Assessing Financial Reporting Quality: Evidence from Romania

Author:Andra GAJEVSZKY, Ph. D. Student

JEL:C12, D53, M41

DOI:

Keywords:International Financial Reporting Standards (IFRS), reporting, accruals, measurement, Romania

Abstract:
The aim of this research is to investigate the financial reporting quality of the entities listed on the Bucharest Stock Exchange, prior to and after the adoption of the International Financial Reporting Standards (IFRS) for individual financial statements (2012 was the first year of adoption). Due to the fact that the analysis aims to capture the quality of financial reporting before and after- the adoption of IFRS for individual financial statements, this research is conducted on a three-year period of time, namely between 2011 and 2013. The sample consists of 50 companies listed on the Bucharest Stock Exchange, the primary market comprising both tier I and tier II companies, which publish their individual financial statements in accordance to IFRS starting with 2012. In order to measure the quality of financial reporting, an indirect method was used, namely the accrual model. Dechow et al. (1995) accrual model was used for estimating the discretionary accruals, while the accrual model of Kothari et al. (2005) was used for robustness check. The main finding of this research is that, when analyzing discretionary accruals, the lowest standard deviation of the firm`s residuals is in 2013 (0.067), with the highest value in 2011 (0.509). The fact that in both -2012 and 2013, the standard deviation is lower than in 2011 indicates that the accruals quality has improved due to IFRS adoption, supporting Hypothesis 1, namely companies presenting their individual financial statements in accordance with IFRS expose a higher quality of financial reporting in the post–adoption period.\r\n\r\n

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