IFRS ADOPTION

The Accounting Quality after Mandatory IFRS Adoption



The Accounting Quality after Mandatory IFRS Adoption

Introduction

As per the topic of the assignment, I have selected two recent articles on the above topic which discusses about the accounting quality at different firms after the adoption of IFRS (International Financial Reporting Standards). In the first article according to Outa (2011), in his article “The Impact of International Financial Reporting Standards (IFRS) Adoption on the Accounting Quality of Listed Companies in Kenya” in which he elaborates that, his research has been put forward to see if the adoption of IFRS in Kenya is linked with higher quality of accounting for listed companies. The IASB which stands for the International Accounting Standards Board assumes the useful and valuable effects from adoption of IFRS includes transparency, shows quality of accounting and also reduce the cost of capital. This research article applied the measures of accounting quality, earnings, timely recognition of loss and value relevance in order to find whether the adoption of IFRS has led to any improvement in terms of accounting quality in the listed firms in Kenya or not. The methodology of the article is based on quality of accounting but majorly earnings, recognition of loss timely and value significance.

The other article is by Gebhardt & Novotny-Farkas (2010), according to them their article “The effects of IFRS adoption on the financial reporting quality of European banks” is based on mandatory adoption of IFRS and its implications on the accounting quality of banks in 12 EU countries. This article also evaluates the change in the recognition and measurement of the bank's main accrual items that is the loss of provision loan, also affects the smoothing behaviour of income and timely recognition of loss. Te study found out that the limitation to incur losses under the IFRS adoption considerably reduces the bank's ability to engage in the smoothing of income. This impact is less proclaimed in nations with substantially scattered proprietorship structures and strict bank supervision, giving further confirmation that organizations matter in moulding money related reporting conclusions. In any case, the requisition of the acquired loss approach brings about less timely loan loss recognition implying deferred communication of expected future losses.

Discussion

According to Outa (2011), they reviewed the IFRS adoption impact on the listed companies accounting quality in Kenya between the years 1995 to 2004. The research used a quantitative approach and involved some document analysis as well. The research adopted a quantitative approach based on previous literature reviews, the metrics of accounting quality applied were earnings management (4 metrics), timely recognition of loss (1 metric) and value significance (3 metrics). The results were blended with three out of the eight measurements of the quantitative outcomes demonstrating that quality has barely enhanced while the other 5 out of eight demonstrated that quality declined hardly consequently, prompting the conclusion that bookkeeping or accounting quality has remained practically the same. These results were different from the results obtained from other researches in other countries such as in Germany ...