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Research into the impact of IFRS adoption in Australia

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11 Mar 2016

The Australian Accounting Standards Board (AASB) is currently conducting a review of the published empirical research that has examined the impact of International Financial Reporting Standards (IFRS) adoption on publicly listed Australian companies and other capital market participants. First findings were discussed during the last AASB meeting.

Preliminary findings from the review, which is conducted jointly with La Trobe University, show mixed results:

(a) In regard to the impact of IFRS adoption on the quality of Australian financial reports, some studies reported positive outcomes through improvements in the value relevance of accounting reports post-IFRS adoption, and reductions in the number of firms engaging in earnings management. Available research evidence has further supported the adoption of the IFRS goodwill impairment regime as improving accounting quality. Other studies, however, suggested that measures of accounting quality have remained stable or consistent with AGAAP and that prior AGAAP treatments for identifiable intangible assets were more appropriate.

(b) Some studies reported positive results in terms of the promotion of the comparability of Australian financial reporting practices with their global peers. Not all studies, however, reported the same results.

(c) In general, IFRS adoption by Australian companies appears to have had a positive outcome for investors and analysts based on research revealing improved analyst forecast accuracy and dispersion.

(d) Survey research around the time of IFRS adoption revealed a degree of pessimism by managers from listed Australian companies towards many of the possible benefits from accounting convergence.

Given that results are mixed and the academic literature has not examined all aspects of the possible impact of IFRS adoption in Australia, the AASB staff believes that further research is warranted and will conduct outreach activities to gather views from preparers and users of financial statements.

The findings of the review will be published as an AASB Research Report. A draft version of the report is available in Agenda paper 18.1 (Appendix) for the AASB's February 2016 meeting.

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