Heterogeneity in earnings quality between different classes of companies after IFRS adoption: evidence from Brazil

ABSTRACT This paper aims to investigate the existence of heterogeneity in earnings quality between different classes of companies after the adoption of the International Financial Reporting Standards (IFRS). IFRS adoption is generally associated with an increase in the quality of financial statements. However, companies within the same country are likely to have different economic incentives regarding the disclosure of information. Thus, treating companies equally, without considering the related economic incentives, could contaminate earnings quality investigations. The case of Brazil is analyzed, which is a country classified as code-law, in which tax laws determined accounting practice and in which IFRS adoption is mandatory. First, Brazilian companies listed on the São Paulo Stock, Commodities, and Futures Exchange (BM&FBOVESPA) were separated into two classes: companies issuing American Depositary Receipts (ADRs) before IFRS adoption and companies that did not issue ADRs until the adoption of IFRS. Then, this second class of companies was grouped, using cluster analysis, into two different subclasses according to economic incentives. Based on the groups identified, the quality of accounting earnings is tested for each class of the companies before and after IFRS adoption. This paper uses timely recognition of economic events, value relevance of net income, and earnings management as proxies for the quality of accounting earnings. The results indicate that a particular class of companies began showing conditional conservatism, value relevance of net income, and lower earnings management after IFRS adoption. On the other hand, these results were not found for the two other classes of companies.

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The Audit Committee and Earnings Quality

Journal of Accounting Auditing & Finance ◽

10.1177/0148558x9601100206 ◽

1996 ◽

Vol 11 (2) ◽

pp. 247-276 ◽

Cited By ~ 96

Author(s):

John J. Wild

Keyword(s):

Economic Theory ◽

Empirical Evidence ◽

Research Design ◽

Financial Reporting ◽

Audit Committee ◽

Earnings Quality ◽

Nondecreasing Function ◽

Accounting Earnings ◽

Before And After

This paper provides empirical evidence on the association between audit committee formation and the quality of accounting earnings. The audit committee is responsible for overseeing the financial reporting and auditing process of the firm. This paper assesses the effectiveness of the audit committee in discharging these responsibilities by comparing the quality, or informativeness, of earnings reports before and after audit committee formation. For this paper, informativeness is measured by the extent to which the market reacts to the release of earnings reports. Economic theory predicts that the magnitude of the market's reaction to earnings is a nondecreasing function of earnings quality. The results show a significant increase in the market's reaction to earnings reports subsequent to the formation of the audit committee. Specifically, the reaction to earnings reports is more than 20 percent greater after the formation of the committee than before. These findings are robust to alternative variations in the research design. Overall, the evidence is consistent with the audit committee providing meaningful oversight of the financial reporting and auditing process.

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Earnings management to avoid earnings decreases and losses

REVISTA CATARINENSE DA CIÊNCIA CONTÁBIL ◽

10.16930/2237-7662202131531 ◽

2021 ◽

Vol 20 ◽

pp. e3153

Author(s):

Verônica de Fátima Santana ◽

Raquel Wille Sarquis

Keyword(s):

United States ◽

Earnings Management ◽

Financial Reporting ◽

Reporting Standards ◽

Working Capital ◽

Financial Reporting Standards ◽

Ifrs Adoption ◽

Geographical Regions ◽

The World ◽

Before And After

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.

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The Effect of Mandatory Adoption of IFRS on Earnings Quality: Evidence from the European Union

Journal of International Accounting Research ◽

10.2308/jiar-10221 ◽

2012 ◽

Vol 11 (2) ◽

pp. 1-25 ◽

Cited By ~ 60

Author(s):

Daniel Zeghal ◽

Sonda M. Chtourou ◽

Yosra M. Fourati

Keyword(s):

