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Do earnings reported under IFRS tell us more about future earnings and cash flows?

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Author Info

  • Atwood, T.J.
  • Drake, Michael S.
  • Myers, James N.
  • Myers, Linda A.

Abstract

We contribute to the debate about the relative benefits and costs of International Financial Reporting Standards (IFRS) adoption by examining whether earnings persistence and the association between current accounting earnings and future cash flows differ for firms reporting under IFRS versus firms reporting under United States Generally Accepted Accounting Principles (U.S. GAAP) and firms reporting under non-U.S. domestic accounting standards (DAS). Using samples comprised of 58,832 firm-year observations drawn from 33 countries from 2002 through 2008, we find that positive earnings reported under IFRS are no more or less persistent than earnings reported under U.S. GAAP but losses reported under IFRS are less persistent than losses reported under U.S. GAAP. Moreover, we find that earnings reported under IFRS are no more or less persistent and are no more or less associated with future cash flows than earnings reported under non-U.S. DAS. However, we find that earnings reported under U.S. GAAP are more closely associated with future cash flows than earnings reported under IFRS. This is important if a key role of reported earnings is to help investors form expectations about future cash flows. These results should be of interest to academics and standard-setters as they debate the merits of transitioning to IFRS, and to parties who use reported earnings to form expectations about future earnings and cash flows.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Accounting and Public Policy.

Volume (Year): 30 (2011)
Issue (Month): 2 (March)
Pages: 103-121

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Handle: RePEc:eee:jappol:v:30:y::i:2:p:103-121

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Web page: http://www.elsevier.com/locate/jaccpubpol

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Cited by:
  1. Ulf Brüggemann & Jörg-Markus Hitz & Thorsten Sellhorn, 2012. "Intended and unintended consequences of mandatory IFRS adoption: A review of extant evidence and suggestions for future research," SFB 649 Discussion Papers SFB649DP2012-011, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  2. Mouna Ben rejeb attia & Houda Sassi & Naima Lassoued, 2013. "Signaling over income smoothing and IFRS adoption by banks: a panel data analysis on MENA countries," Economics Bulletin, AccessEcon, vol. 33(3), pages 2340-2356.
  3. Stefano Cascino & Joachim Gassen, 2012. "Comparability Effects of Mandatory IFRS Adoption," SFB 649 Discussion Papers SFB649DP2012-009, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  4. Karampinis, Nikolaos I. & Hevas, Dimosthenis L., 2013. "Effects of IFRS Adoption on Tax-induced Incentives for Financial Earnings Management: Evidence from Greece," The International Journal of Accounting, Elsevier, vol. 48(2), pages 218-247.
  5. Christensen, Hans B. & Hail, Luzi & Leuz, Christian, 2013. "Mandatory IFRS reporting and changes in enforcement," Journal of Accounting and Economics, Elsevier, vol. 56(2), pages 147-177.

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