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Examining dual accounting systems in Europe

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  • Macías, Marta
  • Muiño, Flora
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    Abstract

    After adoption of International Financial Reporting Standards (IFRS) for consolidated financial statements by European-listed companies, a number of European countries still require the use of local standards in the preparation of legal entity financial statements. This study investigates whether this requirement can be explained by a low demand for high-quality financial reporting and an orientation of accounting toward the fulfilment of regulatory needs in these countries. Specifically, using accounting quality as an indicator of the focus of accounting on capital providers' needs, we compare accounting quality between countries permitting and prohibiting the use of IFRS in individual financial statements. Consistent with our expectations, we find that countries requiring the use of local standards in the preparation of legal entity financial statements exhibit a significantly lower level of accounting quality, both prior to and after IFRS adoption. We interpret these results as evidence that these countries have local standards more oriented toward the satisfaction of regulatory needs, rather than investors' needs. Furthermore, since differences in accounting quality persist after the implementation of IFRS, results suggest that firms in these countries face a lower demand for high-quality financial reporting.

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    Bibliographic Info

    Article provided by Elsevier in its journal The International Journal of Accounting.

    Volume (Year): 46 (2011)
    Issue (Month): 1 (March)
    Pages: 51-78

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    Handle: RePEc:eee:accoun:v:46:y:2011:i:1:p:51-78

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    Web page: http://www.elsevier.com/locate/inca/620179

    Related research

    Keywords: IFRS endorsement Accounting quality Value relevance Domestic GAAP;

    References

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    Cited by:
    1. Guerreiro, Marta Silva & Rodrigues, Lúcia Lima & Craig, Russell, 2012. "Voluntary adoption of International Financial Reporting Standards by large unlisted companies in Portugal – Institutional logics and strategic responses," Accounting, Organizations and Society, Elsevier, vol. 37(7), pages 482-499.
    2. Vera Palea, 2012. "Are IFRS Value-Relevant for Separate Financial Statements? Evidence from the Italian Stock Market," Department of Economics and Statistics Cognetti de Martiis. Working Papers, University of Turin 201211, University of Turin.
    3. Palea Vera, 2013. "Capital Market Effects of the IFRS Adoption for Separate Financial Statements: Evidence from the Italian Stock Market," Department of Economics and Statistics Cognetti de Martiis. Working Papers, University of Turin 201309, University of Turin.
    4. Ahmed, Kamran & Chalmers, Keryn & Khlif, Hichem, 2013. "A Meta-analysis of IFRS Adoption Effects," The International Journal of Accounting, Elsevier, Elsevier, vol. 48(2), pages 173-217.

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