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The Dark Side of Mandatory IFRS Adoption: Does IFRS Adoption Deteriorate Accrual Reliability?

Author

Listed:
  • Jeong-Bon Kim

    (City University of Hong Kong, Tat Chee Avenue, Kowloon, Hong Kong SAR)

  • Yiye Liu

    (City University of Hong Kong, Tat Chee Avenue, Kowloon, Hong Kong SAR)

  • Haina Shi

    (Department of Accounting, School of Management, Fudan University, No. 670 Guoshun Road, Shanghai 200433, P. R. China)

  • Xindong Kevin Zhu

    (City University of Hong Kong, Tat Chee Avenue, Kowloon, Hong Kong SAR)

Abstract

We examine a potential informational cost of adopting the International Financial Reporting Standards (IFRS). Using a difference-in-differences approach, we find that mandatory IFRS adoption leads to a significant decrease in accrual reliability. We also find that this negative relation between IFRS adoption and accrual reliability is more pronounced for firms (a) holding more financial instruments and (b) domiciled in jurisdictions with weak institutional features. The above findings are robust to alternative sampling and an extended sample period. Further analysis shows that reduced accrual reliability reflects a trade-off with increased value relevance and that outside investors fail to understand the IFRS-induced reductions in accrual reliability.

Suggested Citation

  • Jeong-Bon Kim & Yiye Liu & Haina Shi & Xindong Kevin Zhu, 2021. "The Dark Side of Mandatory IFRS Adoption: Does IFRS Adoption Deteriorate Accrual Reliability?," The International Journal of Accounting (TIJA), World Scientific Publishing Co. Pte. Ltd., vol. 56(04), pages 1-49, December.
    • Handle: RePEc:wsi:tijaxx:v:56:y:2021:i:04:n:s1094406021500165
    DOI: 10.1142/S1094406021500165
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