We imported a PDF version of each IASB and IOSCO public document into NVivo software and searched for specific words within the documents using NVivo (Perkiss et al. 2020). After establishing a procedure for classifying documents (according to the meeting to which they belong and participants) and searching on select words, we run separate qualitative analyses of the IASB documents and IOSCO documents. Some managers are incentivized and governed by the capital market, whereas other managers are incentivized by creditors. Moreover, some scholars find evidence that over time, after countries adopt IFRS, managers/accountants become familiar with IFRS and adapt implementation of IFRS to meet their local needs (Liao et al. 2012; Larson 1997). Other authors (Lasmin 2011; Chua and Taylor 2008; DiMaggio and Powell 1983) find that IFRS adoption is driven more so by social legitimization pressures than economic benefit pressures. As highlighted by Doupnik and Richter (2003), differing home country languages could be a further source of impaired comparability when converting financial reports to the host country’s language.
- To this end, we prescribe an organizational dynamic change of IOSCO’s organization structure to achieve CFR globally.
- For these firms, we find that the reported financial information of private firms that follow IFRS has higher explanatory power than the information of those that follow local GAAP standards.
- To the best of our knowledge, there are no current formal projects on which the IASB is working together with IOSCO or national market authorities toward a converged global enforcement of IFRS as published by the IASB.
- To test whether the value relevance of private firms’ reported financial information is greater when it is more comparable to that of public firms, we first examine the difference between the value relevance of private firms that follow IFRS and the value relevance of those that follow local GAAP.
- Notwithstanding, there are multiple factors that affect global capital market efficiency for which we do not address in our proposed organization dynamics change.
Academics may be able to provide evidence relevant to policy developments such as requirements for mandatory tagging of financial statements in Australia. Researchers can show the impact of requirements in other countries that could be relevant in Australia. There is much to be learned about what works best and why; such evidence is not currently available. Harris and Morsefield (2012) reported that data aggregators were using or experimenting with XBRL data but since tagged data was not available for a full set of companies (ie international companies) some aggregators needed to continue with their current processes for collecting and validating data.
Earnings management and investor protection: An international comparison
Our research shows that 145 jurisdictions now require the use of IFRS Accounting Standards for all or most publicly listed companies, whilst a further 13 jurisdictions permit its use. IFRS [Accounting Standards] adoption affected positively in reducing investment risk in domestic firms, in mitigating the ‘Korea discount’ and in attracting foreign capital via overseas stock listing, bond issuance or M&A. IFRS Accounting Standards strengthen accountability by reducing the information gap between the providers ifrs comparability data of capital and the people to whom they have entrusted their money. As a source of globally comparable information, IFRS Accounting Standards are also of vital importance to regulators around the world. Although most of the world uses IFRS standards, it is still not part of the U.S. financial accounting world. IFRS is required to be used by public companies based in 167 jurisdictions, including all of the nations in the European Union as well as Canada, India, Russia, South Korea, South Africa, and Chile.
Tagging financial statements will involve software, systems, expertise, staff and consultants. However companies in Australia have not generally responded—it appears no XBRL-tagged reports have been lodged with ASIC.11 Other jurisdictions that have introduced a voluntary electronic reporting programme share this experience (for example Canada). Francesco De Luca is Full Professor of International Accounting and Financial Reporting at the University “G. D’Annunzio” of Chieti-Pescara (Italy), where he is also Head elect of the Department of Management and Business Administration. Between 2012 and 2017, he spent several periods as a visiting scholar at the University of Alabama at Birmingham (USA).
Understanding earnings quality: A review of the proxies, their determinants and their consequences
They find that for public firms of 13 EU countries, managements’ reporting incentives explain earnings informativeness (especially in weaker legal enforcement countries). They find that the application of IFRS adoption is not uniform across Europe and depends on preparer incentives and the effectiveness of local enforcement. We investigate the effects of mandatory International Financial Reporting Standards (IFRS) adoption on the comparability of financial accounting information. Using a set of alternative comparability measures, our results suggest that the overall comparability effect of mandatory IFRS adoption is marginal.
