Does the Mandatory Adoption of IFRS Improve the Association between Accruals and Cash Flows? Evidence from Accounting Estimates

2018 ◽  
Vol 33 (1) ◽  
pp. 39-59
Author(s):  
Jimmy F. Downes ◽  
Tony Kang ◽  
Sohyung Kim ◽  
Cheol Lee
Keyword(s):  
Financial Reporting ◽  
Cash Flows ◽  
Data Availability ◽  
The European Union ◽  
Accounting Quality ◽  
Financial Reporting Standards ◽  
Ifrs Adoption ◽  
Accounting Estimates ◽  
Accounting Accruals ◽  
Future Cash Flows

SYNOPSIS We investigate the effect of mandatory International Financial Reporting Standards (IFRS) adoption in the European Union on the association between accounting estimates and future cash flows, a key concept of accounting quality within the International Accounting Standard Board conceptual framework. We find that the predictive value of accounting estimates improves after IFRS adoption. This improvement is largely driven by specific types of accounting estimates, such as accounts receivable, depreciation, and amortization expense. We also find that the improvement is concentrated in countries with larger differences between pre-IFRS domestic GAAP and IFRS. Our findings suggest that IFRS allow managers to exercise their judgment to provide information about future cash flows through the more subjective/judgmental portion of accounting accruals. JEL Classifications: M16; M49; O52. Data Availability: The data used in this study are from public sources identified in the study.

Does Mandatory IFRS Adoption Improve Information Comparability?

2012 ◽  
Vol 87 (5) ◽  
pp. 1767-1789 ◽  
Author(s):  
Rita W. Y. Yip ◽  
Danqing Young
Keyword(s):  
Financial Reporting ◽  
Information Transfer ◽  
Institutional Environment ◽  
Data Availability ◽  
The European Union ◽  
Accounting Data ◽  
Financial Reporting Standards ◽  
Ifrs Adoption ◽  
Mandatory Adoption ◽  
Cross Country

ABSTRACT This study examines whether the mandatory adoption of International Financial Reporting Standards (IFRS) in the European Union significantly improves information comparability in 17 European countries. We employ three proxies—the similarity of accounting functions that translate economic events into accounting data, the degree of information transfer, and the similarity of the information content of earnings and of the book value of equity—to measure information comparability. Our results suggest that mandatory IFRS adoption improves cross-country information comparability by making similar things look more alike without making different things look less different. Our results also suggest that both accounting convergence and higher quality information under IFRS are the likely drivers of the comparability improvement. In addition, we find some evidence that cross-country comparability improvement is affected by firms' institutional environment. Data Availability: Data are available from commercial providers (Worldscope, DataStream, and I/B/E/S).

The Impact of Mandatory IFRS Adoption on Audit Fees: Theory and Evidence

2012 ◽  
Vol 87 (6) ◽  
pp. 2061-2094 ◽  
Author(s):  
Jeong-Bon Kim ◽  
Xiaohong Liu ◽  
Liu Zheng
Keyword(s):  
Financial Reporting ◽  
Reporting Quality ◽  
Audit Fees ◽  
Data Availability ◽  
Financial Reporting Quality ◽  
Financial Reporting Standards ◽  
Ifrs Adoption ◽  
Audit Fee ◽  
European Union Countries ◽  
The Impact

ABSTRACT: This study examines the impact of International Financial Reporting Standards (IFRS) adoption on audit fees. We first build an analytical audit fee model to analyze the impact on audit fees for the change in both audit complexity and financial reporting quality brought about by IFRS adoption. We then test the model's predictions using audit fee data from European Union countries that mandated IFRS adoption in 2005. We find that mandatory IFRS adoption has led to an increase in audit fees. We also find that the IFRS-related audit fee premium increases with the increase in audit complexity brought about by IFRS adoption, and decreases with the improvement in financial reporting quality arising from IFRS adoption. Finally, we find some evidence that the IFRS-related audit fee premium is lower in countries with stronger legal regimes. Our results are robust to a variety of sensitivity checks. Data availability: Data are available from public sources identified in the paper.

Comparability of Earnings in Scandinavian Countries: The Impact of Mandatory IFRS Adoption and Stock Exchange Consolidations

2012 ◽  
Vol 12 (1) ◽  
pp. 55-76 ◽  
Author(s):  
Maria T. Caban-Garcia ◽  
Haihong He
Keyword(s):  
Financial Reporting ◽  
Stock Exchange ◽  
Data Availability ◽  
Price Ratio ◽  
The European Union ◽  
Multivariate Tests ◽  
Financial Reporting Standards ◽  
Country Factors ◽  
The Mean ◽  
The Impact

