The Impact of International Financial Reporting Standards (IFRS) Adoption on The Accounting Quality of Listed Companies In Kenya

Erick Rading Outa

71 citations0/0 files storedInternational Journal of Accounting and Financial Reporting

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

Abstract

AbstractThis study seeks to establish if the adoption of International Financial Reporting Standards (IFRS) in Kenya has been associated with higher accounting quality for listed companies. The International Accounting Standards Board (IASB), in its objectives and preamble, supposes that the beneficial effects from IFRS adoption include transparency, accounting quality and reduced cost of capital. Based on these assumptions, this study applied accounting quality measures; earnings management, timely loss recognition and value relevance to find out whether the adoption of IFRS has led to improvements in accounting quality in companies listed in Kenya. The methodology is based on prior literature definition of metrics of accounting quality mainly earnings management, timely loss recognition and value relevance. The study differs from the previous ones by overcoming difficulties in controlling for confounding factors faced in previous studies which could have led to less reliable results. Three out of the eight metrics indicated that quality had marginally improved while five indicated that it had marginally declined. These mixed outcomes are very much in line with findings in other studies and the study contributes to the debate by explaining why accounting quality outcomes are still not consistent with IFRS promises in spite of improved test conditions. Key words: IFRS; IAS; accounting quality; earnings management; timely loss recognition;

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References

2003Earnings management and investor protection: an international comparison 2008International Accounting Standards and Accounting Quality 2003Incentives versus standards: properties of accounting income in four East Asian countries 2007IFRS Adoption and Accounting Quality: A Review 2005Economic Effects of Tightening Accounting Standards to Restrict Earnings Management 2007Financial statement effects of adopting international accounting standards: the case of Germany 2005International Accounting Standards and Accounting Quality 2001Domestic Accounting Standards, International Accounting Standards, and the Predictability of Earnings

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