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Daniel Zéghal Has IFRS adoption had a net benefit? The shift from domestic accounting practices to International Financial Reporting Standards was expected to deliver high-quality financial reporting to serve the needs of investors and companies, but the actual outcomes have been debated, says Professor Daniel Zéghal, Director of the CGA Accounting Research Centre at the Telfer School.

Professor Zéghal currently leads a multi-year program of research examining how the adoption of global accounting standards has played out around the world.

Harmonization Rules

Canadian listed companies have been required to prepare their financial statements under IFRS, as set out by the International Accounting Standards Board, since 2011. While the U.S. remains a significant holdout, other G20 countries and reporting jurisdictions are rapidly making a transition to IFRS, and the European Union (EU) has mandated the use of IFRS by listed companies since 2005.

Earnings Management

One of the countries studied in detail by Zéghal and his colleagues is France, which underwent a major change from stakeholder-oriented “generally accepted accounting practices” to the more shareholder-oriented IFRS. The team looked at the level of earnings management within companies; i.e., the use of accounting practices to adjust reported earnings and thereby meet market expectations. Data from 353 French listed groups from 2003-2006 was examined.

“We found that, generally speaking, mandatory introduction of IFRS has reduced earnings management, and thereby led to improvement in financial reporting,” Zéghal says.

Earnings Quality

Do reported earnings properly reflect underlying economic effects; are they predictable? The question is closely tied to earnings quality, or the reasonableness of reported earnings.

Zéghal and his team looked at whether the application of IFRS in 15 EU countries is associated with higher accounting quality. Overall, their results demonstrate that there has been some improvement in accounting quality following IFRS adoption.

Developing Markets

On this front, too, there’s evidence favouring harmonization. When they examined data from 38 developing countries where IFRS was adopted, Zéghal and his co-researcher discovered a positive association between IFRS adoption and the development of the nations’ capital markets.

This became clear in the higher-quality financial statements released by listed companies, and in the motivation of investors to make more transactions. Fewer problems associated with “information asymmetry” led to greater trust regarding the mechanisms of capital markets, Zéghal explains; “That, in turn, encouraged market actors to make more transactions.”


The research will be of particular interest to those guiding progress on IFRS adoption. The lessons, Zéghal suggests, apply not only to jurisdictions that haven’t yet committed to the standards, but to nations such as Brazil, China, and India that have timelines to either adopt IFRS, or modify their accounting practices to achieve an equivalent result.

Says Zéghal: “Harmonization involves a transition towards a new accounting paradigm, and our results highlight some of the key impacts that can be anticipated at the other end.”

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