IFRS, enforcement, and their role for accounting quality and comparability

Abstract: Whether IFRS have been associated with an increase in accounting quality and comparability is a debated topic. Prior research mostly shows positive capital market effects (Daske et al., 2011; Li, 2010). However, whether the sources of these effects were increases in accounting quality and comparability has not been tested directly but rather been assumed. Moreover, these effects are often limited to countries with certain institutional characteristics such as strong enforcement regulation. Less evidence exists on the first-order effects of IFRS adoption and enforcement regulation on accounting quality and comparability, i.e. the asserted channels. For this reason, our thesis examines the effects of IFRS adoption and enforcement on accounting quality and comparability. In this context, we analyze a twelve-year time period using a dataset consisting of 24 countries. While accounting quality is measured in terms of earnings management and value relevance, for accounting comparability we use a measure recently developed by De Franco et al. (2011). Contrary to IFRS' objectives, we find that both accounting quality and comparability decrease following IFRS adoption. Furthermore, our findings indicate that the importance of concurrent enforcement changes seems to be limited to the second-order capital market effects documented by prior research. Thus, our thesis contributes to existing literature by extending the knowledge of the influence of IFRS and enforcement on reporting practices. Further, we identify potential shortcomings of the accounting comparability measure.