European Union ◽

Earnings Management ◽

Financial Reporting ◽

Value Relevance ◽

Earnings Quality ◽

The European Union ◽

Accounting Quality ◽

Financial Reporting Standards ◽

Accounting Numbers ◽

Mandatory Adoption

ABSTRACT This paper addresses the question whether the mandatory adoption of International Financial Reporting Standards (IFRS) is associated with higher accounting quality. More specifically, we investigate whether the application of IFRS in 15 European Union (EU) countries is associated with less earnings management and higher timeliness, conditional conservatism, and value relevance of accounting numbers. Our results suggest that there has been some improvement in accounting quality between the pre- and post-IFRS adoption periods. In particular, we find that firms exhibit an increase in the accounting-based attributes, but a decrease in the market-based after the adoption of IFRS in 2005. Interestingly, the findings are more pronounced for the firms in countries where the distance between the pre-existing national GAAP and IFRS is important. Furthermore, we are unable to identify any change within firms that have converged their local GAAP toward IFRS before the mandatory transition.

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Earnings management to avoid earnings decreases and losses

REVISTA CATARINENSE DA CIÊNCIA CONTÁBIL ◽

10.16930/2237-766220213153 ◽

2021 ◽

Vol 20 ◽

pp. e3153

Author(s):

Verônica de Fátima Santana ◽

Raquel Wille Sarquis

Keyword(s):

United States ◽

Earnings Management ◽

Financial Reporting ◽

Reporting Standards ◽

Working Capital ◽

Financial Reporting Standards ◽

Ifrs Adoption ◽

Geographical Regions ◽

The World ◽

Before And After

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Earnings quality before and after the implementation of PSAK 69

Accounting ◽

10.5267/j.ac.2021.2.012 ◽

2021 ◽

pp. 727-734 ◽

Cited By ~ 2

Author(s):

Naniek Noviari ◽

I Gusti Ayu Eka Damayanthi ◽

I Gusti Ngurah Agung Suaryana

Keyword(s):

Financial Reporting ◽

Agricultural Sector ◽

Stock Exchange ◽

Earnings Quality ◽

Fair Value ◽

Cross Sectional ◽

Current Period ◽

Before And After ◽

Earnings Response

PSAK 69 Agriculture regulates the accounting treatment of agricultural activities in Indonesia. The measurement of biological assets is the most important part of the arrangement of PSAK 69. PSAK 69 deals with biological assets measured at fair value less costs to sell at the beginning and end of the reporting period. Characteristics of growing biological assets will have an impact on the growth in fair value of assets, so there will be differences in fair value at the beginning and end of the financial reporting period. The difference in fair value of biological assets, whether realized or not, is recognized as gain in the current period. This will have an impact on the quality of the company's earnings. This study aims to examine differences in earnings quality before and after the implementation of PSAK 69 in agricultural sector companies listed on the Indonesia Stock Exchange. The research was conducted on 14 agricultural companies listed on the Indonesia Stock Exchange in the 2016-2019 observation period. Earnings quality is measured by the earnings response coefficient. Earnings response coefficients are estimated using the firm specific coefficient model (FSCM) and pooled cross-sectional regression model (CSRM) methods. This study measures the quality of earnings before and after the application of PSAK 69. The quality of earnings before and after the application of PSAK 69 is tested by a paired two-sample t-test. The results of this study found no difference in earnings quality before and after the application of PSAK 69.

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An Investigation IFRS Adoption in Malaysia on The Relationship between The Audit Committee and Quality of Financial Statement

Asia Proceedings of Social Sciences ◽

10.31580/apss.v2i2.374 ◽

2018 ◽

Vol 2 (2) ◽

pp. 115-122

Author(s):

Citrawati Jatiningrum ◽

Fauzi Fauzi ◽

Rita Irviani ◽

Mujiyati Mujiyati ◽

Shahanif Hasan

Keyword(s):

