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Does Mandatory Adoption of IFRS improve Accounting Quality? Preliminary Evidence

Posted: 10 Nov 2009 Last revised: 8 Jul 2015

Anwer S. Ahmed

Texas A&M University - Mays Business School

Michael J. Neel

University of Houston - Bauer College of Business

Dechun Wang

Texas A&M University

Date Written: July 25, 2012

Abstract

We provide evidence on the preliminary effects of mandatory adoption of International Financial Reporting Standards (IFRS) on accounting quality for a relatively broad set of firms from 20 countries that adopted IFRS in 2005 relative to a benchmark group of firms from countries that did not adopt IFRS matched on the strength of legal enforcement, industry, size, book-to-market, and accounting performance. Relative to these benchmark firms, we find that IFRS firms exhibit significant increases in income smoothing and aggressive reporting of accruals, and a significant decrease in timeliness of loss recognition; however we do not find significant differences across IFRS and benchmark firms in meeting or beating earnings targets. Our findings contrast with findings in earlier studies which suggest that IFRS adoption leads to increased accounting quality. Our findings primarily hold for firms in strong enforcement countries which suggests that enforcement mechanisms in these countries were not able to counter the initial effects of greater flexibility in IFRS relative to domestic GAAP.

Keywords: IFRS, Accounting quality, Enforcement

JEL Classification: M4

Suggested Citation

Ahmed, Anwer S. and Neel, Michael J. and Wang, Dechun, Does Mandatory Adoption of IFRS improve Accounting Quality? Preliminary Evidence (July 25, 2012). Contemporary Accounting Research 30 (4) (2013): 1344-1372. Available at SSRN: https://ssrn.com/abstract=1502909 or http://dx.doi.org/10.2139/ssrn.1502909

Anwer S. Ahmed

Texas A&M University - Mays Business School ( email )

430 Wehner
College Station, TX 77843-4353
United States

Michael J. Neel (Contact Author)

University of Houston - Bauer College of Business ( email )

Bauer College of Business
4800 Calhoun Road
Houston, TX 77204
United States

Dechun Wang

Texas A&M University ( email )

430 Wehner
College Station, TX 77843-4353
United States

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