Costs of Mandatory International Financial Reporting Standards: Evidence of Reduced Accrual Reliability

Posted: 11 Dec 2013

See all articles by Cheng Y. Lai

Cheng Y. Lai

University of New South Wales - Australian School of Business

Yang Li

UNSW Australia Business School, School of Accounting

Yaowen Shan

University of Technology Sydney; Financial Research Network (FIRN)

Stephen L. Taylor

University of Technology Sydney; Financial Research Network (FIRN)

Date Written: December 10, 2013

Abstract

This study investigates the impact of mandatory adoption of international financial reporting standards on accrual reliability. Using a large sample of Australian firm-years drawn from before and after the mandatory adoption of international financial reporting standards, we find that accrual reliability declined significantly after mandatory international financial reporting standards implementation. Working capital, non-current operating, and financing accruals all contribute to this decline. We also find that brand name audit firms (i.e. the Big four) are able to significantly attenuate any decrease in accrual reliability during the post international financial reporting standards period. Our results contrast with evidence identifying benefits of mandatory international financial reporting standards, such as increased value relevance, but are consistent with at least some degree of trade-off between relevance and reliability. Such trade-offs seem to have been largely ignored in prior examinations of the impact of mandatory international financial reporting standards.

Keywords: Accrual reliability, audit quality, IFRS

Suggested Citation

Lai, Cheng Y. and Li, Yang and Shan, Yaowen and Taylor, Stephen L., Costs of Mandatory International Financial Reporting Standards: Evidence of Reduced Accrual Reliability (December 10, 2013). Australian Journal of Management, Vol. 38, No. 3, 2013, Available at SSRN: https://ssrn.com/abstract=2365874

Cheng Y. Lai

University of New South Wales - Australian School of Business ( email )

Level 3, Quadrangle Building
School of Accounting, UNSW
Sydney, NSW 2052
Australia
+61293856609 (Phone)

Yang Li

UNSW Australia Business School, School of Accounting ( email )

Sydney, NSW 2052
Australia
+61 2 9385 6352 (Phone)
+61 2 9385 5925 (Fax)

Yaowen Shan

University of Technology Sydney ( email )

PO Box 123
Broadway, NSW 2007
Australia

HOME PAGE: http://profiles.uts.edu.au/Yaowen.Shan

Financial Research Network (FIRN)

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

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

Stephen L. Taylor (Contact Author)

University of Technology Sydney ( email )

UTS Business School
PO Box 123 Broadway
Sydney, NSW 2007
Australia
61295143437 (Phone)
61295143513 (Fax)

Financial Research Network (FIRN)

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

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

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
969
PlumX Metrics