Earnings Quality and IFRS Research in Africa: Recent Evidence, Issues and Future Direction

Ozili, P K (2016): Earnings Quality and IFRS Research in Africa: Recent Evidence, Issues and Future Direction. Published in: Research Journal of Finance and Accounting , Vol. 7, No. 16 (31 August 2016): pp. 84-94.

Abstract

This paper review the recent empirical research on IFRS and earnings quality among African studies and show mixed conclusions regarding the impact of IFRS on earnings quality and financial reporting quality in the region. Also, some discussions on factors that led to the growth in the earnings quality African literature over the last decade as well as some challenges in the recent literature, are provided. Also, the study makes several observations regarding IFRS and earnings quality research in Africa and suggests potential directions for future research. The need to (i) understand the recent direction of earnings quality research in Africa, (ii) understand the interaction between policy and earnings quality research, if any, in the African region, and (iii) the need to maintain high-level rigour in earnings quality research while ensuring greater interaction between policy and research, makes this study important. Given the paucity of research on earnings quality in developing countries, this study contributes to the broader earnings quality literature by providing a review of the African earnings quality literature; hence, conclusions based on empirical studies in this review are not intended to be generalised to developed countries but only to developing countries. Finally, while insights in this paper may be informative to the reader, the intended objective is to stimulate debates that would improve the outputs of earnings quality research and the overall quality of accounting disclosure among firms in Africa.

• Item Type: MPRA Paper
• Language: English
• Keywords: Earnings quality, Standard setting, Earnings management, IFRS adoption, Accounting quality, Disclosure regulation.
• Subjects: M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M4 - Accounting and Auditing; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M4 - Accounting and Auditing > M41 - Accounting; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M4 - Accounting and Auditing > M42 - Auditing

References

Ames, D. (2013). IFRS adoption and accounting quality: The case of South Africa. Journal of Applied Economics and Business Research, 3(3), 154-165.

Apergis, N. (2015). The Role of IFRS in Financial Reporting Quality: Evidence from a Panel of MENA Countries. International Journal of Economics and Finance. 7(10), 182.

Barth, M. E., Landsman, W. R., and Lang, M. H. (2008). International accounting standards and accounting quality. Journal of Accounting Research, 46(3), 467-498.

Brüggemann, U., Hitz, J. M., and Sellhorn, T. (2013). Intended and unintended consequences of mandatory IFRS adoption: A review of extant evidence and suggestions for future research. European Accounting Review, 22 (1), 1-37.

Bushman, R., and Landsman, W. R. (2010). The pros and cons of regulating corporate reporting: a critical review of the arguments. Accounting and Business Research, 40(3), 259-273.

Christensen, H. B., Lee, E., Walker, M., and Zeng, C. (2015). Incentives or standards: What determines accounting quality changes around IFRS adoption?. European Accounting Review, 24 (1), 31-61.

Cohen, D. A., & Zarowin, P. (2010). Accrual-based and real earnings management activities around seasoned equity offerings. Journal of Accounting and Economics, 50(1), 2-19.

Dechow, P. M., Sloan, R. G., and Sweeney, A. P. (1996). Causes and consequences of earnings manipulation: An analysis of firms subject to enforcement actions by the SEC. Contemporary Accounting Research, 13(1), 1-36.

Dechow, P. M., Sloan, R. G., and Sweeney, A. P. (1995). Detecting earnings management. Accounting Review, 193-225.

Dechow, P. M., Richardson, S. A., and Sloan, R. G. (2008). The Persistence and Pricing of the Cash Component of Earnings. Journal of Accounting Research, 46(3), 537-566.

Dechow, P., Ge, W., and Schrand, C. (2010). Understanding earnings quality: A Review of the proxies, their determinants and their consequences. Journal of Accounting and Economics, 50(2) 344-401.

DeFond, M. L. (2010). Earnings quality research: Advances, challenges and future research. Journal of Accounting and Economics, 50(2), 402-409.

Fudenberg, D., and Tirole, J. (1995). A theory of income and dividend smoothing based on incumbency rents. Journal of Political Economy, 75-93.

