Do Earnings Reported Under IFRS Tell Us More About Future Earnings and Cash Flows?

40 Pages Posted: 25 Feb 2010 Last revised: 12 Oct 2010

See all articles by T. J. Atwood

T. J. Atwood

University of Arkansas - Department of Accounting

Michael S. Drake

Brigham Young University - Marriott School

James N. Myers

University of Tennessee, Knoxville - College of Business Administration

Linda A. Myers

University of Tennessee, Haslam College of Business, Accounting and Information Management

Date Written: August 2010

Abstract

We contribute to the debate about the relative benefits and costs of International Financial Reporting Standards (IFRS) adoption by examining whether earnings persistence and the association between current accounting earnings and future cash flows differ for firms reporting under IFRS versus firms reporting under United States Generally Accepted Accounting Principles (U.S. GAAP) and firms reporting under non-U.S. domestic accounting standards (DAS). Using samples comprised of 58,832 firm-year observations drawn from 33 countries from 2002 through 2008, we find that positive earnings reported under IFRS are no more or less persistent than earnings reported under U.S. GAAP but losses reported under IFRS are less persistent than losses reported under U.S. GAAP.

Moreover, we find that earnings reported under IFRS are no more or less persistent and are no more or less associated with future cash flows than earnings reported under non-U.S. DAS. However, we find that earnings reported under U.S. GAAP are more closely associated with future cash flows than earnings reported under IFRS. This is important if a key role of reported earnings is to help investors form expectations about future cash flows. These results should be of interest to academics and standard-setters as they debate the merits of transitioning to IFRS, and to parties who use reported earnings to form expectations about future earnings and cash flows.

Keywords: International Financial Reporting Standards, IFRS, domestic accounting standards, GAAP, usefulness of earnings, earnings prediction, future cash flows

JEL Classification: G15, G18, M41

Suggested Citation

Atwood, T. J. and Drake, Michael S. and Myers, James N. and Myers, Linda A., Do Earnings Reported Under IFRS Tell Us More About Future Earnings and Cash Flows? (August 2010). Journal of Accounting and Public Policy, Vol. 30, No. 4, 2011. Available at SSRN: https://ssrn.com/abstract=1557406

T. J. Atwood

University of Arkansas - Department of Accounting ( email )

Business Bldg. 454
Fayetteville, AR 72701
United States

Michael S. Drake

Brigham Young University - Marriott School ( email )

United States

James N. Myers

University of Tennessee, Knoxville - College of Business Administration ( email )

Haslam Business Building
Knoxville, TN
United States

Linda A. Myers (Contact Author)

University of Tennessee, Haslam College of Business, Accounting and Information Management ( email )

Knoxville, TN
United States

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