The Adoption Of International Financial Reporting Standards

1271 WordsAug 16, 20166 Pages
The adoption of International Financial Reporting Standards [IFRSs] around the world has motivated empirical research that examines the effects it has on the accounting information. There is a visible contrast in these studies due to the use of various elements such as difference of researched countries, analysis periods, distinctive research design and reporting heterogeneous findings. Besides, there is also limited evidence of how the mandatory IFRS adoption affected the financial statements. Hence, this study provides comparative findings on the impact of IFRS adoption on the value relevance of reported accounting information in the UK. The purpose of this study is to advance the accounting value relevance research through a more…show more content…
We find mixed evidence of an increase in value relevance. Ohlson 1995 linear valuation model was used to analyse the assumption about the association between market value, earnings and book value of equity. Simultaneously the statistical significance of differences between UK GAAP-based ratios and IFRS-based ratios was tested using non-parametric Wilcoxon Signed-Rank test. The results presented that the influence of earnings on share price and book value of equity increased following the introduction of IFRS the United Kingdom. Moreover, the profitability ratios increased whereas the Price/Earnings Ratio decreased considerably. 1.1 Preamble The main purpose of financial reporting is to deliver transparent financial information regarding a company to the investors and general public. The financial crisis of 2008 had shown that absence of transparency in the financial statements may have an adverse effect on investor confidence. High quality accounting information is an essential criterion for well- functioning economy as investors rely on this information for investment purposes. Value relevance is thus one of the basic attributes of accounting quality. (Francis et al. 2004) “Something is value relevant only if the value reflects information relevant to an investor when the investor is valuing the company
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