Ninth International Conference On Advances In Economics, Social Science And Human Behaviour Study - ESSHBS 2019
Author(s) : IBRAHIM BEDIA, MOHAMMED AMIDUA, PATIENCE ABORA, WILLIAM COFFIEA
Purpose: We investigate whether compliance with International Financial Reporting Standards (IFRS) is associated with earnings reporting quality of financial firms operating in Ghana. Our paper is based on the premise that complying with International Financial Reporting Standards reflects the combined effects of the financial reporting framework of applying the standards, their interpretation and enforcement. Methodology: With sample size of 51 financial firms made up of both listed and non-listed firms, we modelled earnings reporting quality as a function of IFRS compliance and relevant control variables using dichotomous logistic regression. Findings: Contrary to our hypothesis, IFRS compliance has a positive coefficient with our earnings management proxy for reporting quality. The positive coefficient infers higher earnings management and thus, lower earnings reporting quality with the new reporting standards. Our result suggests that the application of IFRS does not necessarily improve the quality of financial reporting among Ghanaian financial firms. The result contradicts the idea that IFRS adoption eliminates certain accounting alternatives, thus reducing managerial discretion, which in turn limits the extent of opportunistic earnings management and thereby improving reporting quality. Research Limitations/implications: Our sample is limited by industry (i.e. the financial services industry) and geography (i.e. Ghana). We suggest further research that will widely consider other sectors as well as countries in order to widen the industry specific literature in this area. Besides, theoretically, our study is limited to the agency theory and we feel compelled to reiterate the importance of considering alternative theories. Practical implications: Our results demonstrate that the compulsory adoption of IFRS by financial firms in Ghana has not yielded positive outcome in terms of the reporting quality of the firms. Besides, the results provide information to International Accounting Standards setters on how effectively the standards they set meet intended objective of improved reporting quality. Originality: Our results extend prior research on IFRS based accounting quality in uncharted industry in Ghana. We use two different quality metrics drawn from common time period. Unlike prior research, our paper considers both listed and unlisted firms. Besides, we present the sensitivity of accounting reporting quality to IFRS compliance, firm size and audit quality as a transmission mechanism as well as robustness check.