The Qualitative Characteristics of Financial Information, and Managers’ Accounting Decisions: Evidence from IFRS Policy Changes

Accounting and Business Research, 45(5), 2015, 572-601

Posted: 25 Apr 2015 Last revised: 15 Apr 2016

See all articles by Christopher William Nobes

Christopher William Nobes

University of London - Royal Holloway College

Christian Stadler

University of London - Royal Holloway College

Date Written: 2015

Abstract

This is the first empirical study that uses publicly available data to provide direct evidence about the role of the qualitative characteristics (QCs) of financial information in managements’ accounting decisions. Based on 40,895 hand-collected IFRS (International Financial Reporting Standards) policy choices on 16 topics made by 514 large firms of 10 jurisdictions in the period 2005–2011, we identify 204 reasons for policy changes. The majority of these refer to QCs from the conceptual framework of the standard-setter, in particular to relevance, faithful representation, comparability and understandability. Firms also frequently refer to transparency, which is not directly mentioned in the framework. Furthermore, we analyse the circumstances under which firms explain their policy changes in terms of improved quality. We hypothesise and find that QCs are more often referred to if the change relates to measurement (i.e. to a more important accounting policy decision). We also find that references to QCs are positively associated both with firm size and with a measure of a jurisdiction's transparency. This complements previous research by providing evidence that managers are, at the least, alert to QCs.

Keywords: qualitative characteristics, IFRS, relevance, faithful representation, comparability, understandability, transparency

JEL Classification: M41

Suggested Citation

Nobes, Christopher William and Stadler, Christian, The Qualitative Characteristics of Financial Information, and Managers’ Accounting Decisions: Evidence from IFRS Policy Changes (2015). Accounting and Business Research, 45(5), 2015, 572-601, Available at SSRN: https://ssrn.com/abstract=2598171

Christopher William Nobes

University of London - Royal Holloway College ( email )

School of Management
Royal Holloway
Egham, TW20 0EX
United Kingdom

Christian Stadler (Contact Author)

University of London - Royal Holloway College ( email )

Egham
Surrey, Egham TW20 0EX
United Kingdom

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