Mandatory IFRS adoption in Europe: effect on the conservative financial reporting
Journal of Financial Reporting and Accounting
ISSN: 1985-2517
Article publication date: 3 December 2018
Abstract
Purpose
The purpose of this paper is to investigate how the mandatory shift from domestic standards to International Financial Reporting Standards (IFRS) in Europe affects the conservatism level of reported accounting earnings (i.e. conditional conservatism), with the objective of gaining insights that are relevant for standard setters, capital providers and other users of financial accounting information.
Design/methodology/approach
Various models have been used in the literature to capture conditional conservatism. In the main tests in this paper, the authors use the Basu’s (1997) earnings-return specification. The authors use a panel data methodology to carry out the paper.
Findings
In contrast to previous international research studies, it is found that conditional conservatism has increased after the mandatory adoption of IFRS in Europe in 2005, with this increase being dependent on the extent of the accounting changes involved in switching from domestic accounting standards to IFRS reporting.
Practical/implications
These findings are expected to be particularly relevant to some countries which have not yet adopted IFRS, such as the USA, Japan, Columbia, etc., but have announced their intention to adopt IFRS and to regulators in different jurisdictions who are interested in the impact of IFRS conversion.
Originality/value
The research to date, based on a multi-country setting, consistently shows a significant decrease in conditional conservatism after adopting IFRS. Based on a sample of firms from the European Union over a long period, the authors provide novel evidence for potentially unintended consequences of IFRS adoption, finding an increase in conditional conservatism behavior.
Keywords
Citation
Guermazi, W. and Khamoussi, H. (2018), "Mandatory IFRS adoption in Europe: effect on the conservative financial reporting", Journal of Financial Reporting and Accounting, Vol. 16 No. 4, pp. 543-563. https://doi.org/10.1108/JFRA-08-2017-0070
Publisher
:Emerald Publishing Limited
Copyright © 2018, Emerald Publishing Limited