Trend Of Earnings Quality Under IFRS Era: In Case Of Korea

Korea has decided to adopt International Financial Reporting Standards (IFRS) since 2011 in order to enhance quality of financial accounting information. However, there are certain issues that fair value accounting of IFRS may deteriorate earnings quality. I investigate whether the proxies of earnings quality used in Francis et al. (2004) such as persistence, predictability, accrual quality, and smoothness are influenced after the adoption of IFRS in Korea. I find that the trend of persistence and predictability quality shows decreasing patterns over time, suggesting that the deterioration of consistency with local GAAP may have a negative impact on the proxies of earnings quality. However, the difference of earnings quality between in post-IFRS era and pre-IFRS is not significant. In other words, trend of earnings quality after the adoption of IFRS is improved. My results mean that the trend of earnings quality in Korea shows V-shaped line, indicating that IFRS is well established and successful accounting standards in Korean capital market.

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Fair value accounting and earning management: The impact of unobservable inputs on earning quality. Evidence from the US

Corporate Ownership and Control ◽

10.22495/cocv16i2art1 ◽

2019 ◽

Vol 16 (2) ◽

pp. 8-18 ◽

Cited By ~ 3

Author(s):

Marco Pompili ◽

Marco Tutino

Keyword(s):

Financial Reporting ◽

Negative Impact ◽

Evaluation Process ◽

Strong Relationship ◽

Fair Value ◽

Financial Instruments ◽

Fair Value Accounting ◽

Earning Quality ◽

The Impact

Accounting standard boards (IASB and FASB) are aimed at designing high-quality standards able to increase transparency and comparability of financial reporting. They have chosen fair value accounting (FVA) approach to improve the quality of financial reporting and at the same time help financial reporting users in the decision-making process. During recent years, an intense debate has arisen about the trade-off between relevance and reliability of accounting information using this approach. Many authors outline problems related to the fair value hierarchy valuation of financial instruments, in particular, the discretionary use of unobservable inputs in financial instruments valuation process in support of earnings management. Tutino and Pompili (2018) have identified a general negative correlation between the extent of FVA and earning quality. Stating this, the main objective of the paper, using the same approach of the previous one, is to identify the specific impacts of unobservable inputs on earning quality. Theory and previous literature suggest a major negative impact of unobservable inputs than observable ones on the quality of information provided within financial reporting. Results show a negative and strong relationship between FVA and earning quality for US banks that do not depend on the hierarchy of input used in the evaluation process. These results suggest new considerations on the reliability of fair value concerning the possibilities of manipulation given to the management with this approach.

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Does Mandatory Adoption of IFRS Enhance Earnings Quality? Evidence From Closer to Home

The International Journal of Accounting ◽

10.1142/s1094406019500033 ◽

2019 ◽

Vol 54 (01) ◽

pp. 1950003 ◽

Cited By ~ 1

Author(s):

Gopal V. Krishnan ◽

Jing Zhang

Keyword(s):

Financial Reporting ◽

Earnings Quality ◽

Cash Flows ◽

Fiscal Year ◽

Financial Reporting Standards ◽

Policy Debates ◽

Mandatory Adoption ◽

The Difference ◽

Accounting Convergence

The global accounting convergence and the often discussed probable adoption of International Financial Reporting Standards (IFRS) by U.S. regulators is a timely topic. We contribute to the literature by examining a more recent mandatory IFRS adoption by Canada. Canadian GAAP (CGAAP) is often considered a close substitute for U.S. GAAP. One key feature of this setting is that two earnings numbers are available for fiscal year 2010 since Canadian firms were required to reconcile earnings under CGAAP with earnings under IFRS. We run a “horse race” of earnings quality between earnings under CGAAP and IFRS. We find that on average, relative to IFRS-earnings, earnings under CGAAP have greater association with next period cash flows and higher degree of persistence. Further, when the difference between earnings under CGAAP and IFRS is large, IFRS-earnings are less value-relevant and less persistent. These results strongly support the notion that higher earnings quality is associated with CGAAP. Finally, the results also indicate that differences between CGAAP and IFRS with regard to accounting for financial instruments and investments significantly impair the quality of IFRS-earnings. Our findings are potentially informative to any revival of policy debates on the possible adoption of IFRS by U.S. firms.

