The impact of IFRS adoption on the earnings quality: A comparative study

Abstract

This study investigates the adoption of IFRS and its effects on earnings quality by using two of earnings quality proxies: earnings management and accounting conservatism. The study also investigates the differences in the reactions of firms from Anglo-Saxon and Continental European countries to adoption of IFRS regarding their earnings quality. In order to accomplish the study, a sample of data spans from 1990-2015 was collected. Results of this study show that firms respond differently to the adoption of IFRS regarding their accounting orientations. In general, earnings quality of firms from the UK, as the followers of Anglo-Saxon accounting regime, were not significantly affected by adoption of IFRS. On the other hand, firms from Continental European countries experienced a significant deviation in their accounting practices as the type of earnings management changes its form of accrual earnings management to real earnings management and the level accounting conservatism increases significantly. In additions to that, during post-IFRS period, higher level of firm-year accounting comparability shapes managers earnings management preferences in the way in which, if firm-year level accounting comparability is high, managers prefers to implement real earnings management practices rather than accrual earnings management practices.