The Effects Of Mandatory IAS/IFRS Regulation On The Properties Of Earnings’ Quality In Australia And Europe

Bahloul Jaweher, Ben Arab Mounira


The aim of this study is to investigate the impact of International Financial Reporting Standards (IFRS) on earnings’ quality. More specifically, this paper aims at verifying whether the IFRS regulation produces better earnings’ quality than local GAAP regulation for listed companies in 17 countries from Australia and Europe. For this purpose, we empirically investigate basic sets of earnings’ quality attributes to provide evidence of the consequences of mandatory IFRS adoption. We focus on value relevance, predictability, persistence, timeliness, timely loss recognition, smoothing, earnings toward target and accruals quality. We include controls for factors that prior research identifies as associated with firms’ earnings’ quality like growth, leverage, size and audit quality. Through a dataset covering 1,901 firms from 2001 to 2010, we find mixed evidence of an increase in earnings’ quality. More specifically, we get evidence supporting that ‘ceteris paribus’, the mandatory IAS/IFRS adoption improves the predictability of cash flows and future earnings, the persistence and the timeliness. As well, the results suggest that net income is less manipulated toward target and less smoothing under IAS/IFRS regulation. Nevertheless, we find that net income is better associated with the market value of equity under local GAAP regulation. Furthermore, evidence from the pre-IFRS and post-IFRS periods suggest that IFRS earnings are not more conservative than earnings based on local GAAP regulation. Likewise, the quality of accruals is better in local GAAP regulation. Taken together, our results are unable to support systematic evidence that IFRS results enhance earnings attributes quality for mandatory adopters. Overall, these findings maintain several evidence of accounting quality improvement following the IFRS implementation and highlight the importance of accountings standards for financial reporting quality.

Keywords: Earnings quality, IAS/IFRS regulation, financial statement presentation


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ISSN (Paper)2222-1905 ISSN (Online)2222-2839

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