Does IFRS convergence really increase accounting qualities? Emerging market evidence
Keywords:
IFRS convergence, Accounting quality, Accruals, Earnings smoothings, Timely loss recognition, Earnings persistenceAbstract
Purpose. This study aims to examine whether International Financial Reporting Standards (IFRS) convergence process adds value to the accounting quality dimensions, including accruals quality, earnings smoothing, timely loss recognition and earnings persistence.
Design/methodology/approach. It analyzes the hypothesis of accounting quality changes in postIFRS convergence by using the univariate and multivariate statistics. Particularly, the authors rely on panel data analyses using industrial companies’ data from 2008 until 2014, comprising 3,861 firm-years observations, in Indonesia.
Findings. The results indicate that there is no conclusive evidence that all accounting quality dimensions including accruals quality, earnings smoothing, timely loss recognition and earnings persistence increased in post-IFRS convergence.
Practical implications. The findings of this study may help regulators and standard setters to consider future adoption of IFRS, mostly to figure out the best “formula” to increase the usefulness of accounting information in post-IFRS convergence.
Originality/value. Rather than doing piecemeal work, the current study focuses on IFRS convergence on a broader aspect of accounting quality dimensions. It also focuses on the convergence process of IFRS as an alternative of full adoption, which has been the focus of many research studies.
Downloads
References
Aboody, D., Hughes, J. and Liu, J. (2005), “Earnings quality, insider trading, and cost of capital”, Journal of Accounting Research, Vol. 43 No. 5, pp. 651-673.
Ahmed, A.S., Neel, M. and Wang, D. (2012), “Does mandatory adoption of IFRS improveaccounting quality? Preliminary evidence”, Contemporary Accounting Research, Vol. 30 No. 4, pp. 1344-1372.
Ahmed, K., Chalmers, K. and Khlif, H. (2013), “A meta analysis of IFRS adoption effects”, The International Journal of Accounting, Vol. 48 No. 2, pp. 173-217.
Ali, A., Chen, T.Y. and Radhakrishnan, S. (2007), “Corporate disclosures by family firms”, Journal of Accounting and Economics, Vol. 44 Nos 1/2, pp. 238-286.
Ball, R. and Shivakumar, L. (2006), “The role of accruals in asymmetrically timely gain and loss recognition”, Journal of Accounting Research, Vol. 44 No. 2, pp. 207-242.
Ball, R., Robin, A. and Wu, J. (2003), “Incentives versus standards: properties of accounting income in four East Asian countries, and implications for acceptance of IAS”, Journal of Accounting and Economics, Vol. 36 No. 1-3, pp. 235-270.
Barth, M., Landsman, W. and Lang, M. (2008), “International accounting standards and accounting quality”, Journal of Accounting Research, Vol. 46 No. 3, pp. 467-498.
Barth, M.E., Landsman, W.R., Lang, M., and Williams, C. (2012), “Are IFRS-based and US GAAP-based accounting amounts comparable?”, Journal of Accounting and Economics, Vol. 54 No. 1, pp. 68-93.
Bartov, E., Goldberg, S. and Kim, M. (2005), “Comparative value relevance among German, US and international accounting standards: a German stock market perspective”, Journal of Accounting, Auditing and Finance, Vol. 20 No. 2, pp. 95-119.
Basu, S. (1997), “The conservatism principle and the asymmetric timeliness of earnings”, Journal of Accounting and Economics, Vol. 24 No. 1, pp. 3-37.
Ben-Nasr, H., Boubakri, N. and Cosset, J.C. (2015), “Earnings quality in privatized firms: the role of state andforeign owners”, Journal of Accounting and Public Policy, available at: http://dx.doi.org/10.1016/j.jaccpubpol.2014.12.003
Bryce, M., Ali, M.J. and Mather, P.R. (2015), “Accounting quality in the pre-/post-IFRS adoption periods and the impact on audit committee effectiveness”, Pacific-Basin Finance Journal, Vol. 35, pp. 163-181.
Cai, L., Rahman, A. and Courtenay, S. (2012), “Is it IFRS adoption or convergence to IFRS that matters?”, TIJA Symposium.
