IFRS Adoption and Financial Reporting Quality: A Review of Evidences in Different Jurisdictions

Abstract

Abstract. Conventional and commonly held wisdom with respect to the adoption of International Financial Reporting Standards (IFRS) is that they lead to improved financial reporting quality and comparability and thereby favorable economic consequences. There are however contradicting evidences disproving this conventional wisdom or rejecting its gross generalization over the entire jurisdictions harmonizing on IFRS. Driven by this fact, quests for knowledge about the dynamics and contexts that lead to differential effects of IFRS get momentum. In an attempt to explore the insight into the effects of international accounting harmonization by way of IFRS adoption, this paper reviews selected literatures on consequences of IFRS adoption. This review discusses some empirical evidences that have been reported in various countries that include Europe, USA, United Kingdom, Germany, Spain, Norway, Greece, Poland, Belgian, France, Italy, Turkey, United Arab Emirates (UAE), Kuwait, Jordan, China, Malaysia, Australia, Hong Kong, New Zealand, Kenya and Nigeria. Our review focuses on the aspects of value relevance, disclosure quality, cost of capital, earning management and financial statement impact due to the IFRS adoption. This review reveals that economic consequences of IFRS adoption significantly differ across jurisdictions though being its impact reported to be positive in majority of cases. There are also notable number of studies that report indifferent and or negative effects of IFRS adoption. When IFRS studies report mixed evidence with respect to value relevance of book value of equity and earing, book value of equity supersedes the earning parameters. IFRS are found to supersede many other domestic financial reporting standards in terms of volume and quality of disclosures in financial statements. This review also obtains that IFRS' impact on the reduction of cost of capital depends on financial reporting incentives, law enforcement, types of legal systems and various other country and capital market specific characteristics. Further, though there are some evidences to the contrary, the quality of earnings reported under IFRS has been established to be superior to that under other local standards.

IFRS Convergence and Value Relevance of Accounting Information: Evidence from Indian Financial Reporting

“…Similar recent empirical studies have assessed the impact of IFRS on value relevance globally (Alnodel, 2018;Atoyebi, Salaudeen, & Onyilokwu, 2018;Elbakry et. al., 2017;Ki et al, 2019;Kouki, 2018a;Nijam & Jahfer, 2016;Odoemelam, Okafor, & Ofoegbu, 2019;Outa et al, 2017;Temiz & Gulec, 2017;Wu et al, 2017) by employing the Ohlson (1995) model.…”

“…As part of the investigation of IFRS convergence impact, we introduce the interaction terms into the model to reveal the impact of IFRS converged IndAS separately on BVPS and EPS. The interaction terms aim to measure the incremental effects of the tested variables (Kouki, 2018a;Nijam & Jahfer, 2016). The model is expressed as follows:…”

Financial Distress and Earnings Management: Evidence from Sri Lanka

“…Others (Iturriaga and Hoffmann, 2005;Nikoomaram, et al, 2012) also claimed the contrary, explaining that heavily leveraged firms are limited to higher-income control stages because their financial position attracts more vigorous attention from creditors. Zamri, Rahman, and Isa (2013) explain that the opposite relationship exists between leverage and real earnings management, as they are constrained from performing earnings management activities by the financial status of heavily leveraged firms.…”

“…This implies that companies that practise earnings management would manage their earnings within the limits of accepted accounting procedures (Rahman and Ali, 2006). Within the context of Sri Lanka, the progressive adoption of the International Financial Reporting Framework issued by the International Accounting Standards Board has been proven by several researchers as inefficient in the reduction of earnings management practises (Nijam and Jahfer, 2016;Jayawardhana, 2018).…”

International Financial Reporting Standard Adoption: How Does It Happened?

“…The other 22 did not require the adoption of IFRS. Nijam (2016) explained that not all countries in the world fully adopt IFRS, excluding countries that are members of the EU. This implies that some countries do not adopt IFRS (not permitted), but some others have voluntarily adopted IFRS in full (full adoption).…”