Earnings Management ◽

Financial Reporting ◽

Audit Committee ◽

Financial Statement ◽

Committee Meeting ◽

Ifrs Adoption ◽

Financial Expertise ◽

The Relationship ◽

Post Period

Audit committees are one of Corporate Governance (CG) mechanisms which are the significant factor in improving its role in inhibiting financial statement fraud (Choi, Jeon & Park, 2004; Habbash, 2010; Soliman & Ragab, 2014). Quality of the Financial Statement emphasised as being in compliance with accounting standards accepted in general, the disclosure scale, and reported numbers although this is not merely a task for the IFRS (Cascino & Gassen, 2010). In recent years, the issue of IFRS adoption in developed and developing countries have been a great deal of attention from many researchers. However, regarding the relationship between the Audit Committee and Quality of Financial Statement with IFRS requirements is still questioning. In fact, the results obtained from some previous researches are inconsistent. Therefore, the objectives in this study are aims to investigate whether post the mandatory IFRS adoption in Malaysia would limit earnings management practice in highlights of governance monitoring on the quality of financial reporting in this environment. This paper gives some evidence: 1) The effect of pre- and post IFRS adoption in Malaysia in the relationship between the Audit Committee and earnings management adoption. 2) examine the differences of the level earnings management on two periods of IFRS adoption in Malaysia. Quality of Financial statement in this study was measured by the level of earnings management with discretional accrual (DA) proxy. The audit committee variable measured by Audit Committee Independence (ACIND), Audit Committee Financial Expertise (ACFEX), Audit Committee Meeting (ACMEET), Audit Committee Size (ACSIZE) and control variable in this study using Board Size (BRDSIZE) and Firm Leverage (FRMLEV). The sample of this study including the two main time periods, there are pre-IFRS adoption and post-IFRS adoption. Using 81 listed companies in Malaysia as a sample, with 567 observations is analysed from 2009 to 2015 (7 years observations) with purposive judgement sampling selection. For seven years, a total of 567 observations is analysed. The pre- IFRS adoption period was tested from 2009 through 2011, and the post-IFRS adoption was tested from 2012 through the end of 2015. The findings in this study with multiplied regression analysis revealed that the hypothesis test in a period of pre- and post IFRS adoption ACFEX and FIRMLEV statistically were significance at 5% level. It means that Audit Committee Financial Expertise (ACFEX) have a significant effect on earnings management practise. According to the result found in the post IFRS adoption period, Audit Committee Meeting (ACMEET) is significant. It means that the frequency of audit committee meetings could be decreasing the level of discretionary accrual. The evidence also unveils both of ACIND and ACSIZE at 5 % level p-value is not significant. The most important result finding on pre- and post period of IFRS adoption in Malaysia provide evidence that based on the statistically significant was upward or the relation more significantly. However, this study also reported with paired sampled test analysis there was no significant difference between the level of earnings management in pre- and post period the adoption of IFRS in Malaysia at 5% level significance. An important contribution this study has the impact on practices and has implications useful for regulators. The study provides empirical evidence that a relationship between the audit committee and earnings management in the case of IFRS adoption. In contributing to the strength of governance quality and FRQ need to be revisited, especially after mandatory IFRS adoption. Though the audit committee and audit quality are implicitly mentioned in the CG act, it is recommended that formulates specific rules relating to the quality of Financial Reporting. In this regard, it is suggested that company reports would be presented high quality in financial reporting to provide appropriate responses to recommendations made in the reports. Finally, these findings suggest that CG practices in Malaysian that have its own peculiar characteristics compared to other emerging economies.

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

Investment Management and Financial Innovations ◽

10.21511/imfi.14(3-1).2017.08 ◽

2017 ◽

Vol 14 (3) ◽

pp. 243-250

Author(s):

Jee Hoon Yuk ◽

Wook Bin Leem

Keyword(s):

Financial Reporting ◽

Institutional Environment ◽

Earnings Quality ◽

Financial Statements ◽

Consolidated Financial Statements ◽

Listed Firms ◽

Financial Reporting Standards ◽

Ifrs Adoption

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

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The Role of IFRS on Financial Reporting Quality and Global Convergence: A Conceptual Review

International Business and Accounting Research Journal ◽

10.15294/ibarj.v3i1.65 ◽

2019 ◽

Vol 3 (1) ◽

pp. 67

Author(s):

Auwalu Musa

Keyword(s):

