Academic journal article Accounting & Taxation

The Impact of Ifrs Adoption during the 2008 Financial Crisis on the Relationship between Yield and Accounting Variables

Academic journal article Accounting & Taxation

The Impact of Ifrs Adoption during the 2008 Financial Crisis on the Relationship between Yield and Accounting Variables

Article excerpt

ABSTRACT

This research tests the impact of the financial crisis on the informational content of accounting numbers. The study is based on IAS-IFRS in the French context. The period chosen in this study is 2006 to 2011, divided into two periods: Pre-crisis 2006-2007 and post-crisis 2009-2010-2011. The results show the 2008 financial crisis contributed to reducing the information content of accounting numbers due to lack of confidence created by investors towards the information published on the basis of international standards.

JEL: C12, M41

KEYWORDS: IAS-IFRS, Crisis, Accounting Information and Performance

(ProQuest: ... denotes formulae omitted.)

INTRODUCTION

The objective of accounting as identified by the Financial Accounting Standards Board (FASB) in 1973 and adopted by the International Accounting Standards Board (IASB) in 1989 is to provide useful and quality information to assess the ability of the company to generate future cash flows and to enable decision-making. The emergence and development of multinational concerns, the growth of international financial markets and changing investor behavior has, among other factors, contributed to the internationalization of economic activity. As a result of this phenomenon, financial reporting has spread beyond national borders. However, interpretation and understanding of financial information at the international level is hindered by a multitude of factors, including diversity of accounting principles and rules governing the preparation of reports. Various bodies (International Accounting Standards Board (IASB) and the European Union (EU)) have made considerable efforts since the 1970s to harmonize accounting mies in different countries, with the aim of improving the usefulness of financial information in the international context (Callao et al. (2007)).

Among other factors, the non-mandatory nature of the standards issued by the IASB, the flexibility and ease of compliance with EU directives and, most seriously, the lack of political will in the countries concerned, rooted in local culture and a strong national outlook, have so far prevented the attainment of a tmly harmonized framework for useful financial reporting. Awareness within the EU of the need to make progress towards achieving international comparability resulted in the approval of Regulation 1606/2002, which provides for the mandatory application of International Financial Reporting Standards (IFRS) by business groups listed on European stock markets as of January 2005. The approval of this regulation has resulted in the adoption of IFRS in European countries.

A number of European countries including Belgium, France, Germany and Italy have allowed listed companies to use international accounting standards instead local Generally Accepted Accounting Principles (GAAP) since 1998. Many European listed companies were early adopters that choose to use International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) in preparing consolidated financial statements before the European Commission's stipulation for it to be done by 2005 (Bhimani (2008)). Yet, only a decade earlier, the European Commission had actively considered the establishment of its own European accounting standard setting body rather than opt for any form of international convergence.

Currently, over 100 countries have implemented IFRS or at least have taken steps to adopt these standards in the future (Alali & Cao, (2010)). The U.S. Securities and Exchange Commission (SEC), in Concept Release No.33-8879 (July 2007), mied that it will "accept from foreign private issuers in their filings with the Commission, financial statements prepared in accordance with IFRS as issued by the IASB without reconciliation to GAAP as used in the United States". To arrive at this ruling, the SEC noted that the Commission has long viewed reducing the disparity between the accounting and disclosure practices of the United States and other countries as an important objective both for the protection of investors and efficiency of capital markets. …

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