Abstract:
Conventional and commonly held wisdom with respect to the adoption of International
Financial Reporting Standards (IFRS) is that they lead to improved financial reporting quality and
comparability and thereby favorable economic consequences. There are however contradicting
evidences disproving this conventional wisdom or rejecting its gross generalization over the entire
jurisdictions harmonizing on IFRS. Driven by this fact, quests for knowledge about the dynamics
and contexts that lead to differential effects of IFRS get momentum. In an attempt to explore the
insight into the effects of international accounting harmonization by way of IFRS adoption, this
paper reviews selected literatures on consequences of IFRS adoption. This review discusses some
empirical evidences that have been reported in various countries that include Europe, USA, United
Kingdom, Germany, Spain, Norway, Greece, Poland, Belgian, France, Italy, Turkey, United Arab
Emirates (UAE), Kuwait, Jordan, China, Malaysia, Australia, Hong Kong, New Zealand, Kenya
and Nigeria. Our review focuses on the aspects of value relevance, disclosure quality, cost of
capital, earning management and financial statement impact due to the IFRS adoption. This review
reveals that economic consequences of IFRS adoption significantly differ across jurisdictions
though being its impact reported to be positive in majority of cases. There are also notable number
of studies that report indifferent and or negative effects of IFRS adoption. When IFRS studies report
mixed evidence with respect to value relevance of book value of equity and earing, book value of
equity supersedes the earning parameters. IFRS are found to supersede many other domestic
financial reporting standards in terms of volume and quality of disclosures in financial statements.
This review also obtains that IFRS’ impact on the reduction of cost of capital depends on financial
reporting incentives, law enforcement, types of legal systems and various other country and capital
market specific characteristics. Further, though there are some evidences to the contrary, the quality
of earnings reported under IFRS has been established to be superior to that under other local
standards.
