The effects of mandatory IFRS adoption: A review of evidence based on accounting standard setting criteria

Fakhroddin Mohammadrezaei, Norman Mohd Saleh, Bahman Banimahd

Research output: Contribution to journalArticle

6 Citations (Scopus)

Abstract

The present article attempts to provide a broad picture regarding the consequences of the mandatory adoption of the International Financial Reporting Standards (IFRS) around the world by reviewing extant empirical evidence relating to four comprehensive accounting standard setting criteria: decision usefulness, reduction of information asymmetry, economic consequences of standards and political aspects of standard. The review reveals that mixed evidence exists regarding the decision usefulness of accounting numbers under the IFRS. The majority of the extant studies reviewed find that the value relevance of accounting numbers and financial reporting comparability is enhanced following the adoption of the IFRS. However, mixed evidence exists regarding the effect of IFRS adoption on earnings management, timely loss recognition and other properties of accounting quality. The majority of the extant empirical studies reviewed find a reduction in information asymmetry (enhanced analysts forecast accuracy, consensus and other properties). Generally, the extant studies reviewed provide evidence regarding favourable economic consequences (lower cost of equity and increasing foreign investment) under the IFRS regime. Certain studies provide evidence regarding the role of political pressures and lobbying activities in the development of a number of standards by the International Accounting Standards Board. A number of studies find that the favourable consequences following the adoption of the IFRS regime dependent on the strength of reporting incentives for a firm and the strength of a country's enforcement system. In the absence of sufficient evidence regarding the consequences of IFRS adoption in developing countries and the significant differences in the institutional features of such countries, the aforementioned conclusions are less likely to be generalizable to developing countries. The conclusion of the present study is likely to be useful for international and national authority bodies and the users of financial reports. The conclusions also provide significant suggestions for further research regarding the consequences of IFRS adoption.

Original languageEnglish
Pages (from-to)29-77
Number of pages49
JournalInternational Journal of Disclosure and Governance
Volume12
Issue number1
DOIs
Publication statusPublished - 17 Feb 2015

Fingerprint

International Financial Reporting Standards
Evidence-based
Accounting standard setting
Usefulness
Developing countries
Economic consequences
Authority
Analysts' forecasts
Earnings management
Empirical study
Asymmetry of information
Cost of equity
Empirical evidence
Lobbying
Accounting quality
Decision criteria
Enforcement
International Accounting Standards Board
Foreign investment
Reviewing

Keywords

  • decision usefulness
  • economic consequences
  • IFRS and review of evidence
  • information asymmetry
  • political aspects of standard setting

ASJC Scopus subject areas

  • Business and International Management
  • Economics and Econometrics
  • Finance
  • Strategy and Management
  • Accounting

Cite this

The effects of mandatory IFRS adoption : A review of evidence based on accounting standard setting criteria. / Mohammadrezaei, Fakhroddin; Mohd Saleh, Norman; Banimahd, Bahman.

In: International Journal of Disclosure and Governance, Vol. 12, No. 1, 17.02.2015, p. 29-77.

Research output: Contribution to journalArticle

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