Effect of the Adoption of IFRS on the Information Relevance of Accounting Profits in Brazil

Abstract

This study aimed to assess the effect of adopting the International Financial Reporting Standards (IFRS) in Brazil on the information relevance of accounting profits of publicly traded companies. International studies have shown that the adoption of IFRS improves the quality of accounting information compared with domestic accounting standards. Concurrent evidence is sparse in Brazil. Information relevance is understood herein as a multidimensional attribute that is closely related to the quality and usefulness of the information conveyed by accounting profits. The associative capacity and information timeliness of accounting profits in relation to share prices were examined. Furthermore, the level of conditional conservatism present in accounting profits was also analyzed because according to Basu (1997), this aspect is related to timeliness. The study used pooled regressions and panel data models to analyze the quarterly accounting profits of 246 companies between the first quarter of 1999 and the first quarter of 2013, resulting in 9,558 quarter-company observations. The results indicated that the adoption of IFRS in Brazil (1) increased the associative capacity of accounting profits; (2) reduced information timeliness to non-significant levels; and (3) had no effect on conditional conservatism. The joint analysis of the empirical evidence from the present study conclusively precludes stating that the adoption of IFRS in Brazil contributed to an increase the information relevance of accounting profits of publicly traded companies.

Effects of IFRS on Accounting Information Quality: Evidence for Brazil

“…These results differ from those presented in Santos and Cavalcante (2014) and Santos et al (2011), in which none of the proposed specifications for this coefficient were significant at the 5% level. However, the results of the coefficients ̇1 , which identify whether the adoption of IFRS increases the companies' earnings, were not significant in any of the regressions.…”

“…The finding that the adoption of IFRS increased this associative capacity between accounting profit and market variables was verified by significant positive result of δ 2 , validating hypothesis 1 of this study. This finding is in accordance with results obtained by Lima (2010) and Santos and Cavalcante (2014).…”

“…For estimates that include time dummies, this value increases from 0.233 to 0.244. In addition, these results were superior to those found in the similar specifications of Santos and Cavalcante (2014) and Santos et al (2011).…”

“…In this respect, Gonçalves, Batista, Macedo, and Marques (2014) conclude that the accounting information became more relevant in IFRS standars. Santos and Cavalcante (2014) evaluated the effect of the adoption of IFRS in Brazil according to three measures based on market attributes. Their results indicate that the adoption of IFRS increased the associative capacity of accounting profit, reduced non-significant informational timeliness and had no effect on conditional conservatism.…”

“…A large number of national surveys point to a positive impact of IFRS in improving accounting information, although they are not unanimous in assessing the different dimensions of accounting quality (Santos & Cavalcante, 2014). may have is selection bias because the error term of the estimation equation of accounting quality may contain information that is also correlated with the indicator dummy treatment, as illustrated generally in Khandker, Koolwal and Samad (2010).…”