Consistent with this, we suggest that the EMMoU includes the application of IFRS financial reporting as published by the IASB and a comment letter approach, especially for cross-border listed firms. Our proposed organizational dynamic is based on the establishment of a new body within IOSCO, namely the IOSCO Monitoring Board (MB). The IOSCO MB would be composed of technical experts, representative of countries across the globe. When a company lists its securities outside of its home country and states compliance with IFRS, the IOSCO MB should be responsible for reviewing the firm’s filings and issuing comment letters.
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The valuation experts reveal that, for local GAAP firms, several accounting line items routinely require complex translations to make them comparable to IFRS. For instance, comparability issues arise from differences in the recognition of (self-generated) intangible assets or project revenues, but they are particularly prevalent regarding the recognition and measurement of liabilities, such as leasing liabilities and certain provisions. Results from a decomposition analysis are consistent with these interview insights and support the notion that, in our setting, the liability side contributes most to the observed effect of comparability on value relevance.
The IASB itself still struggles to provide comparable application and enforcement of its IFRS globally. In this paper, we provide empirical evidence regarding the role of comparability in enhancing the usefulness of earnings in the Canadian context. However, to the extent that comparability may result in similar treatments for dissimilar events, accounting data may be distorted.1 Thus, whether comparability enhances the usefulness of financial reporting remains an empirical question to be further explored. In this study, we investigate whether financial statement comparability enhances the usefulness of earnings, specifically their relevance and faithful representation, as asserted in the International Accounting Standards Board (IASB)’s conceptual framework. However, the role of comparability in improving the usefulness of earnings has not yet been directly examined.
We do not contend that suggesting IOSCO as an enforcement organization for IFRS is a cure-all, but we do suggest it as a next step toward improving comparability in the financial reporting of cross-listed firms stating compliance with IFRS. Further research is needed to empirically support this proposal and provide an estimation on the cost of global securities regulation enforcement of IFRS as published by the IASB through IOSCO in cooperation with national regulatory bodies for cross-border listed firms. Moreover, in countries with stronger enforcement, financial disclosures improve (Gros and Koch 2018; Glaum et al. 2013). The lack of CFR is also empirically evidenced in the IFRS-based earnings in financial reports of differing legal jurisdictions (Phan et al. 2020).
Yoshikawa and Rasheed (2009) find almost no evidence of convergence in corporate governance between countries. They find that while IFRS may be implemented comparably globally in form, this usually is not carried out in practice due to differences in management incentives (Felski 2017). We conclude, then, that application of IFRS may vary between countries as a result of differing institutional factors influencing management in application of IFRS. The IASB’s stated objective is to provide financial reporting about an entity that is useful to existing and potential investors, lenders and other creditors in making resource allocation decisions (IASB 2018, ¶1.2). One of its enhancing qualitative characteristics in providing useful financial reporting is comparability. Since that point, IFRS Accounting Standards have gone on to become the de facto global language of financial reporting, used extensively across developed, emerging and developing economies.
The seven largest developed countries in the world include Canada, France, Germany, Italy, Japan, the UK, and the USA. None of these economies fully adopted IFRS for all its listed firms without carve-in or carve-outs. This should be alarming as there have been times when these economies were concerned https://adprun.net/ that adoption of IFRS was not achieved globally. For example, during periods of scandals (e.g., Enron) and financial crisis (e.g., Asian of 1997 and globally in 2008) there was demand by the G7 (as part of the G20) for global regulation to limit asymmetric information among market participants.
Where MVi,t is the market value of equity, EQi,t is the book value of equity, EARNi,t is net income, and LOSSi,t is a loss indicator. The Authorities will provide each other with the Fullest Assistance Permissible to investigate suspected violations of, ensure compliance with and enforce their respective Laws and Regulations. By reading the meeting agenda of the above January 28, 2013 meeting, we find that there were several external parties involved in this discussion.