The Effect of Mandatory Adoption of IFRS on Earnings Quality: Evidence from the European Union

Abstract

This paper addresses the question whether the mandatory adoption of International Financial Reporting Standards (IFRS) is associated with higher accounting quality. More specifically, we investigate whether the application of IFRS in 15 European Union (EU) countries is associated with less earnings management and higher timeliness, conditional conservatism, and value relevance of accounting numbers. Our results suggest that there has been some improvement in accounting quality between the pre- and post-IFRS adoption periods. In particular, we find that firms exhibit an increase in the accounting-based attributes, but a decrease in the market-based after the adoption of IFRS in 2005. Interestingly, the findings are more pronounced for the firms in countries where the distance between the pre-existing national GAAP and IFRS is important. Furthermore, we are unable to identify any change within firms that have converged their local GAAP toward IFRS before the mandatory transition.

Effect of the Mandatory Adoption of IFRS on Real and Accruals-based Earnings Management: Empirical Evidence From France

“…In this vein, among the central research question which was examined by previous research is: Have mandatory adoption of IFRS improves earnings quality by constraining management earnings discretion [2] in the E.U countries, namely France? Through literature review, we found two principal shortcomings about this issue: The first shortcoming is that the prior literature (such as Capkun et al 2008, Zeghal et al 2012) on the impact of mandatory IFRS adoption on earnings management has concentrated mainly on the discretionary accruals as measure of earnings management. However, earnings management can be also undertaken by managers based on real transactions.…”

Ifrs Convergence and Earnings Management

“…The empirical studies provide results variously. Research conducted by Barth et al (2008), Armstrong et al (2010, Wang andCampbell (2012), Zeghal et al (2012) and Chua et al ( 2012) conclude that the adoption of IFRS can improve the quality of accounting information which is measured by a decrease in profit. Meanwhile study conducted by Lin and Paananen (2006), Callao and Jarne (2010) and Rudra and Bharttachrjee (2012) conclude conflicting results stating that earnings management conducted by companies has increased after the adoption of IFRS.…”

Perubahan Relevansi Nilai Dalam Informasi Akuntansi Setelah Adopsi IFRS

“…Selain itu ada juga argumentasi bahwa IFRS dapat meningkatkan kualitas informasi akuntansi karena penggunaan fair value lebih dapat merefleksikan kondisi ekonomik perusahaan (Barth et al 2008). Penelitian tentang efek adopsi IFRS mandatory yang dilakukan oleh Zeghal et al (2012) Kousenidis et al (2010), Kwong (2010), Outa (2011), Chua et al (2012 dan Zeghal et al (2012) menjelaskan kualitas informasi akuntansi yang tinggi diindikasikan dengan adanya hubungan yang kuat antara harga atau return saham dengan laba dan nilai buku ekuitas karena kedua informasi akuntansi tersebut mencer-minkan kondisi ekonomi perusahaan. Selanjutnya hasil penelitian yang dilakukan oleh Lev (1989) menyatakan bahwa value relevance sangat erat hubungannya dengan kualitas laba, sehingga penggunaan reaksi pasar sekuritas untuk mengukur kualitas laba mulai banyak digunakan.…”

“…Jika nilai Adjusted R 2 meningkat maka kualitas informasi akuntansi juga meningkat setelah adopsi IFRS (Barth et al 2008;Outa 2011;Chua et al 2012;Zeghal et al 2012). Pada Tabel 3 menunjukkan terdapat kenaikan Adjusted R 2 .…”