IFRS Consequences on Accounting Conservatism in Europe

Download or read book IFRS Consequences on Accounting Conservatism in Europe written by Charles Piot and published by . This book was released on 2015 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate the way auditor characteristics (i.e., reputation and industry specialization) interact on the consequences of mandatory IFRS adoption in Europe in terms of accounting conservatism. Indeed, a mandatory adoption setting may control for firm-level reporting incentives when gauging the effects of a change in accounting standards. However, companies still have some flexibility in their choice of auditor, and the later has a significant say on the accounting policy. We use a dataset of European firms adopting IFRS in 2005 in response to the IAS Regulation (2,973 unique firms) and observed between 2001 and 2008. The main findings are that: (1) the decrease in conditional conservatism (as proxied by the asymmetric timeliness of bad vs. good news), also evidenced in other studies (Ahmed et al., 2013; André et al., 2013) is attributable to Big 4-audited companies; (2) correlatively, unconditional conservatism is higher under IFRS in the presence of a Big 4 auditor; and (3) none of these moderating effects occur when considering auditor industry specialization metrics. We conclude that Big 4 auditors placed more emphasis on auditor risk incentives in the IFRS adoption context, by influencing overly conservative accounting practices in response to the new and uncertain accounting environment, with detrimental effects on earnings quality.