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IFRS Implementation in Germany and the UK

And It's Effect on the Quality of Accounting Information from an Investor Perspective

Written by D. Bargman, L. Hansmann

Paper category

Bachelor Thesis

Subject

Business Administration>Accounting

Year

2011

Abstract

This paper investigates whether the adoption of IFRS leads to an increase in the relevance of accounting information and investment decisions. In addition, the impact of IFRS is implicitly compared in different accounting traditions. Therefore, the impact of IFRS on the "quality" of financial reporting is measured based on the cases of German listed companies and UK listed companies. This study explores the impact of IFRS on the quality of financial reporting from two perspectives. First, review the academic literature to determine whether a general consensus has been reached on the impact of the adoption of IFRS on the financial reporting of listed companies in Germany and the United Kingdom. As a result of this literature study, some propositions about the impact of IFRS have been derived. Subsequently, the survey on the impact of IFRS adopted a statistical perspective. Two samples of financial and accounting data are obtained, one is a German listed company and the other is a British listed company. Many empirical models are used to determine the quality of financial reporting, including the return-return correlation (Lev, 1989; Lev & Zarowin, 1999), the asymmetric sensitivity of returns and the asymmetric persistence of returns (Basu, 1997), and the market book ratio (Roychowdhury & Watts, 2003). In addition, a new tool has been introduced to jointly interpret econometric test results, which may lead to new methods of financial report analysis under dynamic supervision conditions. Income smoothing in Germany corresponds to the transition from German national GAAP to IFRS. In addition, with the introduction of the International Financial Reporting Standards, the information content of German corporate accounting earnings seems to have increased significantly, and the price-to-book ratio has tended to "1". On the other hand, the introduction of IFRS in the United Kingdom is consistent with statistical evidence, that is, the asymmetry and timeliness of returns under UK GAAP has changed to a significant downward deviation of returns under IFRS. The impact of IFRS indicates that the inconsistency of previous research results may be due to significant noise generated by different samples, or due to deviations in the industry representation in the data. Read Less