The adoption of IFRS in the UK.
There are two approaches which investors can exercise when using accounting information are commonly discussed, either to the use of financial reporting to value the company or the use of financial reporting to assess the management’s stewardship of the company. Despite the fact that US GAAP, IFRS, and UK GAAP are all market oriented sets of accounting standards, both FASB and IASB are more inclined to require fair value accounting with regards to assets and liabilities compared to UK GAAP, which tend to a greater extent to encourage the stewardship approach. We examine whether investors’ shift their focus from earnings to book value of shareholders’ equity after the adoption of IFRS in the United Kingdom. As predicted we find that indeed investors seem to rely more on the book value of shareholders’ equity and less on earnings information after the adoption of IFRS. We predicted and found no change in the overall increase accounting information’s ability to predict future equity values.