Impact Of IFRS Adoption On Accounting Standards

Bachelor Thesis

What is the impact of IFRS adoption on accounting quality worldwide?

Abstract
The purpose of this literature review is to identify whether the adoption of International Financial Reporting Standards (IFRS) has led to an improvement in accounting quality worldwide. Accounting quality is measured by three dimensions, namely earnings management, timely loss recognition and value relevance. Several studies are observed throughout this paper concerning IFRS adoption in Australia and the EU. The findings reveal mixed evidence regarding the impact on accounting quality following the adoption of IFRS. These findings may be useful for capital market participants who seek knowledge about each country individually. Furthermore, this

Standards issued by the IASC were referred to as International Accounting Standards (IAS), and consequently incorporated into IFRS, which in turn led to the international accounting standards currently being used. Although the practice of IFRS development occurred for a relatively long period, the adoption process by each country varied in time. In recent years, numerous countries have adopted the IFRS including Australia, Brazil, the European Union (EU), South Africa and more (PwC, 2013). The extensive adoption on a global scale gave rise to the increasing interest in IFRS among capital market participants, whom are concerned with the impact of the transition to the new standards on accounting quality

Given that most countries applied their own national GAAP prior to IFRS adoption, the impacts of the transition may vary by country. Therefore, the necessity to understand the consequences of IFRS adoption on accounting quality has become of great importance for capital market participants as well as stakeholders of a company which undergoes a shift to IFRS. The focus of research differs in the nature of the IFRS adoption, namely whether the adoption is voluntary or mandatory. For each of these types of adoption, the consequences of the transition are examined based on data from before and after the adoption. According to a study conducted by Barth et al. (2008), it is found that in general the application of IFRS is associated with higher accounting quality. Nevertheless, this research was conducted during a period of voluntary IFRS adoption, and was therefore exposed to self-selection bias by firms voluntarily adopting the new standards in their favor. Hence, it is debatable whether such findings can be generalized to the case of mandatory IFRS adoption, which occurred in subsequent years. The pioneers in making the IFRS adoption mandatory are Australia and the EU, which both required the application of the IFRS to be effective from January 1, 2005 (Chua et al.,