Post International Financial Reporting Standards Research Articles

Growth in revenue and earnings management practices in Nigeria pre- and post-IFRS adoption periods

The purpose of the study is to examine the revenue growth and association with earnings management practices of firms in Nigeria pre- and post-International Financial Reporting Standards (IFRS) adoption years. The study uses 87 nonfinancial firms over 19 years, nine years pre-IFRS (2003 to 2011), and nine years post-IFRS (2012-2020) for a total of 1566 firm-year observations. The panel regression estimate (fixed effect and random effect) was used to test the association between revenue growth and discretionary accruals, while the paired sample t-test was used to test the effect of IFRS adoption. The finding shows that decreasing growth rates resulted in increasing earnings management practices, probably due to the desire to maintain steady published performance figures in the pre-IFRS era, while decreasing growth rates resulted in income-decreasing earnings management practices in post-IFRS years, a rather surprising result. The finding also suggests that the practice of earnings manipulation is higher post-IFRS, indicating lower earnings quality. While managers engaged in income-increasing earnings management practices pre-IFRS, surprisingly, income-decreasing earnings management practices were detected post-IFRS. The finding deviates from norms and popular assumptions and suggests that the adoption of global standards might not necessarily mean limiting the abilities of managers to manipulate the earnings of companies. While changing standards may affect the nature of earnings manipulation, it is unlikely to prevent or deter the practice in general. The implication is that the application of IFRS will not deter earnings management practices.

Financial statement comparability and the usefulness of earnings: Some Canadian evidence

In this study, we investigate whether financial statement comparability enhances the usefulness of earnings, specifically their relevance and faithful representation, as asserted in the International Accounting Standards Board (IASB)’s conceptual framework. Thus far, researchers have documented various capital market benefits of comparability. However, the role of comparability in improving the usefulness of earnings has not yet been directly examined. Our study is motivated to address this question using data from Canadian firms in the post-International Financial Reporting Standards (IFRS) adoption period. The findings are consistent with our prediction and support the IASB’s claim, indicating that comparability enhances the decision-usefulness of earnings. These results are robust to several control factors, including industry membership, firm profitability, firm size, and leverage.

IFRS ADOPTION AND KEY ACCOUNTING RATIOS: AN EVIDENCE FROM COLOMBO STOCK EXCHANGE

The purpose of this study is to investigate the impact of International Financial Reporting Standards (IFRS) adoption on key accounting ratios of firms listed in the Colombo Stock Exchange (CSE). The study also sought to test if the entity’s sector discriminates the impact that the IFRS adoption has on accounting ratios being evaluated. Descriptive statistics and non-parametric univariate analysis (Mann Whitney U test) were used to compare pre and post IFRS convergence ratios. The researchers tested eleven accounting ratios falling under profitability, liquidity, leverage, and market performance. We randomly sampled 40 firms listed in CSE, 20 each from the service and manufacturing sectors. The study period was ten years from 2007 through 2016, whereby the periods corresponding to pre-IFRS convergence were from 2007 through 2011, and post-IFRS convergence was captured from 2012 through 2016.. We showed that all profitability measures we tested were significantly impacted by IFRS adoption. We infer that the direct comparability of the profitability measures across pre and post-IFRS periods is no longer useful for decision making. In contrast, all liquidity ratios investigated were significantly indifferent between the pre and post-IFRS adoption. We have argued that liquidity measures have not changed considerably due to IFRS adoption and may thus still be comparable across pre and post-IFRS periods. Leverage and market ratios returned mixed results. We also document that the IFRS convergence’s impact on profitability and leverage ratios tends to be influenced by the sector in which firms operate, while its impact is not evidenced in relation to liquidity measures and market ratios. The limitation of this paper is that the effects of firm-specific variables and macro-economic factors on accounting ratios were not controlled. The results are useful for those interested in analyzing the long-term trends of accounting ratios. Our findings will also help the policymakers, standards setters, financial analysts, and future researchers about the behaviors of accounting ratios and quality financial reporting due to convergence to IFRS-based accounting regimes. This study is one of very few works on this topic in Sri Lanka, an IFRS jurisdiction with a developing economy.

