Impact of IFRS Adoption in New Zealand on Accounts and Earnings Quality
Australian Accounting Review, Volume 20, Issue 4, pages 343–357, December 2010
Posted: 9 Aug 2015 Last revised: 12 Aug 2015
Date Written: December 1, 2010
The impact of the adoption of International Financial Reporting Standards (IFRS) on the accounts and the quality of earnings of New Zealand ﬁrms is examined. Our analysis of IFRS adjustments for the last period under pre-IFRS NZ Generally Accepted Accounting Principles (GAAP) reveals that total assets, total liabilities and net proﬁt were signiﬁcantly higher under IFRS than under pre-IFRS GAAP. Proﬁt and equity under IFRS were increased by adjustments for goodwill and other intangibles and investment property, and decreased by adjustments for employee beneﬁts and share-based payments. Using data for 2002–2009, we ﬁnd that absolute discretionary accruals were signiﬁcantly higher under IFRS than under pre-IFRS NZ GAAP, suggesting lower earnings quality under IFRS than under pre-IFRS NZ GAAP. However, we ﬁnd no signiﬁcant differences in signed discretionary accruals and the ability of earnings to predict one-year-ahead cash ﬂows between pre-IFRS NZ GAAP and IFRS. These results are consistent across alternative measures of accruals quality, sample selection and whether ﬁrms elected to adopt IFRS in 2005 rather than comply with them in 2007.
Keywords: IFRS, earnings quality, discretionary accruals, cash flows
JEL Classification: M41
Suggested Citation: Suggested Citation