Background and Purpose of the Study
The chosen article is “changes in value relevance of accounting information upon IFRS adoption: evidence from Australia”. The report was published on August 25th, 2011 and authored by Key Chalmers, Greg Clinch, and Jayne M Godfrey. The article probed whether the IFRS adoption surges the value relevance of accounting info for the organizations listed on the ASE. The study utilized the longitudinal study which captured pre-IFRS and post-IFRS era during 1990 to 2008. The outcome was that earnings became increasingly value-relevant while the equity book valued does not (Barth, Landsman and Lang 2008). This implication remained concentrated in the industrial firms’ subsamples, both small and large, and firms that reported a GAAP-IFRS accounting reconciliation after adopting IFRS. Earnings further become increasingly persistent around the adoption of the IFRS which stood consistently with the rise in the value relevance of the earnings. The study suggested that even for the economies classified by strong protection for investors, and high-quality financial reporting alongside enforcement, the adoption of IFRS affected the connection between accounting info and market value.
The value relevance is defined as the information revealed by financial statement’s ability to cover and summarize the value of the firm. It is measured via the statistical associations between the presented info by FS and returns or values of the stock market. The Ohlson Model (1995) is useful in exploring the connection among the equity market value and the primary financial reporting variables including equity book value per share denoting the balance sheet and earning per share representing income statement. The above study probed the relevance of the accounting info in both pre-and post-financial era of IFRS adoption and application in AXS. The market value is linked to EPS and book value by utilizing Ohlson Model. The book value is found to be value relevant to the determination of market/stock value or prices. The outcome of the investigations demonstrates that accounting information relevance has enhanced in the post-IFRS adoption era (2005-onwards) taking into account book values whereas enhancements have never been witnessed in earnings’ value relevance.
The IFRS have been established by the IASB, approved over one hundred economies globally, and essential for various kinds of firms. With the expansion of economies and quantities of publicly traded firms, Capital Markets Boards of Australia needed public firms to apply IFRS for the fiscal years beginning after January 1, 2005. The value relevance of the accounting info has been probed in various perspectives. The literature provided contradicting outcomes regarding whether accounting information relevance has decreased on surged over the period. Albeit some latest empirical research disclose that value relevance of accounting info decreases, the available literature entails various studies disclosing that accounting information value relevance increases. Various economies’ outcomes indicate that IFRS adoption substantially enhances the accounting information value relevance. This article stays aligned with the research that discloses a surge in the accounting info value relevance following the IFRS adoption.
Measuring Value Relevance of Accounting Information
In several studies, Ohlson Model (1995) has been embraced and aided the practical exploration of the association between equity market value with the two primary financial reporting variables including book value of equity per share and the EPS. This article probed the accounting information value relevance before and after IFRS adoption for the Australian listed firms. The market value is linked to the book value and the earnings per share through the Ohlson Model. In general, book value is the value relevant when determining the stock price or the market values. The result thus clearly illustrate that value relevance of the FS information has improved in the periods after the IFRS adoption considering the book values whereas the enhancement is yet to be observed in the earnings’ value relevance (Daske and Gebhardt 2006).
The pooled data results and the organizations reporting earnings have demonstrated that book value stays value relevant to the stock price determination for the selected companies and the years. The review of the value relevance of book value shows the improvements are yet to be experienced in the earnings. The IFRS has thus enhanced the value relevance of the financial statement information in Australia for the chosen firms and the years captured in this article. The outcome could be triggered that IFRS implementation that is fair value representation for the financial statement would culminate in the closed book as well as market values (Covrig, Defond and Hung 2007).
Taking wholly, the result presented in this article demonstrate significant empirical proof of an enhanced value relevance of the earning information and the book values as opposed to pre-IFRS as outlined in the past research. Thus, as evidence of the surged accounting quality based on economic decision-usefulness to the investors of equity over the past. Nevertheless, at the same time, because of the mixed empirical outcome within complete sample era, it cannot be concluded whether or not such an increased value-relevance is linked to both IFRS-reporting adoption and implementation (Chua, Cheong and Gould 2012). Hence, it is impossible to conclude effectively whether or not the harmonized regulatory framework of the standards of accounting in the satisfying direction. However, hinted overhead, it can effectively be concluded that publicly reported accounting info, revealed in the income statement, cash flow statement as well as balance sheet, not have endured losing its relevance. It has, on the contrary, recaptured most of the decision-usefulness which has been previously lost (Ball 2006). Nevertheless, for a full understanding of whether this is linked to IFRS adoption and implementation or not, additional study, that in-depth regards the issues within the full sample era, remains, of great significance to execute.