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

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

Managerial tools used to meet or beat analyst forecasts: Evidence from the UK

This paper examines the tools that managers use to meet or beat analyst forecasts in the post-International Financial Reporting Standards (IFRS) period, using a sample of UK firms for the period 2005 to 2015. Our results are consistent with the view that managers utilize both classification shifting and managerial guidance to hit analyst forecasts. The results suggest that managers are more likely to continue to exercise their discretion in using these two tools following the adoption of IFRS. This paper supports the argument that managers engage in classification shifting, and IFRS adoption is more likely to increase market demand for more disclosuresthrough managerial guidance. In contrast, there is weak evidence to suggest that real earnings management or accrual earnings management are used to hit analyst forecasts. Our results are expected to be of interest to policymakers, regulators, and external auditors.

International Financial Reporting Standards Adoption and Value Relevance of Financial Information of Quoted Healthcare Firms in Nigeria

International Financial Reporting Standards (IFRS) was first adopted in 2005 by European Union countries while Nigeria mandatorily adopted in 2012 to participate in opportunities offered by globalization. This study, therefore, investigated the impact of IFRS adoption on the value relevance of financial information of quoted Healthcare Firms in Nigeria. The study conducted a pre (2008-2011) and post (2012-2015) IFRS analyses on six Healthcare firms quoted on the Nigeria Stock Exchange. The study sourced data on Earnings per Share (EPS), Change in Earnings per Share (CEPS), Book Value per Share (BVPS) and Share Price (SP) from published annual reports of the quoted Healthcare firms and Cashcraft Asset Management. Using the Multiple regression model the study revealed that Pre- IFRS financial information is value relevant; Post-IFRS financial information is also value relevant; and Post-IFRS financial information has relative value relevance over Pre- IFRS financial information.

Value Relevance and Users Confidence in Post International Financial Reporting Standards Adoption Era of Nigerian Banks

Conclusions from the existing studies on IFRS adoption and value relevance were characterized by conflicting results and mixed findings. This study attempts to evaluate the impact of adoption of International Financial Reporting Standards (IFRS) on the value relevance of financial information of Nigerian Deposit Money Banks. A mixed research approach was adopted for this study. To analyze the secondary data correlational research design was employed using Edward, Bells and Olhson (EBO) model. Primary data through structured questionnaire administered on a sample of 200 randomly selected preparers and users of banks financial statements was also used to provide alternative evidence. Data were analyzed using descriptive and econometric approaches. General least square (GLS) multiple regression analyses were employed to analyze the panel data based on random effect model using SPSS 17 statistical tool.The results from data analysis showed r calculated of 0.69 indicating a significant relationship between adoption of IFRS variables and value relevance indexes in the NDMBs, from the analysis of questionnaire responses. The relationship, using EBO model, between the variables used for post IFRS adoption analysis shows that share price (SP) is positively correlated with earning per share (EPS), change in earnings per share (CEPS) and book value per share (BVPS) at 0.368, 0.096 and 0.103 respectively meaning that SP and EPS have higher positive relationship but lower with CEPS and BVPS. Invariably, higher earnings attract higher SP which automatically enhances the confidence of investors in the financial statements after the adoption. The pre-IFRS R-squared is 0.35 while post-IFRS R-squared is 0.16 showing that post IFRS financial information has a weak value relevance. However, the elements that made up financial information are not value relevant in post IFRS adoption thereby giving a low cumulative relationship to share price. The study suggests concerted efforts by banks to strengthen the value relevance and improve users’ confidence of their financial reports since IFRS adoption has been made mandatory.

Firm Performance and Corporate Disclosure Level of Listed Companies in Nigeria

The study investigates the relationship between firm performance (proxied by profitability and liquidity) and corporate disclosure in Nigerian listed firms. The data used in the study were obtained from the annual reports of 60 companies listed on the Nigerian Stock Exchange from the various sectors of the country’s economy. The study covers the post International Financial Reporting Standards (IFRSs) adoption period of three years (2012 – 2014). Corporate disclosure (dependent variable) was disaggregated into mandatory, voluntary and total disclosure. The data were analysed using both descriptive statistics and the Ordinary Least Squares (OLS) regression. Findings from the descriptive statistics reveal that, contrary to prior findings, there is a steady improvement in mandatory disclosure by Nigerian companies since the country’s adoption of IFRSs. However, voluntary disclosure still remains relatively low. The regression results show no significant relationship between profitability and the three components of corporate disclosure. But liquidity shows a significant positive relationship with mandatory and total disclosure. The combined effect of profitability and liquidity shows no significant relationship with any of the components of corporate disclosure. The findings suggest that improved performance of companies does not necessarily induce them to disclosure more information as widely reported by previous researchers. These findings notwithstanding, the decision to disclose sufficiently and timely must be accorded priority attention by companies, considering the critical role of adequate and timely information disclosure in the global marketplace.

