The cost of implementing new accounting standards: The case of IFRS adoption in Australia

Anna Loyeung, Zoltan Matolcsy, Joseph Weber and Peter Wells
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Zoltan Matolcsy: University of Technology Sydney, Broadway, NSW, Australia
Joseph Weber: Sloan School of Management, Massachusetts Institute of Technology, Cambridge, MA, USA
Peter Wells: University of Technology Sydney, Broadway, NSW, Australia

Australian Journal of Management, 2016, vol. 41, issue 4, 611-632

Abstract: This article examines the implementation errors that are made when accounting standards are implemented for the first time. Focusing on the transition to the International Financial Reporting Standards (IFRS), we provide evidence on the causes of these errors as well as the economic consequences of disclosing these errors. We find that the quality of both the chief financial officers (CFOs) and the auditors are associated with less implementation errors. We also find that there is a learning process as later adopters of IFRS report less errors compared to early adopters in the financial reporting cycle. In terms of the consequences of disclosing these errors, we find that firms reporting more implementation errors experience an increase in information asymmetry when these errors become known to market participants. Furthermore, we find a positive association between implementation errors and increases in audit fees when the implementation errors are disclosed. Our results are robust with respect to a number of sensitivity tests.

Keywords: Accounting standards; audit fees; IFRS; implementation errors; information asymmetry; learning (search for similar items in EconPapers)
JEL-codes: G14 G38 M41 M42 M52 (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:sae:ausman:v:41:y:2016:i:4:p:611-632

DOI: 10.1177/0312896216649015

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