Trend Of Earnings Quality Under IFRS Era: In Case Of Korea

Abstract

Korea has decided to adopt International Financial Reporting Standards (IFRS) since 2011 in order to enhance quality of financial accounting information. However, there are certain issues that fair value accounting of IFRS may deteriorate earnings quality. I investigate whether the proxies of earnings quality used in Francis et al. (2004) such as persistence, predictability, accrual quality, and smoothness are influenced after the adoption of IFRS in Korea. I find that the trend of persistence and predictability quality shows decreasing patterns over time, suggesting that the deterioration of consistency with local GAAP may have a negative impact on the proxies of earnings quality. However, the difference of earnings quality between in post-IFRS era and pre-IFRS is not significant. In other words, trend of earnings quality after the adoption of IFRS is improved. My results mean that the trend of earnings quality in Korea shows V-shaped line, indicating that IFRS is well established and successful accounting standards in Korean capital market.