IFRS Consequences on Accounting Conservatism within Europe

Posted: 15 Dec 2010

See all articles by Charles Piot

Charles Piot

Univ. Grenoble Alpes; University of Angers - Centre de Recherches Appliquées à la Gestion (CERAG)

Rémi Janin

University of Grenoble and CERAG-CNRS

Pascal Dumontier

University of Grenoble; University of Angers - Centre de Recherches Appliquées à la Gestion (CERAG)

Multiple version iconThere are 2 versions of this paper

Date Written: December 13, 2010

Abstract

We investigate the effects of mandatory IFRS adoption in the EU on accounting conservatism, an essential feature of earnings quality, and the way large audit firms (Big 4) interact with it. We use an extensive database of more than 5,000 IFRS adopters from 22 EU countries, observed over 2001-2008. The main findings are that: 1) conditional conservatism, as proxied by the asymmetric timeliness of bad vs. good news, has decreased under IFRS, notably among Big 4 audits; 2) the country-level magnitude of this IFRS effect is positively associated with the distance between IFRS and pre-existing local GAAP; 3) Big 4 auditors are associated with more aggressive earnings under IFRS, with simultaneous increase (decrease) in good (bad) news timeliness; 4) the cross-country variability in timeliness metrics is significantly lower among Big 4 vs. non-Big 4 audits, whatever the reporting regime (local GAAP or IFRS); and 5) unconditional conservatism is higher under IFRS in the presence of a Big 4 auditor. Taken together, these findings suggest that the EU-wide mandatory IFRS adoption has hampered accounting quality, and then strongly challenge the one size fits all principle.

Keywords: Mandatory IFRS adoption, Earnings quality, Conservatism, Big 4 audits, European Union

JEL Classification: M48, M41, M42

Suggested Citation

Piot, Charles and Janin, Rémi and Dumontier, Pascal, IFRS Consequences on Accounting Conservatism within Europe (December 13, 2010). CAAA Annual Conference 2011. Available at SSRN: https://ssrn.com/abstract=1724635 or http://dx.doi.org/10.2139/ssrn.1724635

Charles Piot (Contact Author)

Univ. Grenoble Alpes ( email )

Grenoble Cedex 9, F-38040
France

University of Angers - Centre de Recherches Appliquées à la Gestion (CERAG)

150 rue de la Chimie, BP47
Grenoble Cedex 9, 38040
France

Rémi Janin

University of Grenoble and CERAG-CNRS ( email )

IUT2, Place de Verdun
Grenoble, 38000
France

Pascal Dumontier

University of Grenoble ( email )

Grenoble
France

University of Angers - Centre de Recherches Appliquées à la Gestion (CERAG)

150 rue de la Chimie, BP47
Grenoble Cedex 9, 38040
France

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