ABSTRACT This study examines the impact on the comparability of earnings of two important events that occurred in 2005 in the Scandinavian region: the European Union-mandated adoption of International Financial Reporting Standards (IFRS) and the mergers between the three national exchanges of Denmark, Finland, and Sweden. Our tests follow two approaches. The first approach relies on mean-centered earnings/price multiples following Land and Lang (2002) to determine if the multiples converge in the 2005–2008 period. Our results show that all countries except Finland experienced a lower mean-centered earnings/price ratio in the 2005–2008 period. Additionally, in the 2005–2008 period, the mean-centered earnings/price ratio in Norway deviates from the region's mean more than it deviates from the mean in Finland, Denmark, and Sweden, even after controlling for other firm and country factors. Our second approach uses a firm-year comparability measure (De Franco et al. 2011) calculated during the 2001–2004 and 2005–2008 periods to assess whether comparability increases during the 2005–2008 period. Since the two events in our study are contemporaneous, we use Norway as a benchmark to separate the effect of IFRS from that of harmonized regulation after the merger. The results generally show that comparability is significantly higher during the 2005–2008 period in all countries. Our multivariate tests also confirm that comparability increases (although marginally) for all OMX Nordic Exchange countries, relative to Norway, from the 2001–2004 to the 2005–2008 period. Data Availability: Data are available from public sources indicated in the paper.

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

2012 ◽  
Vol 11 (2) ◽  
pp. 1-25 ◽  
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.

scholarly journals The Impact of International Financial Reporting Standards (IFRS) on Accounting Quality in Malaysia

2019 ◽  
Vol 5 (1) ◽  
pp. 93-104
Author(s):  
Ooi Chee Keong ◽  
Lee Siew Pengb ◽  
Lim Wan Lengc
Keyword(s):  
Earnings Management ◽  
Financial Reporting ◽  
Stock Exchange ◽  
Accounting Quality ◽  
Kuala Lumpur ◽  
High Quality ◽  
Quality Reporting ◽  
Financial Reporting Standards ◽  
Ifrs Adoption ◽  
The Impact

There are two objectives of this study, first,it is to examine and compare the accounting quality in pre-and post-implementations IFRS from the viewpoint of investors. Second ,is to identify the differences in the accounting quality between the shariah compliant and non-shariah compliant companies in pre-and post-implementations of IFRS. Using  2169 firm-year observations from firms listed on the Bursa Kuala Lumpur Stock Exchange over the period of 2008  to 2016, the result shows that the implementation of MFRS have reduced the firms’ earnings management. However, this study provides new arguments that Shariah-complaints firms in Malaysia do not necessary have greater incentives to report high-quality reporting based on the investor perspectives.  Our evidence thus help to explains the different impact on IFRS adoption on accounting quality in Malaysia and shariah complaint compnaies.

scholarly journals The Effects of Financial Reporting on Bank Loan Contracting in Global Markets: Evidence from Mandatory IFRS Adoption

2015 ◽  
Vol 14 (2) ◽  
pp. 45-81 ◽  
Author(s):  
Tai-Yuan Chen ◽  
Chen-Lung Chin ◽  
Shiheng Wang ◽  
Wei-Ren Yao
Keyword(s):  
Interest Rates ◽  
Financial Reporting ◽  
Bank Loans ◽  
Bank Loan ◽  
Accounting Quality ◽  
Firm Level ◽  
Financial Reporting Standards ◽  
Ifrs Adoption ◽  
Loan Contracting ◽  
The 2008 Financial Crisis

ABSTRACT This study examines the effects of the mandatory adoption of International Financial Reporting Standards (IFRS) on the contract terms of bank loans in a global setting. Using a difference-in-differences design based on 26,474 bank loans in 31 countries during the 2000–2011 period, we find that borrowers who mandatorily adopt IFRS experience an increase in interest rates, a reduction in the use of accounting-based financial covenants, an increase in the likelihood that a loan is collateralized, a reduction in loan maturity, and an increase in the fraction of a loan retained by lead arrangers. These findings are robust to the removal of the 2008 financial crisis from our analysis, as well as to the matching of IFRS and non-IFRS borrowers on various country- and firm-level characteristics. Furthermore, we find that these changes are more pronounced for borrowers with greater financial reporting changes, as well as those with poorer accounting quality after IFRS adoption. JEL Classifications: G15; G21; F34; M41.

IFRS Adoption in the EU and the Challenge of Nomenclature Evidence from the UK, France, and Germany

2016 ◽  
pp. 134-143
Author(s):  
Matthias Nnadi ◽  
Sailesh Tanna
Keyword(s):  
Financial Reporting ◽  
Balance Sheet ◽  
Financial Statements ◽  
Stock Exchanges ◽  
The European Union ◽  
Consolidated Financial Statements ◽  
Financial Reporting Standards ◽  
Ifrs Adoption ◽  
The Uk ◽  
The Eu

Since the adoption of International Financial Reporting Standards (IFRS) and the subsequent directive by the European Union (EU), all companies operating in the EU are required to report their consolidated financial statements in line with the IFRS. This study examines the consolidated financial statements of the top 170 listed companies in three major EU stock exchanges (UK, France and Germany) and uncovered a disparity in the use of common nomenclatures. The findings reveal that the inconsistencies in the application of terminologies such as statement of financial position instead of balance sheet and sequence of arrangement of assets in order of liquidity constitute the main differences for entities operating in the three countries. Such differences pose an imminent challenge in the comparability and interpretation of financial results.