Healy, P. M., and Wahlen, J. M. (1999). A review of the earnings management literature and its implications for standard setting. Accounting Horizons, 13(4), 365-383.

Hessayri, M., and Saihi, M. (2015). Monitoring earnings management in emerging markets: IFRS adoption and ownership structure. Journal of Economic and Administrative Sciences, 31(2), 86-108.

Holthausen, R. W. (2009). Accounting standards, financial reporting outcomes, and enforcement. Journal of Accounting Research, 47(2), 447-458.

Jones, J. J. (1991). Earnings management during import relief investigations. Journal of Accounting Research. 193-228.

Kothari, S. P., Leone, A. J., and Wasley, C. E. (2005). Performance matched discretionary accrual measures”, Journal of Accounting and Economics, 39(1) 163-197.

Leuz, C., Nanda, D., and Wysocki, P. D. (2003). Earnings management and investor protection: an international comparison. Journal of Financial Economics, 69(3), 505-527.

Morais, A. I., and Curto, J. D. (2008). Accounting quality and the adoption of IASB standards: portuguese evidence. Revista Contabilidade & Finanças, 19(48), 103-111.

Mutiso, A., and Kamau, C. (2013). Factors influencing Complexity in Financial Report preparation - Evidence from the Banking Sector in Kenya. Journal of Economics and Business Research, 19(1), 219-236.

Ohlson, J. A. (2001). Earnings, Book Values, and Dividends in Equity Valuation: An Empirical Perspective. Contemporary Accounting Research, 18(1), 107-120.

Onalo, U, Lizam, M., and Kaseri, A. (2014). The Effects of Changes in Accounting Standards on Earnings Management of Malaysia and Nigeria banks. European Journal of Accounting Auditing and Finance Research, 2(8), 15-42.

Outa, E.R. (2011). The Impact of International Financial Reporting Standards (IFRS) Adoption on the Accounting Quality of Listed Companies in Kenya. International Journal of Accounting and Financial Reporting, 1(1), 212 -241.

Outa, E. (2016). Consequences of IFRS Adoption-A Myth or a Reality: Selected Cases of Adoption Effects, in Economics and Political Implications of International Financial Reporting Standards. IGI Global. Pennsylvania, USA.

Ozili, P. K. (2015). Loan Loss Provisioning, Income Smoothing, Signaling, Capital Management and Procyclicality: Does IFRS Matter? Empirical Evidence from Nigeria. Mediterranean Journal of Social Sciences, 6(2), 224-232.

Pope, P. F., and McLeay, S. J. (2011). The European IFRS experiment: objectives, research challenges and some early evidence. Accounting and Business Research. 41(3), 233-266.

PWC (2015). IFRS by country. Available at: http://www.pwc.com/us/en/cfodirect/assets/pdf/pwc-ifrs-by-country-2015.pdf (Accessed on 05/05/2016)

Rao, A., & Warsame, M. (2014). Effect of IFRS on the Emerging African Capital Markets. Available at SSRN: 2684579.

Roychowdhury, S. (2006). Earnings management through real activities manipulation. Journal of accounting and economics, 42(3), 335-370.

Schipper, K. (1989). Commentary on earnings management. Accounting Horizons, 3(4), 91-102.

Shleifer, A., and Vishny, R. W. (1997). A survey of corporate governance. The Journal of Finance, 52(2), 737-783.

Tanko, M (2012). The Effect of International Financial Reporting Standards (IFRS) Adoption on the Performance of Firms in Nigeria. Journal of Administrative and Economics Science, 5, (2), 133-157.

Watts, R. L., and Zimmerman, J. L. (1979). The demand for and supply of accounting theories: the market for excuses. Accounting Review, 273-305.

Watts, R. L., and Zimmerman, J. L. (1986). Positive Accounting Theory, Prentice-Hall.

Yeboah, B., and Yeboah, M. (2015). When Is Accounting Quality Improved? Assessing the Earnings Management Effect of IFRS for South Africa. International Journal of Accounting and Financial Management Research, 5(2), 1-16.