Article2012

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

195 citations0/0 files storedJournal of International Accounting Research

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Auditing, Earnings Management, Governance Accounting Theory and Financial Reporting Financial Reporting and XBRL

Abstract

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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References

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Cited by

2017Audit committees and financial reporting quality: The 8th EU Company Law Directive perspective 2018Cash holdings and earnings quality: evidence from the Main and Alternative UK markets 2020IFRS and accounting quality: Additional evidence from Korea 2016Accrual-based and real earnings management before and after IFRS adoption 2016Consequences of the Abandonment of Mandatory Joint Audit: An Empirical Study of Audit Costs and Audit Quality Effects 2020Diffusion theory, national corruption and IFRS adoption around the world

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