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

See all articles by Humayun Kabir

Humayun Kabir

Auckland University of Technology

Fawzi Laswad

Massey University

Ainul Islam

Victoria University of Welington - School of Accounting and Commercial Law

Date Written: December 1, 2010

Abstract

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

Kabir, Humayun and Laswad, Fawzi and Islam, Ainul, Impact of IFRS Adoption in New Zealand on Accounts and Earnings Quality (December 1, 2010). Australian Accounting Review, Volume 20, Issue 4, pages 343–357, December 2010, Available at SSRN: https://ssrn.com/abstract=2641385

Humayun Kabir (Contact Author)

Auckland University of Technology ( email )

AUT City Campus
Private Bag 92006
Auckland, 1142
New Zealand
+64 21 08309355 (Phone)

Fawzi Laswad

Massey University ( email )

Palmerston North
New Zealand

Ainul Islam

Victoria University of Welington - School of Accounting and Commercial Law ( email )

PO Box 600
Wellington, 6140
New Zealand
+6444636107 (Phone)
+6444635076 (Fax)

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