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Intended and unintended consequences of mandatory IFRS adoption:A review of extant evidence and suggestions for future research Abstract: This paper discusses empirical evidence on the economic consequences of mandatory adoption of International Financial Reporting Standards (IFRS) in the European Union (EU) and provides suggestions on how future research can add to our understanding of these effects. Based on the explicitly stated objectives of the EU"s so-called "IAS Regulation", we distinguish between intended and unintended consequences of mandatory IFRS adoption. Empirical research on the intended consequences generally fails to document an increase in the comparability or transparency of financial statements. In contrast, there is rich and almost unanimous evidence of positive effects on capital markets and at the macroeconomic level. We argue that certain research design issues are likely to contribute to this apparent mismatch in findings and we suggest areas for future research to address it. The literature investigating unintended consequences of mandatory IFRS adoption is still in its infancy. However, extant empirical evidence and insights from non-IFRS settings suggest that mandatory IFRS adoption has the potential to materially affect contractual outcomes. We conclude that both the intended and the unintended consequences deserve further scrutiny to assess the costs and benefits of mandatory IFRS adoption, which may help provide a basis for evaluating the effectiveness of the IAS Regulation. We provide specific guidance for future research in this field.
The International Accounting Standards Board (IASB) faces a vast number of standard-setting issues at all levels of financial reporting. The purpose of this article is to explore the relevance of academic research for financial reporting standard setting and the role of academic researchers in the standard-setting process.We contribute to the current debate surrounding International Financial Reporting Standards (IFRS) by drawing inferences from prior findings regarding the role of research in the IASB's standard-setting efforts. After defining three broad categories of standardsetting questions, we explore how the international heterogeneity of its constituency imposes constraints on the IASB's work. Then, whether and how academic research can inform policy makers is investigated from an epistemological perspective. Based on a review of extant literature, the general criteria which a piece of research should fulfil in order to be perceived as relevant and useful by standard setters are discussed. This discussion is followed by more detailed considerations regarding the suitability of different research approaches for each of the three categories of standard-setting questions. We also touch on the subject of inferential problems inherent in most academic accounting research. Since the main objective is to contribute insights relevant to the IASB's efforts, we analyse academics' career systems and their incentives to engage in research intermediation, before discussing possible ways in which interested researchers can channel their insights into the IASB's standard-setting process. Overall, the international dimension of IASB standard setting and its implications for relevant research are emphasized. 1 With respect to value relevance studies, which represented one of the most popular areas of academic financial reporting research in the 1990s, Holthausen and Watts (2001, p. 64) comment: 'Conversations with individuals currently and formerly associated with the FASB suggest those individuals are confused about how to interpret the value relevance evidence and how to use it in their deliberations. While intuitively those individuals, as well as academics, sense something useful must arise from the degree of association between equity valuations and accounting numbers, they find it hard to pinpoint exactly what implications that association has for standard-setting.' In a direct response to Holthausen and Watts' article, Barth et al. (2001) argue in favour of standard-setting implications arising from value relevance research. For more detail, refer to section 4.1 below.
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