Global Harmonization of Accounting Standards - Lessons learned from the International Financial Reporting Standards

Many countries entered a dramatic new era of financial reporting with the adoption of the International Financial Reporting Standards (IFRS), effective January 1, 2005. This paper provides a review of the literature on the adoption of different Generally Accepted Accounting Principles (GAAP). We thus provide background and guidance for researchers studying the change in accounting quality following widespread IFRS adoption in Australia. No country’s national standard-setting arrangements are likely to be subject to political pressure identical to that of Australia. This study has examined the impact of group accounting arising from IFRS adoption in Australia. Our study shows that the adoption of IFRS has had a systematic impact on financial results, notably a significant increase in reported profits and decrease reported in equity compared to local GAAP. We also find that the audit fees increase over the period from 2004 to 2006. We argue that cross country differences in accounting quality are likely to remain following the adoption of IFRS because accounting quality is a function of a firm’s overall institutional setting