IFRS and Secrecy: Assessing Accounting Value Relevance Across Africa

Abstract

We examine the value relevance of accounting across several African countries and test whether IFRS improved the value association of earnings and equity book values. We report a stronger valuation association between accounting and stock prices in African countries classified as having a secrecy culture. This increases after IFRS and more so for earnings. On the other hand, IFRS induced a stronger increase in the book value coefficient in the less secretive and more developed South African market. We surmise that the more conceptual focus of IFRS induced an increased demand for higher-quality accounting professionals, which had a filtering-down effect of improving quality information flow and breaking down the secrecy culture. Our research highlights the diverse impacts of IFRS and the role of culture, asset markets and accounting professionalism, in driving the relevance of accounting components across Africa.Authors acknowledge seed funding from an International Association for Accounting Education and Research (IAAER) grant issued in partnership with ACCA.

A review of literature on IFRS in Africa

“…Whereas there are contradictory findings on the impact of IFRS on attracting capital (Nnadi and Soobaroyen, 2015; Hessayri and Saihi, 2018), there is a general assertion that IFRS has value relevance in Africa (Hiller et al , 2016; Outa et al (2017). We also identify that some of the generalised findings from prior research on consequences are of limited significance in the African context.…”

“…On the impact of IFRS on reporting in Africa, Outa et al (2017) found that revised and converged IFRS gives relevance to value; however, the value relevance in East Africa is relatively lower compared to the developed market. Similarly, in five African countries, Hiller et al (2016) reported value relevance for book and earnings coefficients after IFRS adoption, indicating a strong valuation association between earnings and equity book value. Additionally, they found that in a “secret” culture like Africa’s, the relationship is much stronger and hence, training of accountants to harness the benefit of IFRS is needed.…”

Are offshore firms less conservative in financial reporting? International evidence

“…Thus, we include MB to control for the impact of unconditional conservatism. Aubert and Grudnitski (), Hillier, Hodgson, and Ngole (), and Jermakowicz, Prather‐Kinsey, and Wulf () argue that accounting standards, particularly IFRS adoption, influence the managerial behavior of financial reporting. We use USGAAP or IFRS, an indicator variable that equals 1 if a firm adopts U.S. Generally Accepted Accounting Principles ( USGAAP ) or International Financial Reporting Standards ( IFRS ) and 0 otherwise, to control for accounting standards.…”

Effects of inflation accounting on organizational decisions and financial performance in South African retail stores

“…Moreover, managing inflation expectations is very important because it is the core aspect of monetary policy. According to Hillier et al (2016), secretive cultures prevent users from seeing the upward movements of inflation in financial statements because it is easy to conceal earnings and asset values. Businesses engage in these concealments to avoid the responsibility of accounting to external investors.…”