Does Accounting Quality Change Following a Switch from U.S. GAAP to IFRS? Evidence from Germany

38 Pages Posted: 12 Jun 2012

See all articles by Steve Lin

Steve Lin

University of Memphis

William Riccardi

University at Albany - SUNY

Changjiang (John) Wang

University of Cincinnati - Department of Accounting

Date Written: June 12, 2012

Abstract

This study examines whether accounting quality changed following a switch from U.S. GAAP to IFRS. Using a sample of German high tech firms that transitioned to IFRS from U.S. GAAP in 2005, we find that accounting numbers under IFRS generally exhibit more earnings management, less timely loss recognition, and less value relevance compared to those under U.S. GAAP. In addition, after analyzing the accounting quality of firms that applied IFRS throughout the entire sample period, we find that, for the metrics suggesting a decline in accounting quality for both groups of firms, the change is significantly more pronounced for firms switching to IFRS from U.S. GAAP. Overall, our findings indicate that the application of U.S. GAAP generally resulted in higher accounting quality than application of IFRS, and a transition from U.S. GAAP to IFRS reduced accounting quality. Our findings provide the first evidence on the potential consequences of a switch from U.S. GAAP to IFRS.

Keywords: IFRS, US GAAP, Germany

JEL Classification: M40

Suggested Citation

Lin, Steve and Riccardi, William and Wang, Changjiang (John), Does Accounting Quality Change Following a Switch from U.S. GAAP to IFRS? Evidence from Germany (June 12, 2012). Journal of Accounting and Public Policy, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2083217

Steve Lin (Contact Author)

University of Memphis ( email )

Memphis, TN 38152
Memphis, TN usa 38152-3370
United States
38152 (Fax)

William Riccardi

University at Albany - SUNY ( email )

1400 Washington Avenue
Building, Room 109
Albany, NY 12222
United States

Changjiang (John) Wang

University of Cincinnati - Department of Accounting ( email )

Cincinnati, OH 45221-0211
United States

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