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    Does Mandatory IFRS Adoption Improve the Information...
    research summary posted April 17, 2014 by Jennifer M Mueller-Phillips, tagged 01.0 Standard Setting, 01.02 Changes in Audit Standards, 15.0 International Matters, 15.02 IFRS Changes – Impacts 
    Does Mandatory IFRS Adoption Improve the Information Environment?
    Practical Implications:

    The results of this study have important implications for the debate on the globalization of accounting standards and for regulators that are considering a transition towards IFRS. Although the effects of IFRS adoption are not homogenous for all firms, the adoption of one set of accounting standards is likely to generate both information and comparability effects and improve the quality of information intermediation in capital markets.

    For more information on this study, please contact Joanne Horton.


    Horton, J., G. Serafeim, and I. Serafeim. 2013. Does Mandatory IFRS Adoption Improve the Information Environment? Contemporary Accounting Research 30 (1).

    international financial reporting standards; impact analysis; earnings forecasting; quality.
    Purpose of the Study:

    With over 120 countries requiring or permitting the use of IFRS by publicly listed companies, the idea of pushing for mandatory IFRS adoption has become a popular topic. Mandatory IFRS adoption has the potential to improve worldwide financial reporting quality and contribute to better functioning capital markets. Potential benefits includes facilitating cross-border comparability, increase reporting transparency, decreasing information costs, and improving the efficiency of the markets. The idea relies on the presumption that mandatory IFRS adoption provides superior information to market participants and/or increased accounting comparability compared to previous accounting regimes. This study examines whether such a global transition towards a single set of accounting standards has been met by these presumed benefits. Based on prior research the authors derived these three hypotheses to test:

    1.    Mandatory IFRS adoption provides comparability benefits and as a result affects analyst earnings forecast accuracy for firms adopting IFRS mandatorily.
    2.    Mandatory IFRS adoption provides information quality benefits and as a result affects analyst earnings forecast accuracy for firms adopting IFRS mandatorily.
    3.    The increase in forecast accuracy following mandatory IFRS is associated with increased opportunities for firms to manage earnings towards a target.

    Design/Method/ Approach:

    To test the three hypotheses above, the authors first needed to verify that adoption of IFRS improves the information environment for the firms in the sample. Specifically, the authors tested for difference in forecast errors before and after mandatory IFRS compliance for nonadaptors, mandatory adaptors, and voluntary adaptors. To test for the effect of IFRS adoption, several models were developed to analyze firm data and forecasting information. Other analysis is conducted to determine whether improvements in information environment could be driven by factors outside of IFRS adoption.   

    • The information environment improves for mandatory adopters.
    • The larger the difference between IFRS earnings and local GAAP earnings the larger is the improvement in the information environment.
    • Forecast accuracy improves more for analyst-firm pairs that are affected by either information or comparability benefits.
    • There is no evidence suggesting that the increase in forecast accuracy is driven by earnings manipulation.
    International Matters, Standard Setting
    Changes in Audit Standards, IFRS Changes – Impacts