How Much Does IFRS Cost? IFRS Adoption and Audit Fees

2012 ◽  
Vol 88 (2) ◽  
pp. 429-462 ◽  
Author(s):  
Emmanuel T. De George ◽  
Colin B. Ferguson ◽  
Nasser A. Spear
Keyword(s):  
Financial Reporting ◽  
Small Firms ◽  
Financial Statements ◽  
Audit Fees ◽  
Securities And Exchange Commission ◽  
Data Availability ◽  
Publicly Traded ◽  
Financial Reporting Standards ◽  
Response Data ◽  
Ifrs Adoption

ABSTRACT This study provides evidence of a directly observable and significant cost of International Financial Reporting Standards (IFRS) adoption, by examining the fees incurred by firms for the statutory audit of their financial statements at the time of transition. Using a comprehensive dataset of all publicly traded Australian companies, we quantify an economy-wide increase in the mean level of audit costs of 23 percent in the year of IFRS transition. We estimate an abnormal IFRS-related increase in audit costs in excess of 8 percent, beyond the normal yearly fee increases in the pre-IFRS period. Further analysis provides evidence that small firms incur disproportionately higher IFRS-related audit fees. We then survey auditors to construct a firm-specific measure of IFRS audit complexity. Empirical findings suggest that firms with greater exposure to audit complexity exhibit greater increases in compliance costs for the transition to IFRS. Given the renewed debate about whether the Securities and Exchange Commission (SEC) should mandate IFRS for U.S. firms, our results are of timely importance. Data Availability: Data are publicly available from the sources identified in the paper. Survey response data are available from the authors upon request.

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.

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.

scholarly journals Effects of IFRS adoption on tax avoidance

2017 ◽  
Vol 28 (75) ◽  
pp. 407-424 ◽  
Author(s):  
Renata Nogueira Braga
Keyword(s):  
Financial Reporting ◽  
Tax Avoidance ◽  
Publicly Traded ◽  
Corporate Tax ◽  
Firm Level ◽  
Tax Rate ◽  
Publicly Traded Companies ◽  
Accruals Management ◽  
Financial Reporting Standards ◽  
Ifrs Adoption

ABSTRACT This study investigates the association between mandatory International Financial Reporting Standards (IFRS) adoption and corporate tax avoidance. In this study, tax avoidance is defined as a reduction in the effective corporate income tax rate through tax planning activities, whether these are legal, questionable, or even illegal. Three measures of tax avoidance are used and factors at the country and firm level (that have already been associated with tax avoidance in prior research) are controlled. Using samples that range from 9,389 to 15,423 publicly-traded companies from 35 countries, covering 1999 to 2014, it is found that IFRS adoption is associated with higher levels of corporate tax avoidance, even when the level of book-tax conformity required in the countries and the volume of accruals are controlled, both of which are considered potential determinants of this relationship. Furthermore, the results suggest that after IFRS adoption, firms in higher book-tax conformity environments engage more in tax avoidance than firms in lower book-tax conformity environments. It is also identified that engagement in tax avoidance after IFRS adoption derives not only from accruals management, but also from practices that do not involve accruals. The main conclusion is that companies engage more in tax avoidance after mandatory IFRS adoption.

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).

Ruckman, Inc.: Converting from U.S. GAAP to IFRS

2011 ◽  
Vol 26 (2) ◽  
pp. 341-360 ◽  
Author(s):  
Rebecca Fay ◽  
John A Brozovsky ◽  
Patricia G Lobingier
Keyword(s):  
Financial Reporting ◽  
Accounting Standards ◽  
Financial Statements ◽  
The United States ◽  
Securities And Exchange Commission ◽  
High Demand ◽  
Financial Reporting Standards ◽  
Accounting Courses ◽  
Cpa Exam ◽  
Two Phases

ABSTRACT This case is designed as a comprehensive review of significant differences between accounting principles generally accepted in the United States of America (U.S. GAAP) and International Financial Reporting Standards (IFRS) for specific topics covered during most Intermediate Accounting courses. The task requires you to analyze and evaluate a company's significant accounting policies for compliance with IFRS as you plan and conduct the conversion of a firm's financial statements from U.S. GAAP to IFRS. The skills developed throughout this case are currently in high demand as IFRS is quickly becoming the global norm in accounting standards and many multinational companies based in the U.S. are already affected by these standards. The Securities and Exchange Commission (SEC) has developed a roadmap that may require U.S. companies to begin adopting IFRS in 2015. You will be tested on your knowledge of IFRS on the CPA exam. The case is presented in two phases, allowing you to experience the conversion process from planning to execution.

