The Impact of Mandatory IFRS Adoption on Accounting Quality: Evidence from Australia

Abstract

Following the mandatory implementation of International Financial Reporting Standards (IFRS) in Australia as of January 1, 2005, this study examines its impact on accounting quality by focusing on three perspectives: (1) earnings management, (2) timely loss recognition, and (3) value relevance. Using four years of adoption experience since the mandate was first made effective in Australia for a wide range of accounting-based metrics and market-based information, we find that the mandatory adoption of IFRS has resulted in better accounting quality than previously under Australian generally accepted accounting principles (GAAP). In particular, the findings indicate that the pervasiveness of earnings management by way of smoothing has reduced, while the timeliness of loss recognition has improved post-adoption. Additionally, the value relevance of financial statement information has improved, especially for non-financial firms. This is despite the fact that there is evidence to suggest that financial firms are engaged in managing earnings toward a small positive target after the mandatory adoption of IFRS in Australia.

Ifrs Convergence and Earnings Management

“…International Financial Reporting Standards (IFRS), formerly known as International Accounting Standards (IAS), was issued to achieve the objective of preparing high quality international financial reporting standards. A number of studies have shown that the IFRS convergence can improve the quality of accounting information, one of which is shown by a decrease in earnings management in some countries (Capkun et al, 2007, Liu and Liu, 2007, Barth et al, 2008Chen et al, 2010, Chua et al, 2012and Kargin 2013.…”

IFRS Adoption and Information Quality: Evidence from Emerging Market

“…Landsman et al 2012;Chua et al 2012;Brochet et al 2013). However, despite these widespread studies within advanced and developed markets such as European Union (EU) countries and Australia, little research has directly addressed the impact of IFRS adoption on the financial market and quality of financial reporting in an emerging market.…”

Empirically Investigating Saudi Arabian Accountants’ Readiness to Implement IAS 2

“…Studies find that IFRS adoption or convergence is associated with accounting quality in Australia (Chua et al, 2012;Elias, 2012) and the France (Zéghal et al, 2011). Adopting IFRS affects the financial position of a publicly reporting accounting entity.…”

“…Accounting studies on IFRS and its adoption vary by aim and objective. While some illustrate a specific international standard (e.g., Monday, 2009), some others examine the effect of IFRS adoption and convergence on accounting quality (e.g., Barth et al, 2008;Chua et al, 2012;Elias, 2012;Zeghal et al, 2012) as well the quality of financial statement information (Iatridis, 2010). Other studies investigate the international politics of accounting standards (e.g., Königsgruber, 2010;Posner, 2009Posner, , 2010 and IFRS harmonization (e.g., Ramanna, 2013 1 ) and their relevance (Alali and Foote, 2012;Tyrrall et al, 2007).…”