International financial reporting standards (IFRS): exploring financial evidence from Australia, Germany, Greece, the UK and the US

This project relates to the financial effects of the official adoption of International Financial Reporting Standards (IFRS) in 2005. IFRS is a set of unique, high-quality standards that aim to increase the transparency and comparability of information in firms’ financial statements. However, since their implementation, issues have arisen, such as their introduction in the US, and the global financial crisis in 2008 which resulted in a huge downturn in global stock markets. There are indications that, under certain circumstances, firms have used earnings management to gain competitive advantage. Earnings management, or the deliberate misstatement of earnings figures, is a form of fraud. It is an important issue because firms that use such techniques disorientate investors and market participants, and increase market imbalances. Many studies have focused on the connection between earnings management and IFRS, provoking three core questions. Would it have been better for countries to apply their own national GAAP? Has acceptance of IFRS in the US improved matters? Might better measures have been taken to avoid or eliminate any management effects during the crisis? This study involved quantitative analysis of secondary numerical data, focusing on the Australian, German, Greek, UK and US stock markets. The findings reveal that IFRS has not succeeded in eliminating falsified statements entirely. However, this study helps market participants by developing a database of investment strategies based on the potential for firms to use earnings management. It contributes to theory by exploring additional tools and motives for earnings management, and to practice by analysing possible methods for investors and authorities to detect such practices. It is thus of interest to both academics and market professionals.