TY - JOUR

T1 - Has the IASB been successful in making accounting earnings more useful for prediction and valuation?

T2 - UK evidence

AU - Choi, Young-Soo

AU - Peasnell, Ken

AU - Toniato, Joao

PY - 2013/9

Y1 - 2013/9

N2 - When producing International Financial Reporting Standards (IFRS), one of the main goals of the International Accounting Standards Board (IASB) was to create a set of standards which were more useful to investors as a predictive tool. We assess the success of the IASB in achieving this goal by investigating the effects of the introduction of IFRS on the relative information content of reported earnings and forecasted earnings under UK generally accepted accounting practices (GAAP) and IFRS. Results indicate that the value relevance of forecasted earnings is significantly lower under IFRS while the value relevance of reported earnings is significantly larger. These findings suggest that IFRS substitutes price-relevant information previously provided to the market in the form of analyst forecasts with information encoded by companies in their reported earnings. This implies that the IASB was indeed successful in its stated goal and points towards IFRS forecasts being more accurate and less dispersed than UK GAAP forecasts. This, in turn, implies that analysts are able to provide more informative forecasts under IFRS than under pre-IFRS regimes and that the aforementioned substitution effect is not a consequence of any decrease in the quality of forecasts under the new regime

AB - When producing International Financial Reporting Standards (IFRS), one of the main goals of the International Accounting Standards Board (IASB) was to create a set of standards which were more useful to investors as a predictive tool. We assess the success of the IASB in achieving this goal by investigating the effects of the introduction of IFRS on the relative information content of reported earnings and forecasted earnings under UK generally accepted accounting practices (GAAP) and IFRS. Results indicate that the value relevance of forecasted earnings is significantly lower under IFRS while the value relevance of reported earnings is significantly larger. These findings suggest that IFRS substitutes price-relevant information previously provided to the market in the form of analyst forecasts with information encoded by companies in their reported earnings. This implies that the IASB was indeed successful in its stated goal and points towards IFRS forecasts being more accurate and less dispersed than UK GAAP forecasts. This, in turn, implies that analysts are able to provide more informative forecasts under IFRS than under pre-IFRS regimes and that the aforementioned substitution effect is not a consequence of any decrease in the quality of forecasts under the new regime

KW - IFRS

KW - value relevance

KW - analyst forecasts

KW - valuation

KW - earnings

U2 - 10.1111/jbfa.12025

DO - 10.1111/jbfa.12025

M3 - Journal article

VL - 40

SP - 741

EP - 768

JO - Journal of Business Finance and Accounting

JF - Journal of Business Finance and Accounting

SN - 0306-686X

IS - 7-8

ER -