International Financial Performance Of Companies From Different Countries

2001 Words9 Pages
1. Introduction With the globalization of international trades, it is necessary to design a common accounting language to compare the financial performance of companies from different countries. For this reason, International Accounting Standard Board (IASB) publish the International Financial Reporting Standards (IFRS) which are principle-based in order to improve the quality of financial reporting and to harmonize accounting standards in 2001. According to IASB, over one hundred countries implement IFRS voluntarily or mandatorily. Most EU countries have already allowed the adoption of IFRS. Brazil, China and Canada also approach IFRS in recent years. The adoptions of IFRS are more and more popular and acceptable over the world. IFRS…show more content…
2. Economic consequences of the adoption of the IFRSs 2.1. Earning Management Healy and Wahlen (1999) define earnings management as the modification of companies’ financial reporting by inside management in order to misdirect certain stakeholders or to affect companies’ performances that are based on data from financial reporting. Wang and Campbell (2012) accepted also this definition. The reason why the inside management of companies use earnings management is to protect their own profits and positions. The managers adjust the reported accounting numbers on purpose and their benefits can be maximised. Earnings management has a negative influence on the quality of earnings, and leads to a decreasing reliability of financial reporting, a reduction of transparency of information and information asymmetry. Meanwhile, the cost of capital will augment and market liquidity will reduce. Thus, it is important to avoid earnings management for companies all over the world. Prior papers study whether the adoption of IFRS could reduce earnings management or not. Wang and Campbell (2012) research over one thousand Chinese publicly listed companies and collected those companies’ data during the period from 1998 to 2009 for looking into how IFRS impact on earnings management. They use regression analysis to study the relationship between earnings management and the adoption of IFRS, as a result, they did not find any evidences that the
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