Chalmers, K., Clinch, G. and Godfrey, J. (2011), “Changes in value relevance of accounting information upon IFRS adoption: evidence from Australia”, Australian Journal of Management, Vol. 36 No. 2, pp. 151-173.
Chen, H., Tang, Q., Jiang, Y. and Lin, Z. (2010), “The role of international financial reporting standards in accounting quality: evidence from the European Union”, Journal of International Financial Management and Accounting, Vol. 21 No. 3, pp. 220-278.
Chichernea, D.C., Holder, A.D. and Wei, J. (2012), “Connecting the dots: the accruals quality premium vs the value premium”, Managerial Finance, Vol. 38 No. 12, pp. 1106-1133.
Chua, Y.L., Cheong, C.S. and Gould, G. (2012), “The impact of mandatory IFRS adoption on accounting quality: evidence from Australia”, Journal of International Accounting Research, Vol. 11 No. 1, pp. 119-146.
Daske, H. and Gebhardt, G. (2006), “International financial reporting standards and experts’ perceptions of disclosure quality”, Abacus, Vol. 42 Nos 3/4, pp. 461-498.
Dechow, P.M. (1994), “Accounting earnings and cash flows as measures of firm performance: the role of accounting accruals”, Journal of Accounting and Economics, Vol. 18 No. 1, pp. 3-42.
Dechow, P. and Dichev, I. (2002), “The quality of accruals and earnings”, Accounting Review, Vol. 77 No. s-1, pp. 35-59.
Devalle, A., Onali, E. and Magarini, R. (2010), “Assessing the value relevance of accountingdata after the introduction of IGRS in Europe”, Journal of International Financial Management and Accounting, Vol. 21 No. 2, pp. 85-119.
Dimitropoulus, P.E., Dimitrios, A., Dimitrios, K. and Leventis, S. (2013), “The impact of IFRS on accounting quality: evidence from Greece”, Advances in Accounting, Incorporating Advances in International Accounting, Vol. 29, pp. 108-123.
Doukakis, L.C. (2010), “The persistence of earnings and earnings components after theadoption of IFRS”, Managerial Finance, Vol. 36 No. 11, pp. 969-980.
Eccher, E. and Healy, P. (2000), “The role of international accounting standards in transitional economies: a study of the People’s Republic of China”, SSRN Electronic Journal, 10.2139/ssrn.233598.
Francis, J., LaFond, R., Olsson, P.M. and Schipper, K. (2005), “The market pricing of accruals quality”, Journal of Accounting and Economics, Vol. 39 No. 2, pp. 295-327.
Gassen, J. and Sellhorn, T. (2006), “Applying IFRS in Germany – determinants and consequences”, Betriebswirtschaftliche Forschung und Praxis, Vol. 58, pp. 365-386.
Goel, A.M. and Thakor, A.V. (2003), “Why do firms smooth earnings?”, The Journal of Business, Vol. 76 No. 1, pp. 151-192.
Gordon, E., Jorgensen, B. and Lithicum, C. (2010), “Could IFRS replace US GAAP? A comparison of earnings attributes and informativeness in the US market”, Working Paper.
Graham, J.R., Harvey, C.R. and Rajgopal, S. (2005), “The economic implications of corporate financial reporting”, Working Paper, Duke University.
Guan, L. and Pourjalali, H. (2010), “Effect of cultural environmental and accounting regulation on earnings management: a multiple year-country analysis”, Asia Pacific Journal of Accounting and Economics, Vol. 17 No. 2, pp. 99-127.
Hassan, O., Romilly, P., Giorgioni, G. and Power, D. (2009), “The value relevance of disclosure: evidence from the emerging capital market of Egypt”, The International Journal of Accounting, Vol. 44 No. 1, pp. 79-102.
Healy, P.M. (1985), “The effect of bonus schemes on accounting decisions”, Journal of Accounting and Economics, Vol. 7 Nos 1/3, pp. 85-107.
Hessayri, M. and Saihi, M. (2015), “Monitoring earnings management in emerging markets: IFRS adoption”, Journal of Economic and Administrative Sciences, Vol. 31 No. 2, pp. 86-108.