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Fair Value Accounting: Affect On The Auditing Profession

Journal of Applied Business Research (JABR) ◽

10.19030/jabr.v26i3.292 ◽

2010 ◽

Vol 26 (3) ◽

Cited By ~ 7

Author(s):

Danny Pannese ◽

Alan DelFavero

Keyword(s):

Multinational Corporations ◽

Financial Reporting ◽

Accounting Standards ◽

Fair Value ◽

Financial Accounting ◽

Credit Crisis ◽

Fair Value Accounting ◽

Financial Reporting Standards ◽

Business Entities ◽

Recent Financial Crisis

During this period of global markets, multinational corporations are demanding financial accounting standards with enhanced uniformity. In an effort to achieve this objective, the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) have been working together on the Convergence Project, aiming to develop accounting standards that closely correlate with international financial reporting standards.  In September 2006 and February 2007, the FASB issued two key fair value accounting (FVA) standards which focused on providing guidelines for fair value measurement (through a classification hierarchy), expanding disclosure requirements, and also allowing business entities to increase FVA’s application.  However, the recent financial crisis has placed increased scrutiny on estimates derived under FVA.  Consequently, a spotlight has been placed on the auditing profession, as the effectiveness of an auditor’s ability to test estimates derived under FVA has been questioned due to numerous firms approaching collapse in the midst of the credit crisis.  Thus, the purpose of this paper is to present the challenges auditors face when auditing FV estimates, and to discuss the profession’s capability of adapting to FVA in the future.

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Fair Value Accounting: Implementation Challenges Facing Small and Medium-Sized Entities in the Agricultural Sector

International Journal of Accounting and Financial Reporting ◽

10.5296/ijafr.v8i4.13643 ◽

2018 ◽

Vol 8 (4) ◽

pp. 60

Author(s):

Joseph Kwasi Agyemang ◽

Owusu Acheampong ◽

Wiafe Nti Akenten

Keyword(s):

Financial Reporting ◽

Agricultural Sector ◽

Fair Value ◽

International Standards ◽

Reporting Standards ◽

Fair Value Accounting ◽

Implementation Challenges ◽

Financial Reporting Standards ◽

Regulatory Bodies ◽

Value Reporting

Nowadays, the relevance of fair value in financial reporting is gaining impetus and recent discussions are moving in the trend of full fair value reporting. Small and medium-sized entities are not ignored in this instance. The move to new reporting standards results in various challenges for different interest groups such as auditors, preparers and regulators. The main objective of the study was to establish the fair value implementation challenges facing SMEs in the agricultural sector with evidence from regulatory bodies in Ghana. The study established that there is lack of methodological relationship between existing local laws and IFRS and absence of involvement of regulatory bodies in financial reporting standards setting. In light of these challenges, the study recommends involvement of regulatory bodies in standard setting and consideration should also be given to local laws when setting international standards.

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An Evaluation Of The Implementation Of Fair Value Accounting: Impact On Financial Reporting

Journal of Business & Economics Research (JBER) ◽

10.19030/jber.v9i1.934 ◽

2011 ◽

Vol 9 (1) ◽

Author(s):

Karen T. Cascini ◽

Alan DelFavero

Keyword(s):

Financial Reporting ◽

Accounting Standards ◽

Fair Value ◽

The United States ◽

Financial Accounting ◽

Financial Assets ◽

Financial Accounting Standards Board ◽

Continuous Change ◽

Fair Value Accounting ◽

The Cost

The accounting industry is in a state of continuous change.  In the United States, the historical cost principle has traditionally been the foundation of accounting.  Until recently, assets and liabilities have been required to be recorded at their acquisition prices, with the exception of designated financial assets and financial liabilities.  However, the Financial Accounting Standards Board (FASB) has now created accounting standards that are distant from the cost principle.  Statement of Financial Accounting Standards No. 157: Fair Value Measurements, issued in September 2006 (FAS157, now codified as ASC 820) and Statement of Financial Accounting Standards No. 159: The Fair Value Option for Financial Assets and Financial Liabilities, created in February 2007 (FAS159, now ASC 825-10-25), significantly increases the viability of fair value accounting. The purpose of this paper is to illustrate the benefits and pitfalls of fair value and the corresponding affects on various stakeholders.

