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The cost of implementing new accounting standards: The case of IFRS adoption in Australia

Author

Listed:
  • Anna Loyeung
  • Zoltan Matolcsy

    (University of Technology Sydney, Broadway, NSW, Australia)

  • Joseph Weber

    (Sloan School of Management, Massachusetts Institute of Technology, Cambridge, MA, USA)

  • Peter Wells

    (University of Technology Sydney, Broadway, NSW, Australia)

Abstract

This article examines the implementation errors that are made when accounting standards are implemented for the first time. Focusing on the transition to the International Financial Reporting Standards (IFRS), we provide evidence on the causes of these errors as well as the economic consequences of disclosing these errors. We find that the quality of both the chief financial officers (CFOs) and the auditors are associated with less implementation errors. We also find that there is a learning process as later adopters of IFRS report less errors compared to early adopters in the financial reporting cycle. In terms of the consequences of disclosing these errors, we find that firms reporting more implementation errors experience an increase in information asymmetry when these errors become known to market participants. Furthermore, we find a positive association between implementation errors and increases in audit fees when the implementation errors are disclosed. Our results are robust with respect to a number of sensitivity tests.

Suggested Citation

  • Anna Loyeung & Zoltan Matolcsy & Joseph Weber & Peter Wells, 2016. "The cost of implementing new accounting standards: The case of IFRS adoption in Australia," Australian Journal of Management, Australian School of Business, vol. 41(4), pages 611-632, November.
    • Handle: RePEc:sae:ausman:v:41:y:2016:i:4:p:611-632
    DOI: 10.1177/0312896216649015
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    References listed on IDEAS

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    More about this item

    Keywords

    Accounting standards; audit fees; IFRS; implementation errors; information asymmetry; learning;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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