An Analysis of the Accounting Errors that Arise During the Transition to IFRS
University of Technology, Sydney - School of Accounting; Financial Research Network (FIRN)
Zoltan P. Matolcsy
University of Technology Sydney (UTS) - School of Accounting
Massachusetts Institute of Technology (MIT) - Sloan School of Management
Peter Alfred Wells
University of Technology, Sydney - School of Accounting, Faculty of Business; Financial Research Network (FIRN)
January 31, 2011
In this paper we focus on Australia’s adoption of IFRS in 2005, providing evidence on factors affecting errors in financial reporting as Australian companies transitioned from Australian GAAP to IFRS, and the effect of these errors on measures of cost of capital. We find that characteristics of the firm, the CFO, and the firm’s auditor are all associated with IFRS transition errors, and that these errors are associated with larger bid/ask spreads (i.e. greater information asymmetry) and increased audit fees as market participants react to the firm’s difficulties adopting a new GAAP. We suggest that this evidence is helpful to both U.S. firms and regulators as the U.S. moves towards IFRS adoption, and also useful to academics, as it suggests the long term benefits of IFRS are likely understated, as transition errors may temporarily understate these benefits.
Number of Pages in PDF File: 39
Keywords: IFRS, errors, fraud, auditing, cost of capital
JEL Classification: G38, M41
Date posted: February 1, 2011
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