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Costs of mandatory international financial reporting standards: Evidence of reduced accrual reliability

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  • Cheng Y Lai

    (ESSEC Business School, Paris, France)

  • Yang Li

    (The University of New South Wales, Australia)

  • Yaowen Shan

    (University of Technology-Sydney, Australia)

  • Stephen Taylor

    (University of Technology-Sydney, Australia)

Abstract

This study investigates the impact of mandatory adoption of international financial reporting standards on accrual reliability. Using a large sample of Australian firm-years drawn from before and after the mandatory adoption of international financial reporting standards, we find that accrual reliability declined significantly after mandatory international financial reporting standards implementation. Working capital, non-current operating, and financing accruals all contribute to this decline. We also find that brand name audit firms (i.e. the Big four) are able to significantly attenuate any decrease in accrual reliability during the post international financial reporting standards period. Our results contrast with evidence identifying benefits of mandatory international financial reporting standards, such as increased value relevance, but are consistent with at least some degree of trade-off between relevance and reliability. Such trade-offs seem to have been largely ignored in prior examinations of the impact of mandatory international financial reporting standards.

Suggested Citation

  • Cheng Y Lai & Yang Li & Yaowen Shan & Stephen Taylor, 2013. "Costs of mandatory international financial reporting standards: Evidence of reduced accrual reliability," Australian Journal of Management, Australian School of Business, vol. 38(3), pages 491-521, December.
    • Handle: RePEc:sae:ausman:v:38:y:2013:i:3:p:491-521
    DOI: 10.1177/0312896213511089
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