Post-IFRS Era: Value Relevance of Accounting Information in Australia
The outcome presented in this article hence remain pertinent to both Australian investors and to the bodies that set accounting standards. These include IASB and FASB because it-to some degree-penetrates comparatively unresolved queries of whether the present IFRS-based regulatory framework has been successful or not based on the surged economic decision-usefulness among the FS information that offers equity investors with the resourceful materials alongside with valuable insights on reliability and relevance of Australian accounting numbers (Jeanjean and Stolowy 2008).
It is further believed that this article could be useful in zones other than Australian, especially in nations where directives from the EU are mandatory to follow as well as where the philosophy of accounting remains similar. The study could further be of value to areas outside EU with the environmental investment identical to Australian and where IFRS-reporting lately have been or shall be adopted. The examination in this article has raised various additional queries as well as unresolved matters linked to financial reporting alongside the present IFRS-oriented regulatory framework.
Conceptualize and focus contribution how your chosen topic align with international accounting topic from your accounting theory and current issue Subject
The article examined the value-relevance of earnings info and book values over the previous years to shed more light on whether the elaborate global IFRS-reporting adoption has led to an increased accounting quality based on the economic decision-usefulness to the investor of equity. This is entirely in alignment with my chosen topic and the international accounting topic from my accounting theory and current issue (Ampofo and Sellani 2005). The motivation for this topic was by the latest empirically and practically validated concern of the eroded economic decision-functionality of the publicly reported accounting info. Specific concern among the accounting professionals as the corporate accountants, financial analysts and auditors have been focused on decreased decision-usefulness of bottom line quantities anchored on the cash flows and accruals (Ahmed, Neel and Wang 2013).
The review of this article on changes in value relevance following the adoption and implementation of the IFRS-reporting standards contribute to my understanding of the relationship between the international topic of current issues in accounting and the adoption of IFRS. As seen in the previous discussion above, IFRS has been found to boost the value relevance of the accounting information. Thus, my topic that looks at these changes triggered by IFRS adoption is a step in the right direction because it contributes to my comprehensive understanding of the effects of IFRS by comparing the book value and earnings value relevance before and after the IFRS adoption and implementation. This then helps in understanding the issues that face accounting firms today and how the investors can globally examine the firm before they make any decision to invest their money. This is because with the IFRS, the investors are availed comprehensive information which is useful in aiding their investment decisions.
Thus by investigating a study that has addressed the topic” implication of IFRS adoption on accounting,” I believe that this is in line with the international topic of current issues in accounting because. Moreover, by getting to know that the earnings information, accrual-oriented and cash flow-oriented, and book values are associated positively, though to differing extents, with capitalized market equity values alongside with annual alterations in capitalized market equity values, I believe I can understand the connection between the two topics effectively.
References
Ahmed, A.S., Neel, M. and Wang, D., 2013. Does mandatory adoption of IFRS improve accounting quality? Preliminary evidence. Contemporary Accounting Research, 30(4), pp.1344-1372.
Ball, R., 2006. International Financial Reporting Standards (IFRS): pros and cons for investors. Accounting and business research, 36(sup1), pp.5-27.
Barth, M.E., Landsman, W.R. and Lang, M.H., 2008. International accounting standards and accounting quality. Journal of accounting research, 46(3), pp.467-498.
Chua, Y.L., Cheong, C.S. and Gould, G., 2012. The impact of mandatory IFRS adoption on accounting quality: Evidence from Australia. Journal of International Accounting Research, 11(1), pp.119-146.
Covrig, V.M., Defond, M.L. and Hung, M., 2007. Home bias, foreign mutual fund holdings, and the voluntary adoption of international accounting standards. Journal of Accounting Research, 45(1), pp.41-70.
Daske, H. and Gebhardt, G., 2006. International financial reporting standards and experts’ perceptions of disclosure quality. Abacus, 42(3?4), pp.461-498.
Hung, M. and Subramanyam, K.R., 2007. Financial statement effects of adopting international accounting standards: the case of Germany. Review of accounting studies, 12(4), pp.623-657.
Jeanjean, T. and Stolowy, H., 2008. Do accounting standards matter? An exploratory analysis of earnings management before and after IFRS adoption. Journal of accounting and public policy, 27(6), pp.480-494.
Ampofo, A.A. and Sellani, R.J., 2005, June. Examining the differences between United States Generally Accepted Accounting Principles (US GAAP) and International Accounting Standards (IAS): implications for the harmonization of accounting standards. In Accounting forum(Vol. 29, No. 2, pp. 219-231). Elsevier.
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