Corporate Attributes and Corporate Disclosure Level of Listed Companies in Nigeria: A Post-IFRS Adoption Study

This study examines the determinants of corporate disclosure level of listed companies in Nigeria. Specifically, the study investigates the relationship between two structure characteristics and corporate disclosure in Nigerian listed firms. The data used in the study were obtained from the annual reports of 60 companies listed on the Nigerian Stock Exchange from the various sectors of the Nigerian economy. The study covers the post International Financial Reporting Standards (IFRSs) adoption period of three years (2012 – 2014). The structure characteristics (independent variables) are firm size and leverage. Corporate disclosure (dependent variable) was disaggregated into mandatory, voluntary and total disclosure. The data were analysed using both descriptive statistics and the Ordinary Least Squares (OLS) regression. Findings from the descriptive statistics reveal that contrary to prior findings, there is a steady improvement in mandatory disclosure by Nigerian companies since the country’s adoption of IFRSs. However, voluntary disclosure still remains relatively low.Our empirical results show a significant positive association between firm size and mandatory disclosure. The results also reveal a significant negative relationship between leverage and mandatory disclosure. Both leverage and firm size showed a significant positive relationship with voluntary disclosure. The combined effect of leverage and firm size show a significant positive relationship with total disclosure. Based on these findings, we recommend that the Financial Reporting Council of Nigeria and other regulatory agencies should intensify efforts towards enforcement of companies’ compliance with the requirements of IFRSs and other relevant statutory provisions.

The Effect of IFRS on Investment Decisions: European Evidence during Crisis and Non Crisis Economic Conditions

This study investigates the effect of a change in financial reporting regulation, the adoption of International Financial Reporting Standards (IFRS), on investment decisions in Europe. It further investigates whether capital investment decisions were influenced by the adverse macroeconomic conditions that took place during the crisis period in the Eurozone in years 2008-2010. Moreover, we control for the fact that the impact of the IFRS adoption may differ depending on a) the timing of the adoption i.e. voluntary versus mandatory adopters and b) the legal enforcement and corruption levels. We provide evidence that financial reporting practices of mandatory versus voluntary adopters cause significant differences in (a) the cost of equity capital, (b) the level of capital investments and (c) the return on invested capital. Our evidence suggest that mandatory adopters improved the level of capital investments and the return on invested capital in the post IFRS period and that the cost of equity capital was reduced. These evidence are more pronounced under the strong legal enforcement environment. For the group of voluntary adopters, we verify also a significant reduction in the cost of equity capital in the post IFRS adoption period. Regarding their investment practices, we document higher level of capital investment relative to mandatory adopters in both the pre and post IFRS period and even after controlling for the legal enforcement environment. We provide evidence that during the crisis period the cost of equity capital was increased for both groups. Nevertheless, our results suggest that both groups keep their investment policy unchanged by not reducing the level of capital investments.

The influence of institutional environment on corporate responsibility disclosures in Ghana

PurposeThe study aims to analyse the level and trend of corporate responsibility disclosures (CRD) in annual reports of listed firms on the Ghana Stock Exchange against the Global Reporting Index and to examine the influence of the institutional environment on such disclosures.Design/methodology/approachA content analysis of annual reports of 17 listed firms in Ghana over a 10-year period (2003-2012) of social and environmental disclosures using the Global reporting indicators as the standard was undertaken. A multiple regression analysis using the random effect estimator was used to test institutional factors influencing CRD.FindingsThe study finds that listed firms in Ghana disclose some responsibility information; and this has increased over the period, with a significant dip in the year 2010. The study also documents a significant amount of disclosures post International Financial Reporting Standards (IFRS) adoption. The increase in disclosure is particularly explained by IFRS adoption by Ghana and the number of women on boards. This study finds a positive but weak relationship between companies’ association with foreign firms, majority shareholders and CRD. A positive significant relationship is confirmed for firm size, while capital intensity shows a negative significant relationship with CRD in Ghana.Research limitations/implicationsThe word search may not capture similar words not known to the author, and the words used may have different meanings. In addition, bias may arise from the limited sample size and the choice of companies. Regulators must enforce existing environmental guidelines and streamline reporting for social and environmental issues to help managers disclose more social and environmental information.Originality/valueThe study highlights CRD and its drivers from Ghana, an emerging African economy. To the author’s knowledge, this study is the first to undertake a longitudinal study on social and environmental disclosures of listed companies in Ghana against the Global Reporting Initiative and to determine the effect of IFRS adoption in Ghana on CRD.

