Effect of IFRS adoption on reported earnings: empirical study on Germany and Spain

Abstract

Since 2005, when the IFRSs were mandatorily adopted for publicly traded companies within the European Union, their influence on accounting quality began to grow in importance. This paper examines the effect of the Interna-tional Financial Reporting Standards (IFRSs) on earnings quality during the period 2000–2013. The research sample consists of 358 companies from 2 European countries – Germany and Spain. The sample contains compa-nies that firstly used local accounting standards and later on switched to reporting under IFRSs. This paper con-tributes to the current academic discussion more empirical evidence from a typically strong European economy (Germany) and from an opposite representative (Spain). It investigates the IFRSs’ influence on earnings quality by small reported profits to small reported losses ratios. The research findings do not support the aim of the IFRSs to improve the reporting quality in the examined countries.