Analysis Of Changes In Financial Reporting Quality In Japan After Introduction Of International Financial Reporting Standards (Evidence From Firms Listed In Tokyo Stock Exchange)

Abstract

This study analyzed the changes in financial reporting quality in Japan after introduction of International Financial Reporting standards (IFRS). Financial reporting quality has two fundamental attributes according to the conceptual framework of IASB: faithful representation and relevance. The proxy for faithful representation in the study was earnings management measured by discretionary accruals. The objectives of the study were: to determine changes in accruals and changes in relevance of financial information after IFRS introduction in Japan. Modified Jones model was used to measure accruals. Relevance was measured based on the ability of financial information to predict future stock prices. 45 firms which have prepared financial statements for at least 2 years based on IFRS were sampled. Analysis of accruals was done using paired t-test while regression model was used to determine the relevance of financial information before and after adoption of IFRS in Japan. The study found that changes in both discretionary and non-discretionary accruals after adoption of IFRS are not significant. This therefore mean that the efforts made by Japanese agencies and IASB to converge JGAAP with IFRS has eliminated major differences between the standards even though some slight differences still exist. Secondly, the study concluded that adoption of IFRS in Japan has not significantly influenced management’s behavior in financial reporting. Finally, study also found that the relevance of financial information increased after adoption of IFRS.