Accounting choices and earnings management: an analysis of private firms that switch from IFRS to the new UK GAAP

Y-L Hsu, Y. C. Yang

Research output: Contribution to conferencePaper

Abstract

In 2015, a new financial reporting framework became effective in the UK. This exciting opportunity prompted this study, which examines the incentives for UK private firms to switch from IFRS to the new UK GAAP. The results show that private UK companies with higher sales growth rates and at which directors are shareholders are more likely to switch to the new UK GAAP. The consistency with IFRS and the reduced disclosure in the new UK GAAP may explain why private firms with more incentive to avoid competition and fewer information asymmetry problems may adopt this new standard.
This study further examines whether new UK GAAP adopters and persistent IFRS users differ in earnings quality. The results show that these two groups do not differ in accruals quality. While IFRS users demonstrate more timely loss recognition, new UK GAAP adopters have fewer income smoothing activities. The overall results suggest that earnings management is not the major reason private firms, which are often controlled by major shareholders and less dependent on public disclosures to resolve information asymmetry, switch to the new UK GAAP. This study enhances our understanding of private firms’ financial reporting, and provides important insights into this new standard.
Original languageEnglish
Publication statusUnpublished - 2018
Event2018 INBAM Publishing Workshop for Emerging Scholars -
Duration: 23 May 201825 May 2018

Conference

Conference2018 INBAM Publishing Workshop for Emerging Scholars
Period23/05/1825/05/18

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