How has IFRS impacted financial reporting for unlisted entities?

Abstract

This paper addresses the question whether adoption of International Financial Reporting Standards (IFRS) is associated with low earnings management in unlisted companies in three European countries. Therefore, this paper investigates whether companies that have adopted IFRS voluntarily engage significantly less in earnings management compared to companies that have not adopted IFRS. Moreover, this study examines firm-specific incentives and their role in the adoption decision within different institutional settings. The distribution of earnings is analyzed to discover whether companies have managed their earnings. Logistic regression analysis is used to examine the firm-specific incentives. Empirical findings reveal that in sample of unlisted firms using IFRS the distribution of earnings is smoother. Thus, the results provide supporting evidence for the adoption of IFRS. Moreover, results of this study provide relatively good empirical support for statements that large unlisted firms with foreign owners and that are profitable are more likely to adopt IFRS voluntarily. However, the firm-specific incentives play different role in the adoption decision process in weak institutional settings compared to strong institutional settings.

Firm characteristics and compliance with IAS/IFRS

“…This result supports the hypothesis that companies with a large size have a higher level of compliance with IFRS than small ones do. This finding is consistent with many studies conducted around the world (Al-Shammari et al , 2008; Aljifri and Khasharmeh, 2006; Dumontier and Raffournier, 1998; Floropoulos, 2006; García Benau and Zorio Grima, 2002; Guerreiro et al , 2008; Haapamäkia, 2018; Jaafar and McLeay, 2007), which have observed similar associations between firm size and compliance with international standards. In the current study, larger companies in the NA region adopted international standards more frequently than smaller ones.…”

“…Accounting, as a tool of communication for business, is likely to be applied dissimilarly around the world (Barbu et al , 2014; Haapamäkia, 2018; Macve, 2014). This may be because of differences in environment, such as history, politics, economy and other aspects.…”

The Effect of Liquidity Ratios on Earnings Management: Portuguese Listed Firms Case

“…Hoje em dia o tema da qualidade da informação financeira não perdeu a sua atualidade havendo vários autores que demonstram que o assunto da qualidade da informação contida nas demonstrações financeiras tem estado patente na literatura nacional e internacional, [15] [10] [21] [48].…”