Keywords

International Financial Reporting Standards, IFRS, domestic accounting standards, GAAP, usefulness of earnings, earnings prediction, future cash flows

Abstract

We contribute to the debate about the relative benefits and costs of International Financial Reporting Standards (IFRS) adoption by examining whether earnings persistence and the association between current accounting earnings and future cash flows differ for firms reporting under IFRS versus firms reporting under United States Generally Accepted Accounting Principles (U.S. GAAP) and firms reporting under non-U.S. domestic accounting standards (DAS). Using samples comprised of 58,832 firm-year observations drawn from 33 countries from 2002 through 2008, we find that positive earnings reported under IFRS are no more or less persistent than earnings reported under U.S. GAAP but losses reported under IFRS are less persistent than losses reported under U.S. GAAP. Moreover, we find that earnings reported under IFRS are no more or less persistent and are no more or less associated with future cash flows than earnings reported under non-U.S. DAS. However, we find that earnings reported under U.S. GAAP are more closely associated with future cash flows than earnings reported under IFRS. This is important if a key role of reported earnings is to help investors form expectations about future cash flows. These results should be of interest to academics and standard-setters as they debate the merits of transitioning to IFRS, and to parties who use reported earnings to form expectations about future earnings and cash flows.

Original Publication Citation

Atwood, T. J. and Drake, Michael S. and Myers, James N. and Myers, Linda A., Do Earnings Reported Under IFRS Tell Us More About Future Earnings and Cash Flows? Journal of Accounting and Public Policy 30 (4), 2011. Available at SSRN: https://ssrn.com/abstract=1557406

Document Type

Peer-Reviewed Article

Publication Date

2011

Publisher

Journal of Accounting and Public Policy

Language

English

College

Marriott School of Business

Department

Accountancy

University Standing at Time of Publication

Full Professor

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