IFRS Consequences on Accounting Conservatism within Europe
Posted: 15 Dec 2010
There are 2 versions of this paper
IFRS Consequences on Accounting Conservatism in Europe: Do Auditor Incentives Matter?
Date Written: December 13, 2010
Abstract
We investigate the effects of mandatory IFRS adoption in the EU on accounting conservatism, an essential feature of earnings quality, and the way large audit firms (Big 4) interact with it. We use an extensive database of more than 5,000 IFRS adopters from 22 EU countries, observed over 2001-2008. The main findings are that: 1) conditional conservatism, as proxied by the asymmetric timeliness of bad vs. good news, has decreased under IFRS, notably among Big 4 audits; 2) the country-level magnitude of this IFRS effect is positively associated with the distance between IFRS and pre-existing local GAAP; 3) Big 4 auditors are associated with more aggressive earnings under IFRS, with simultaneous increase (decrease) in good (bad) news timeliness; 4) the cross-country variability in timeliness metrics is significantly lower among Big 4 vs. non-Big 4 audits, whatever the reporting regime (local GAAP or IFRS); and 5) unconditional conservatism is higher under IFRS in the presence of a Big 4 auditor. Taken together, these findings suggest that the EU-wide mandatory IFRS adoption has hampered accounting quality, and then strongly challenge the one size fits all principle.
Keywords: Mandatory IFRS adoption, Earnings quality, Conservatism, Big 4 audits, European Union
JEL Classification: M48, M41, M42
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
The Effect of International Institutional Factors on Properties of Accounting Earnings
By Ray Ball, S.p. Kothari, ...
-
The Relevance of the Value Relevance Literature for Financial Accounting Standard Setting
-
Conservatism in Accounting - Part I: Explanations and Implications
-
International Differences in the Timeliness, Conservatism and Classification of Earnings
By Peter F. Pope and Martin Walker
-
By Ray Ball, Ashok Robin, ...
-
Corporate Financial Statements, a Product of the Market and Political Processes
-
Conservatism in Accounting - Part Ii: Evidence and Research Opportunities
-
Earnings Quality in U.K. Private Firms
By Ray Ball and Lakshmanan Shivakumar