Earnings Management ◽

Financial Reporting ◽

Reporting Quality ◽

Financial Reporting Quality ◽

Accounting Quality ◽

Ifrs Adoption ◽

The World ◽

Timely Loss Recognition

This study examines the role of International Financial Reporting Standards on financial reporting quality and the global convergence. The IFRS adoption is already an issue of global relevance across countries of the world due to the quest for uniformity, reliability and comparability of financial statements of companies. The adoption of IFRS in Europe is an example of accounting quality across-borders with different institutional frameworks and enforcement rules. This allows investigating whether, and to what extent accounting regulation per se can affect the quality of financial reporting and leads to convergence in financial reporting. Specifically, the study review how the change in the recognition and measurement of firms operating accrual item, the loan loss provision, affects income smoothing behaviour and timely loss recognition. The study found that the IFRS convergence reduces the scope for earnings management, is related to more timely loss recognition and leads to more value relevant accounting measures. Thus, the study reviews background and guidance on the change in financial reporting quality following extensive IFRS adoption around the world countries. The study found that a difference in accounting quality is related to country’s overall infrastructure setting. The study also highlights the importance of investor protection for financial reporting quality and the need for regulators to design mechanisms that limit managers' earnings management practice. The study found from different literatures that the adoption of IFRS leads to higher quality of accounting numbers and improve foreign direct investment across countries.

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KOMPARASI KUALITAS INFORMASI DAN ASIMETRI INFORMASI SEBELUM DAN SESUDAH ADOPSI IFRS DI INDONESIA

Jurnal Akuntansi ◽

10.46806/ja.v7i2.461 ◽

2019 ◽

Vol 7 (2) ◽

Author(s):

Sugi Suhartono, Yustina Triyani

Keyword(s):

Information Asymmetry ◽

Information Quality ◽

Value Relevance ◽

Stock Exchange ◽

Secondary Data ◽

Linear Regression Method ◽

Financial Report ◽

Ifrs Adoption ◽

Before And After

This research aims to provide empirical evidence relating to information quality and information asymmetry before and after IFRS adoption. This study uses value relevance as a proxy of financial report information quality and bid ask spread as a proxy of information asymmetry. The sample in this study uses secondary data 372 companies listed in Indonesia Stock Exchange form 2008 to 2016. This study uses Multiple Linear Regression method, Chow Test and Paired-Sample t Test Difference Test. The results showed that after IFRS adoption there was an increase in the quality of financial report information and a decrease in information asymmetry.Keywords: IFRS, Quality of information, Information asymmetry

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The Influence Of Firm’s Fair Value System On Earnings Quality Under IFRS

Journal of Applied Business Research (JABR) ◽

10.19030/jabr.v34i3.10166 ◽

2018 ◽

Vol 34 (3) ◽

pp. 427-436 ◽

Cited By ~ 1

Author(s):

Chang Seop Rhee ◽

Eun Sil Choi ◽

Ji Yeon Ryu

Keyword(s):

Evaluation System ◽

Value Relevance ◽

Earnings Quality ◽

Fair Value ◽

Net Income ◽

Value System ◽

Book Value ◽

Value Evaluation ◽

Ifrs Adoption ◽

The Difference

This paper analyzes the influence of firms’ fair value system on earnings quality under IFRS. Korean firms are required to adopt IFRS in 2011. IFRS adoption was expected to increase value relevance of book value of equity and benefit information users’ decision making. However, prior Korean studies report that value relevance of book value of equity is indifferent between under K-GAAP and IFRS. We consider that the indifference in value relevance of book value of equity after IFRS adoption is due to different level of fair value system among firms. We investigate whether the different level of fair value system among firms lead to the difference in earnings quality. Furthermore, we examine how each firm’s fair value system affect earnings quality under IFRS. This study finds following results. First, firms with weak fair value system smooth income more frequently. Second, firms with weak fair value system experience small amount of positive profit and slight increase in net income compared to prior period more frequently. Third, firms with weak fair value system make less timely loss recognition. Lastly, book value of equity and goodwill has low relative value relevance for weak fair value systemic firms, while both book value of equity and goodwill have incremental value relevance for firms with strong fair value evaluation system.

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