The role of international financial reporting standards in accounting quality: Evidence from the European Union

Huifa Chen*, Qingliang Tang, Yihong Jiang, Zhijun LIN

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

181 Citations (Scopus)

Abstract

Previous studies on the effect of International Financial Reporting Standards (IFRS) on accounting quality often have difficulties to control for confounding factors on accounting quality. As a result, the observed changes in accounting quality could not be attributed mainly to IFRS. We use a unique research setting to address this issue by comparing the accounting quality of publicly listed companies in 15 member states of the European Union (EU) before and after the full adoption of IFRS in 2005. We use five indicators as proxies for accounting quality. We find that the majority of accounting quality indicators improved after IFRS adoption in the EU. That is, there is less of managing earnings toward a target, a lower magnitude of absolute discretionary accruals, and higher accruals quality. But our results also show that firms engage in more earnings smoothing and recognize large losses in a less timely manner in post-IFRS periods. In addition, we examine the effects of institutional variables on financial reporting quality. Our contribution to the literature is that we show the improved accounting quality is attributable to IFRS, rather than changes in managerial incentives, institutional features of capital markets, and general business environment, etc.

Original languageEnglish
Pages (from-to)220-278
Number of pages59
JournalJournal of International Financial Management and Accounting
Volume21
Issue number3
DOIs
Publication statusPublished - Sep 2010

Scopus Subject Areas

  • Accounting
  • Business, Management and Accounting (miscellaneous)
  • Finance

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