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Does Mandatory Adoption of Ifrs Improve Accounting Quality Preliminary Evidence

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Does Mandatory Adoption of IFRS Improve Accounting
Quality? Preliminary Evidence*
ANWER S. AHMED, Texas A&M University
MICHAEL NEEL, University of Houston
DECHUN WANG, Texas A&M University
1. Introduction
We provide evidence on the preliminary effects of mandatory adoption of International
Financial Reporting Standards (IFRS) on accounting quality for a relatively broad set of firms from 20 countries that adopted IFRS in 2005 relative to a benchmark group of firms from countries that did not adopt IFRS matched on the strength of legal enforcement, industry, size, book-to-market, and accounting performance. Understanding the effects of mandatory adoption on properties of accounting numbers is of potential interest to standard-setters and securities regulators in countries that are considering IFRS adoption as well as in countries that have already adopted IFRS. Furthermore, evidence on this question is of particular importance to the IASB because it can help the board evaluate whether its stated objective of improving accounting quality is being accomplished (see
IASC 1989; Barth 2008). Finally, analysts, investors, and other users may also find it useful to understand the effects of IFRS adoption on accounting quality to potentially reassess how they use accounting numbers.
The effects of mandatory IFRS adoption on accounting quality critically depend upon whether IFRS are of higher or lower quality than domestic GAAP and how they affect the efficacy of enforcement mechanisms. By a higher quality standard we mean a standard that either reduces managerial discretion over accounting choices or inherently disallows smoothing or overstatement of earnings. If IFRS are of higher quality than domestic
GAAP, and they are appropriately enforced, then we expect mandatory adoption of IFRS to improve accounting quality. On the other hand, if IFRS are of lower

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