3rd JAR Conference, Kyoto, Japan
November 9, 2012

Philip Brown’s Plenary Session

Aims of this presentation

Some Observations on the Benefits
to Nations of Adopting IFRS

1. summarise key findings of research that has been conducted on
the benefits of adopting IFRSThe Japanese Accounting Review
3rd International Conference
Kyoto, Japan
November 9, 2012

2. mention–

some of the more challenging aspects of this research–

work that remains to be done

Philip Brown
Professor, The University of New South Wales
Emeritus Professor, The University of Western Australia
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5 questions to consider

Q1: what is the role of accounting standards?

1. What is the role of accounting standards?

Help resolve a serious agency problem

2. Why have countries adopted IFRS?

1. insiders know more than anyone else about the firm and3. What benefits have been reported?

their plans but need capital from outsiders to implementthem

4. What else will help to maximise the benefits

2. outsiders know they do not know as much and will charge

from IFRS?

a premium5. How can we researchers do a better job when

3. managers can commit to a reporting regime to reduce thisassessing the benefits from IFRS?

cost
4. adopting “standard practice” is much less costly than
individual contracts
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Q2: why have countries adopted IFRS?

Q2: why have countries adopted IFRS?

European Union (EU), 2002

Australia, 1997

1. eliminate barriers to cross-border trading in securities

1. reduce the cost of capital

2. ensure companies’ accounts are more

2. compete on equal footing with overseas countries–

reliable–transparent–

easily compared3. maintain investor confidence
Korea
1. enhance transparency

3. increase market efficiency

2. promote competitiveness of Korean companies

4. reduce the cost of capital

3. provide expansion opportunities for5

1–

Korean financial companies–

Korean accounting industry

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3rd JAR Conference, Kyoto, Japan
November 9, 2012

Philip Brown’s Plenary Session

Q3: what benefits have been found?

Q3: what benefits have been found?

Eliminating barriers to cross-border investing

Improved “quality” of financial information

1. analysts’ forecasts–

quality of disclosures–accuracy–

disagreement•income smoothing–following•“benchmark beating”–volatility in forecast revisions•accruals (various measures)•conservatism, eg, timely recognition of–

2. stockholdings of–mutual funds, US and international–

institutional investors

quality of accounting

losses (as in Basu)7

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Q3: what benefits have been found?

Summary of claimed benefits
Improved analysts’ forecasts

Improved comparability of financial reports–

with US GAAP–

across countries

Better access to international equity markets

Usefulness and value-relevance–

returns-earnings relationship–predicting stock price using earnings andHigher quality disclosures and earnings numbers
More efficient prices in equity markets

book value of equity
More liquid equity markets
Market efficiency (synchronicity)
Lower cost of equity capital

Liquidity
Cost of capital910

Q4: what else will help maximise the benefits?

Q5: how can we researchers do better?

Acceptance of the standards as issued

Lots of questions still to be fully researched; eg

Effective compliance monitoring and enforcement

1. what is the cost v. benefit trade-off (benefits have been

Education and technical support

emphasised so far)?

Independent audit

2. what potential benefits have not yet been fully assessed?

Legal backing for standards

3. which firms are the “losers” and which are the “winners”?
4. can we refine our sub-samples to gain deeper insights?
5. can we improve our models to allow, eg, for learning?
6. can we improve our controls for confounding factors?
7. what role does corporate governance play in obtaining benefits?
8. how important are socio-economic factors?
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