of statistical methods and tools and the statistical program (stata), and the study concluded that there is a relationship there is a positive moral significance between the application of International Financial Reporting Standards (IFRS) and the value Relevance of published accounting information. This means that the greater the trend towards adopting international financial reporting standards is accompanied by an increase in the levels of value Relevance of accounting information. The study recommended the necessity the Central Bank of Iraq obligates banks listed on the Iraqi Stock Exchange to comply with the requirements of international financial reporting standards, which in turn reduces information asymmetry by disclosing Relevance accounting information to current and prospective investors.