Effect of IFRS Adoption on Accounting Quality and Reporting: Evidence From Russia

Abstract

At present, the question of whether Russian companies should apply International Financial Reporting Standards (IFRS) is quite acute. While in previous years there was a tendency to expand their use, the vector has presently changed. The current situation boils down to the question of whether Russia should strive to use Western standards or develop its own. It is important to note that while there are advantages in ensuring greater transparency and comparability, which increase investor confidence, the implementation of international standards requires significant costs from Russian companies when switching to a new type of reporting. This paper presents research on the effectiveness of the implementation of international standards in Russia in 2010-2020. The data sample is analysed using three regression earnings management models, which are the discretionary accruals model, the abnormal working capital accruals model and the earnings smoothing method, as well as the timely loss recognition approach. Based on the information available in the existing literature and in alignment with the chosen methodology, hypotheses were developed regarding the impact of the implementation of IFRS on the level of earnings management and on the timely loss recognition. The paper examines data for 2010 and 2011, as well as for the period from 2012 to 2020. The final sample includes 40 public non-financial companies from 8 sectors with 440 observations. During the study, the following results are obtained: with the transition to a new accounting system, the degree of profit manipulation decreases; however, after the introduction of international standards, no positive effect on the timeliness of loss recognition is discovered. Thus, the overall analysis provides evidence that formally the adoption of IFRS positively impacts the quality of accounting. Nevertheless, the incomplete implementation of international standards prevents from drawing definitive conclusions regarding the efficiency of such a transition. This study has the potential to contribute to a deeper understanding of IFRS, to expand the theoretical knowledge base concerning the influence of these standards on accountancy in Russia, and to assist managers in making informed decisions about the advisability of moving towards this system. Future research may incorporate additional analytical methods, including a critical assessment of recognition and measurement principles inherent in IFRS, as well as the extent to which these principles are embedded in the accounting policies of Russian companies.