An Analysis of the Accounting Errors that Arise During the Transition to IFRS

39 Pages Posted: 1 Feb 2011  

Anna Loyeung

University of Technology, Sydney - School of Accounting; Financial Research Network (FIRN)

Zoltan P. Matolcsy

University of Technology Sydney (UTS) - School of Accounting

Joseph Weber

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)

Date Written: January 31, 2011

Abstract

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.

Keywords: IFRS, errors, fraud, auditing, cost of capital

JEL Classification: G38, M41

Suggested Citation

Loyeung, Anna and Matolcsy, Zoltan P. and Weber, Joseph and Wells, Peter Alfred, An Analysis of the Accounting Errors that Arise During the Transition to IFRS (January 31, 2011). Available at SSRN: https://ssrn.com/abstract=1752485 or http://dx.doi.org/10.2139/ssrn.1752485

Anna Loyeung

University of Technology, Sydney - School of Accounting ( email )

15 Broadway, Ultimo
PO Box 123
Sydney, NSW 2007
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Zoltan Paul Matolcsy

University of Technology Sydney (UTS) - School of Accounting ( email )

P.O. Box 123
Broadway NSW 2007
Australia

Joseph Peter Weber (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

77 Massachusetts Ave.
E62-416
Cambridge, MA 02142
United States
617-253-4310 (Phone)

Peter Alfred Wells

University of Technology, Sydney - School of Accounting, Faculty of Business ( email )

P.O. Box 123
Broadway NSW 2007
AUSTRALIA
+61 (02) 9514 3628 / 3629 (Phone)
+61 (02) 9514 5515 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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