Corporate executive’s gender and audit fees

2014 ◽  
Vol 29 (6) ◽  
pp. 527-547 ◽  
Author(s):  
Ting-Chiao Huang ◽  
Hua-Wei Huang ◽  
Chih-Chen Lee
Keyword(s):  
Financial Reporting ◽  
Reporting Quality ◽  
Audit Fees ◽  
Securities And Exchange Commission ◽  
Publicly Traded ◽  
Content Type ◽  
Female Ceos ◽  
Gender Based ◽  
Nonfinancial Firms ◽  
Ceo Gender

Purpose – The purpose of this study is to investigate the association between a corporate executive’s gender and audit fees. Based on the findings of extant research that there are gender-based differences that may have implications for the financial reporting process, the authors posit an association between CEO gender and audit fees. Design/methodology/approach – The authors test their hypothesis by performing both univariate and multivariate regression analyses on a sample of 8,402 Compustat firm-year observations from US firms for 2003-2010. Findings – The authors' findings indicate that firms with female CEOs are associated with higher audit fees. Their results hold after controlling for self-selection bias and factors shown by prior studies to be associated with audit fees. Research limitations/implications – Although the authors control for factors that would increase audit fees, their study is limited by the degree to which higher audit fees reflect higher quality audits. Also, because their sample is from large publicly traded nonfinancial firms, their results may not be applicable to other types of firms. The authors study has implications for policy setting because their findings provide some evidence of a significant association between a CEO characteristic (gender) and financial reporting quality. Their findings, thus, provide some support for the Securities and Exchange Commission requirement that CEOs should certify their firm’s financial statements. Originality/value – The authors study contributes to the audit fees and corporate governance literature by providing empirical evidence of an association between audit fees and CEO gender. To their knowledge, no study, to date, has investigated this association.

scholarly journals International Financial Reporting Standards: A Review of Status of Adoption and Approaches for Evaluation

2016 ◽  
Vol 69 ◽  
pp. 69-78 ◽  
Author(s):  
Habeeb Mohamed Nijam ◽  
Athambawa Jahfer
Keyword(s):  
Financial Reporting ◽  
Empirical Studies ◽  
Financial Statements ◽  
Technical Quality ◽  
Adoption Studies ◽  
Accounting Standard ◽  
Financial Reporting Standards ◽  
Ifrs Adoption ◽  
The Impact ◽  
International Accounting Standard

The purpose of this review is to explore various approaches and perspectives that are currently being used by empirical studies reporting the impact of IFRS adoption in different jurisdictions around the globe. For this purpose to be better served, this study also presents at the outset an overview of the scope, objectives and current adoption status of IFRS. This study reviewed the literature on classifications of IFRS adoption studies with the view of deducting methodical frameworks outlining the dimensions that may warrant investigation for IFRS to be consented as a set of quality and global accounting standards. This study concludes that the success of IFRS as an international accounting standard depends on one hand in its technical quality economically yielding to both uses and reporters of financial statements and on the other hand their acceptance across different jurisdictions despite their political, cultural and economic diversities.

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

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.

scholarly journals Divergence within IFRS adoption: the case of depreciation practices of listed banks in Bangladesh

2020 ◽  
Vol 10 (2) ◽  
pp. 169
Author(s):  
Mezbah Uddin Ahmed
Keyword(s):  
Financial Reporting ◽  
Accounting Standards ◽  
Financial Statements ◽  
National Standard ◽  
Accounting Standard ◽  
Pressure Groups ◽  
Financial Reporting Standards ◽  
Ifrs Adoption ◽  
Implementation Guidelines ◽  
Qualitative Characteristics

Comparability is one of the qualitative characteristics of financial statements that are prepared in compliance with the International Financial Reporting Standards (IFRS). The objective of this research is to identify whether this qualitative characteristic can be negated even when entities apply IFRS. In achieving the research objective, the depreciation policies adopted by the listed banks in Bangladesh are identified and compared with each other. This research finds that despite increasing effort by accounting standard setters and pressure groups to achieve IFRS-compliance and harmonization in accounting practices, non-compliance and divergence still exists. This research also finds that the divergence in depreciation practices can be of enough significance to negate comparability. The findings of this research expected to assist the international and national standard setters as well as the regulators in understanding the practical issues in implementing accounting standards and developing clearer IFRS implementation guidelines.

Do Auditors Recognize the Potential Dark Side of Executives' Accounting Competence?

2018 ◽  
Vol 93 (6) ◽  
pp. 1-28 ◽  
Author(s):  
Anne Albrecht ◽  
Elaine G. Mauldin ◽  
Nathan J. Newton
Keyword(s):  
Financial Reporting ◽  
Prior Experience ◽  
Financial Statements ◽  
Audit Fees ◽  
Data Availability ◽  
Dark Side ◽  
Audit Fee ◽  
Aggressive Attitude ◽  
Jel Classifications

ABSTRACT Practice and research recognize the importance of extensive knowledge of accounting and financial reporting experience for generating reliable financial statements. However, we consider the possibility that such knowledge and experience increase the likelihood of material misstatement when executives have incentives to misreport. We use executives' prior experience as an audit manager or partner as a measure of extensive accounting and financial reporting competence. We find that the interaction of this measure and compensation-based incentives increases the likelihood of misstatements. Further, auditors discount the audit fee premium associated with compensation-based incentives when executives have accounting competence. Together, our results suggest that a dark side of accounting competence emerges in the presence of certain incentives, but auditors view accounting competence favorably despite the heightened risk. In further analyses, we demonstrate that executives' aggressive attitude toward reporting exacerbates the effect of accounting competence and compensation-based incentives on misstatements, but not on audit fees. JEL Classifications: M41; M42. Data Availability: Data are available from public sources identified in the text.

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