Hung, M. and Subramanyam, K. (2007), “Financial statement effects of adopting international accounting standards: the case of Germany”, Review of Accounting Studies, Vol. 12 No. 4, pp. 623-657.
Jeanjean, T. and Stolowy, H. (2008), “Do accounting standards matter? An exploratory analysis of earningsmanagement before and after IFRS adoption”, Journal of Accounting and Public Policy, Vol. 27 No. 6, pp. 480-494.
Ke, B., Li, Y. and Yuan, H. (2016), “The substantial convergence of Chinese accounting standards with IFRS and the managerial pay-for-accounting performance sensitivity of publicly listed chinese firms”, Journal of Accounting and Public Policy, Vol. 35 No. 6, pp. 567-591.
Kothari, S.P. Loutskina, E. and Nikolaev, V. (2006), “Agency theory of overvalued equity as an explanation of the accrual anomaly”, available at: http://ssrn.com/abstract=871750
Landsman, W.R., Maydew, E.L. and Thornock, J.R. (2012), “The information content ofannual earnings announcements and mandatory adoption of IFRS”, Journal of Accounting and Economics, Vol. 53 No. 1-2, pp. 34-54.
Leuz, C., Nanda, D. and Wysocki, P.D. (2003), “Earnings management and investor protection: an international comparison”, Journal of Financial Economics, Vol. 69 No. 3, pp. 505-527.
Marzuki, M.M. and Wahab, E.A.A. (2016), “Institutional factors and conditional conservatism in Malaysia: doesinternational financial reporting standards convergence matter?”, Journal of Contemporary Accounting and Economics, Vol. 12, pp. 191-209.
Nobes, C. (2011), International Variations in IFRS Adoption and Practice, ACCA, Certified Accountants Educational Trust, London.
Oei, R., Ramsay, A. and Mather, P. (2008), “Earnings persistence, accruals and managerial share ownership”, Accounting and Finance, Vol. 48 No. 3, pp. 475-502.
Outa, E.R. (2011), “The impact of international financial reporting standards (IFRS) adoption on the accounting quality of listed companies in Kenya”, International Journal of Accounting and Financial Reporting, Vol. 1 No. 1, pp. 212-241.
Palea, V. (2014), “Are IFRS value-relevant for separate financial statements? Evidence from the Italian stock market”, Journal of International Accounting, Auditing and Taxation, Vol. 23 No. 1, pp. 1-17.
Pelucio-Grecco, M.C., Geron, C.M.S., Grecco, G.B. and Lima, J.P.C. (2014), “The effect of IFRS on earnings management in Brazilian non-financial public companies”, Emerging Markets Review, Vol. 21, pp. 42-66.
Roychowdhury, S. and Watts, R. (2007), “Asymmetric timeliness of earnings, market to book and conservatism in financial reporting”, Journal of Accounting and Economics, Vol. 44 Nos 1/2, pp. 2-31.
Sankar, M.R. and Subramanyam, K.R. (2001), “Reporting discretion and private information communication through earnings”, Journal of Accounting Research, Vol. 39 No. 2, pp. 365-386.
Shleifer, A. and Vishny, R. (1997), “A survey of corporate governance”, The Journal of Finance, Vol. 52 No. 2, pp. 737-783.
Van Tendeloo, B. and Vanstraelen, A. (2005), “Earnings management under German GAAP versus IFRS”, European Accounting Review, Vol. 14 No. 1, pp. 155-180.
Wu, G.S., Li, S. and Lin, S. (2014), “The effects of harmonization and convergence with IFRS on the timeliness of earnings reported under Chinese GAAP”, Journal of Contemporary Accounting and Economics, Vol. 10 No. 2, pp. 148-159.
Zehri, F. and Chouaibi, J. (2013), “Adoption determinants of the international accounting standards IAS/IFRS by the developing countries”, Journal of Economics Finance and Administrative Science, Vol. 18 No. 35, pp. 56-62.
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2021 Journal of Economics, Finance and Administrative Science
This work is licensed under a Creative Commons Attribution 4.0 International License.