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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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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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A Stakeholder’s Perspective on the Implications of IFRS and Fair Value Accounting on Valuation of Securities

Earth Common Journal ◽

10.31542/j.ecj.124 ◽

2013 ◽

Vol 3 (2) ◽

Author(s):

Glynis Milne and Dr. Eloisa Perez

Keyword(s):

Financial Reporting ◽

Market Value ◽

Fair Value ◽

Financial Instruments ◽

Fair Value Accounting ◽

Optimal Method ◽

Historical Cost ◽

Financial Reporting Standards ◽

Illiquid Markets ◽

Fair Market Value

Due to the complexity of modern financial instruments, accurate valuation can prove difficult even in optimal market conditions. Traditionally International Financial Reporting Standards (IFRS) have allowed securities to be valued based on their historical cost, which results in financial instruments being held on the books at the initial cost paid, until the point at which they are sold. However, this practice may be viewed as problematic when the market value of the financial instrument has not appreciated. Furthermore, market valuation becomes even more difficult to substantiate in illiquid markets, as it may oftentimes be difficult to secure a buyer at any price. Opponents of the historical cost methodology argue that in these circumstances it is unreasonable to allow firms to continue to hold their financial instruments at historical cost, and advocate for a valuation framework that requires the holders of securities to mark their book value to the best estimate of fair market value available. This viewpoint is countered by those who believe that in illiquid markets or markets in crisis, marking to market value is unfair as no functional market exists. In light of the subprime mortgage crisis the new iteration of IFRS requires the use of fair value accounting and marking to market for investment products of all types, with the exception of those held to maturity (bonds). Through a review of current literature, we sought to determine the optimal method for valuation of investment products. Our goal was to determine a reliable and representationally faithful method of valuation that will balance the needs and requirements of all stakeholders and provide transparency in accounting.

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Assessing the Financial Reporting Consequences of Conversion to IFRS: The Case of Equity-Based Compensation

Accounting Horizons ◽

10.2308/acch.2010.24.4.589 ◽

2010 ◽

Vol 24 (4) ◽

pp. 589-621 ◽

Cited By ~ 14

Author(s):

Mary Lea McAnally ◽

Sean T. McGuire ◽

Connie D. Weaver

Keyword(s):

Financial Reporting ◽

Stock Price ◽

Intrinsic Value ◽

Price Volatility ◽

Fair Value ◽

Cash Flows ◽

Tax Benefits ◽

The Difference ◽

Accounting Reports

SYNOPSIS: The potential conversion of accounting standards from U.S. GAAP to International Financial Reporting Standards (IFRS) raises the issue of unknown financial reporting consequences. We consider one important accounting issue, namely equity-based compensation, and study how IFRS conversion will affect financial statements and the quality of reported numbers. The difference between the two standards is that IFRS reports tax benefits from equity-based compensation at their intrinsic value each period. This amounts to quasi fair-value accounting under IFRS compared to historic-cost accounting under GAAP. We develop and compare pro forma GAAP and IFRS accounting reports for a broad cross section of U.S. firms. We find that IFRS yields lower deferred tax assets and recognized tax benefits for approximately two-thirds of the option grants in our sample. Moreover, reported tax items will be more volatile under IFRS and these effects will be more pronounced for firms with greater option use and stock price volatility. Importantly, we find that IFRS tax items are better able to predict future cash flows. One conclusion is that IFRS improves the relevance, and thereby, the quality, of at least some reported numbers.

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Portable Power: An Application of IAS 16 Including Self-Constructed Assets and the Revaluation Model

Issues in Accounting Education ◽

10.2308/iace-52391 ◽

2019 ◽

Vol 34 (2) ◽

pp. 61-71 ◽

Cited By ~ 1

Author(s):

Susan B. Hughes ◽

Suzanne Lowensohn ◽

Elise Tefre

Keyword(s):

Financial Reporting ◽

Fair Value ◽

High Energy ◽

Production Equipment ◽

Financial Accounting ◽

Financial Statement ◽

Financial Reporting Standards ◽

Portable Power ◽

Accounting Courses ◽

Privately Owned

ABSTRACT This teaching case focuses on a privately owned Swiss company that produces and sells high-energy chews favored by European athletes. External investors recently expressed interest in the company. Management hired an international public accounting firm and is currently preparing its first set of audited International Financial Reporting Standards (IFRS) financial statements. The auditors question management's fair value estimations for the land and production equipment, as well as the accuracy of capitalized greenhouse costs included in operating assets. The case emphasizes the need to consult IFRS, form judgments and estimates when determining financial statement content, and draft appropriate note disclosures. Students are also exposed to the complexities of accounting for agricultural assets, a category not often included in financial accounting courses. After working through this case, students should be able to measure fair value and determine the reliability of valuation inputs, appropriately capitalize assets, and draft necessary disclosures.

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