The Development of Accounting Quality of IAS and IFRS over Time: The Case of Germany
We examine the characteristics of accounting amounts using a sample of German companies reporting under International Accounting Standards (IAS) during 2000-2002 (IAS period), and International Financial Reporting Standards (IFRS) during 2003-2004 (IFRS<sub>voluntary</sub> period) and 2005-2006 (IFRS<sub>mandatory</sub> period). We find a decrease in accounting quality after the mandatory EU adoption in 2005. Our findings on earnings smoothing and timely loss recognition corroborates largely our findings related to value relevance of accounting information. Our results indicate that accounting quality has not improved but worsened over time. Further analysis shows that this development is less likely to be driven by new adopters of IFRS but is driven by the changes of the standards. Contrary to the intention with the adoption of the European adoption of IFRS, this makes it harder for investors to base their decisions on the IFRS financial reporting.