On the Effects of IFRS Integration: Evidence from Europe

• In Event: Research in Accounting Standards

Abstract

Numerous studies examine the effect of the adoption of International Financial Reporting Standards (IFRS) in European Union (EU) and European Economic Area (EEA) member countries following passage of the EU’s 2002 IAS Regulation. We expand upon this stream of research by investigating differences in the “intensity of adoption,” i.e., the extent to which a given country relies on IFRS. Using two measures of IFRS integration intensity, we find that the ability of net income and book value of equity to explain market equity values, the association of net income and returns, and the ability of net income to predict future cash flows all decrease with higher IFRS integration. Our findings indicate that requiring “more IFRS” does not incrementally improve the quality of accounting, as countries which retain domestic GAAP for some uses outperform countries that are more IFRS integrated. These results are consistent with, on average, beneficial carryover effects from the retention of domestic accounting standards in addition to IFRS.

Authors

• Arno Forst, Kent State University

• Pervaiz Alam, Kent State University