Effect of IFRS adoption on reported earnings: Empirical study on Germany and Spain

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JEL classification

• Corporate Finance and Governance: Government Policy and Regulation
• Accounting

Keywords

Accounting Standards, Earnings Quality, International Financial Reporting Standards, Loss Avoidance

Abstract

Since 2005, when the IFRSs were mandatorily adopted for publicly traded companies within the European Union, their influence on accounting quality began to grow in importance. This paper examines the effect of the International Financial Reporting Standards (IFRSs) on earnings quality during the period 2000–2013. The research sample consists of 358 companies from 2 European countries – Germany and Spain. The sample contains companies that firstly used local accounting standards and later on switched to reporting under IFRSs. This paper contributes to the current academic discussion more empirical evidence from a typically strong Euro-pean economy (Germany) and from an opposite representative (Spain). It investigates the IFRSs’ influence on earnings quality by small reported profits to small reported losses ratios. The research findings do not support the aim of the IFRSs to improve the reporting quality in the examined countries.