Impact of Mandatory IFRS Adoption on Conditional Conservatism in Europe

Paul Andre, Andrei Filip and Luc Paugam ()
Additional contact information
Andrei Filip: ESSEC Business School
Luc Paugam: DRM-Finance - DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique

Working Papers from HAL

Abstract: We study the effect of the mandatory adoption of IFRS in Europe in 2005 on conditional conservatism. To capture conditional conservatism, we use three measures: the Basu (1997) measure, the Khan and Watts (2009) measure, and a measure controlling for potential shifts in unconditional conservatism and cost of capital after the adoption of IFRS. From a sample of 7,251 firm-year observations drawn from 16 European countries, we document an overall decline of the degree of conditional conservatism across our three measures. While there is no change in weak enforcement/governance countries which remain less conditionally conservative than strong enforcement/governance countries, the latter exhibit a significant decrease. Further, we demonstrate that the decline is more significant for firms carrying intangible assets and goodwill in their balance sheets, items for which impairment tests rely on unverifiable fair value estimates. We argue that IFRS are conceptually conditionally conservative but that inappropriate application of conditional conservatism principles may have prevented financial reporting from reaching the level of conservatism targeted by the IASB.

Keywords: Europe; Enforcement; Governance; Intangibles; Impairment; Conditional Conservatism; IFRS (search for similar items in EconPapers)
Date: 2013-08-27
New Economics Papers: this item is included in nep-acc and nep-ger
Note: View the original document on HAL open archive server: https://essec.hal.science/hal-00862683
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://essec.hal.science/hal-00862683/document (application/pdf)

Related works:
Working Paper: Impact of Mandatory IFRS Adoption on Conditional Conservatism in Europe (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:wpaper:hal-00862683

Access Statistics for this paper

More papers in Working Papers from HAL
Bibliographic data for series maintained by CCSD ().