The value relevance of exploration and evaluation expenditures

Purpose – This paper aims to investigate the value relevance of the various components of exploration and evaluation expenditures in the Australian extractives industry. Whether exploration and evaluation expenditures is more value relevant, following the adoption of AASB 6, and whether it differs for firms engaged only in exploration when compared to those also engaged in mining production is also examined. Design/methodology/approach – This paper uses a modified Ohlson model as a benchmark against which to compare an alternative valuation model featuring the disclosed components of exploration and evaluation expenditures. A sample comprising 430 firm-year observations between 2003 and 2009 is utilised. Findings – Written-off exploration and evaluation expenditures and the number of projects in which firms are involved is relevant to investors when assessing the value of extractive firms. Further, the implementation of AASB 6 has led to an improvement in the relevance of exploration and evaluation information in assessing firm value. Research limitations/implications – The sample is based on observations from the years 2003-2004 to the years 2006-2009. The authors do not incorporate 2005, as this is the first year the new standard was implemented, and there is the possibility of a settling in effect. The authors base our sample on the top 100 extractive firms in 2009. As such, these companies may not represent the accounting practices of smaller firms in the Australian extractive industry. Originality/value – The authors address a gap in the literature by examining the value relevance of the detailed line items of exploration and evaluation expenditure reported by extractives firms. The authors also explore the effect of regulatory changes by examining the value relevance of exploration and evaluation expenditures pre- and post-International Financial Reporting Standards (IFRS) 6/Australian Accounting Standards Board (AASB) 6 implementation. Finally, the authors contribute useful findings to the standard setters’ ongoing deliberations aimed at producing a comprehensive standard on extractive activities by providing useful feedback on the relevance of accounting for pre-production costs under a regime using the “area of interest” method.

The readability impact of international financial reporting standards

Purpose – This paper aims to compare the readability of narrative annual report disclosure pre- and post-International Financial Reporting Standards (IFRS) adoption using a computational linguistics programme to determine if annual report disclosures have become more difficult or easier to read following the adoption of IFRS. Design/methodology/approach – This paper empirically measures narrative annual report disclosure readability pre- and post-IFRS adoption using a computational linguistics programme. In this analysis, the authors control for variables that have been identified as relevant to the understanding of financial disclosures, such as size, business volatility, financial leverage and industry. Findings – Significant relationships have been identified between IFRS adoption and reduced readability indicators using readability formulas, and also using other factors such as increased length of annual report disclosures and increased use of tables. Findings suggest that the adoption of IFRS has added complexity and resulted in reduced readability of annual report disclosures. Practical implications – Academic backing to claims of IFRS’s negative implications for financial statements and their ultimate users should encourage action on the part of standard setters and report preparers to address the negative impacts of IFRS adoption. Originality/value – This paper is the first to provide evidence that New Zealand equivalents to IFRS adoption have resulted in not only longer disclosures but also more complicated disclosures.

International Financial Reporting Standards and the value relevance of R&D expenditures: Pre and post IFRS analysis

This study examines the value relevance of research and development (R&D) expenditures in the pre and post International Financial Reporting Standards (IFRS) periods in the UK. It also examines firm size and sector-based differences in the value relevance of R&D during the sample period between 2001 and 2011. The results indicate that capitalized R&D has value relevance during the 11years sample period. However, the value relevance of capitalized R&D does not appear to have improved in the post-IFRS period. Large firms present higher value relevance of capitalized R&D than small firms which suggest that firm size has significantly different valuation effects on the value relevance of R&D expenditures. Sectors, however, do not appear to present valuation differences across manufacturing and nonmanufacturing firms. The overall findings of this study report no difference in the value relevance of expensed R&D in the pre and post-IFRS periods; however, the value relevance of capitalized R&D appears to decrease from pre to post-IFRS period. We thus argue that these findings have implications for the regulators and accounting professionals.