A Review of the Literature on IFRS Adoption From the Perspective of the Value Relevance

2019 ◽  
pp. 367-394 ◽  
Author(s):  
Melik Ertuğrul
Keyword(s):  
Literature Review ◽  
Financial Reporting ◽  
Value Relevance ◽  
The European Union ◽  
Archival Research ◽  
Financial Reporting Standards ◽  
Ifrs Adoption ◽  
Comprehensive Picture ◽  
Mandatory Adoption ◽  
The Impact

International Financial Reporting Standards (IFRS)-based financial reporting has become widespread all around the world especially after its mandatory adoption in the European Union in 2005. There are several objectives of IFRS-based financial reporting, all of which depends on the idea of a single set of high-quality standards as frequently highlighted by promoters of IFRS. This literature review depicts a comprehensive picture of the archival research on the impact of IFRS-based reporting on capital markets from the perspective of the value relevance (VR) concept. First, the VR concept, as well as models employed to measure the VR, are described. Afterwards, selected studies of the archival research are grouped, summarized, and discussed. Finally, archival research is methodologically analyzed by considering different dimensions. All in all, this literature review provides information on IFRS adoption from the perspective of the VR.

scholarly journals Libya’s IAS/IFRS Adoption and Accounting Quality: What Lessons from the European Union Experience

2014 ◽  
Vol 4 (1) ◽  
pp. 118 ◽  
Author(s):  
Najeb Masoud
Keyword(s):  
Financial Reporting ◽  
Stock Price ◽  
Accounting Information ◽  
Financial Accounting ◽  
Future Research ◽  
The European Union ◽  
Accounting Quality ◽  
Ifrs Adoption ◽  
Accounting Reports

This study provides a review of the literature on adoption of IAS/IFRS in Libya, the time the IFRS standards decision is made in EU countries and the time IAS/IFRS adoption becomes undertaking in Libyan economy. The adoption of IAS/IFRS in Europe on the quality of financial reporting is an example of accounting standardisation among countries with different institutional frameworks and implementation rules. Impacts of this adoption in Libya will gain many benefit include the improve quality of financial reporting, less earnings management, more comparability, and provide more reliable, accurate, transparency, and high relevance for stock price determination of financial accounting information. These findings could be fruitful and helpful for outside users of accounting reports and also for regulators and legislators in their attempts to constrain the incidence of earnings accounting practises and to enhance the quality of accounting information. To explore the relevance (applicability) of international accounting standards to developing countries such as Libya is a topic of significant interest amongst disclosure (non-accounting information) users. This is a key subject for standard setting purposes as IAS/IFRS have been adopted in many different nations all over the world, and many others are likely to adopt them in the near future (including, Libya). Finally the main limitations of this study are outlined and opportunities for future research are discussed, particularly in relation to this study’s findings about the requirement to reconsider the usefulness of the relationship between accounting practices and framework adoption of IAS/IFRS in Libya.

scholarly journals Predictive ability of accruals before and after IFRS in the Brazilian stock market

2018 ◽  
Vol 29 (78) ◽  
pp. 375-389
Author(s):  
Terence Machado Boina ◽  
Marcelo Alvaro da Silva Macedo
Keyword(s):  
Stock Market ◽  
Financial Reporting ◽  
Predictive Ability ◽  
Discretionary Accruals ◽  
Cash Flows ◽  
Accounting Quality ◽  
Convenience Sample ◽  
Accounting Choices ◽  
Before And After ◽  
Future Cash Flows

ABSTRACT This study aimed to analyze and assess the predictive ability of discretionary accruals (DAs) and non-discretionary accruals (NDAs) for forecasting future cash flows before and after the convergence with International Financial Reporting Standards (IFRS) in Brazil. The study is warranted due to the scarcity of research in Brazil on the subject and is relevant because it aims to shed light on whether the changes occurring due to convergence with IFRS in Brazil have improved accounting quality. The accounting choices of managers and accountants in the Brazilian stock market, enabled by IFRS, contribute to an apparent improvement in accounting quality in terms of reliability, the faithful representation of entities’ equity and financial positions, and in particular, the predictive ability for forecasting future cash flows. The population was composed of publicly traded companies listed on the Bovespa and São Paulo Stock, Commodities, and Futures Exchange (BM&FBovespa) in 2004 to 2007 and 2010 to 2015. The non-probability convenience sample is composed of 715 enterprises, once companies from the “finance and insurance” and “funds” sectors and even those considered as “holding” were excluded. The data were pooled by year, as they contain different companies over the time series (unbalanced panel data). The DAs and NDAs produced prior to full convergence with IFRS are negative and statistically significant for predicting future cash flows in the Brazilian stock market, which indicated opportunistic/contractual earnings management. One of the possible explanations for this would be the influence of government tax authorities on Brazilian accounting norms, which could induce managers to manipulate accounting results with the aim of reducing earnings in order to pay fewer taxes, for example. The DAs and NDAs produced after IFRS are positive and statistically significant for predicting future cash flows in the Brazilian stock market, signaling the motivation of discretionary accounting choices under the informational aspect. Current DAs and NDAs add informational power compared to current aggregate accruals. It has also been observed that the current DAs and NDAs originating after IFRS in Brazil, compared to current aggregate accruals, have an informational gain in relation to those produced before.

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