Mandatory IFRS Adoption in the BRIC Country: Lessons Learned from the Transition Period

• In Event: International Accounting

Abstract

There has been a continuing discussion in relation to the pros and cons of mandating IFRS in emerging economies that are generally characterized by a weak regulatory mechanism, a low level of investor protection, and an underdeveloped reporting infrastructure. We examine implications of the mandatory IFRS adoption reform in one of the BRIC countries – the Russian Federation. Our findings indicate that value relevance of earnings and a book value of equity declined in the post-adoption period based on the total population of public firms. On the other hand, we document that value relevance experienced differential changes for separate categories of firms. For example, early adopters and firms that switched to IFRS as a result of the reform experienced an overall improvement in value relevance, while those that were exempt from the IFRS adoption requirement experienced decline in the reporting quality. Furthermore, value relevance declined for “committed adopters” – cross-listed companies with significant foreign ownership that were audited by the “Big Four” accounting firms. Finally, we document a decline in conditional conservatism in the post-adoption period.

Author

• Oksana Kim, Minnesota State University - Mankato