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The purpose of this paper is to explore whether the adoption of the International Financial Reporting Standards (IFRS) has an impact on the quality of earnings in Latin America. Studying a sample offirms from Argentina, Brazil, Chile, Mexico, and Peru, I find that management reports a lower level of discretionary accruals after the implementation of the IFRS. In addition, this study provides evidence that earnings are more persistent and stock prices are more associated with earning numbers after the application of IFRS. This paper provides evidence that earnings quality has increased after the adoption of IFRS in Latin America.
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INTRODUCTION
After the initial implementation of the International Financial Reporting Standards (IFRS) in the European Union (EU) and the progressive implementation of these standards around the world, international accounting research focused on the impact of the IFRS on the quality and properties of accounting information and how the IFRS have influenced financial market participants. A single set of high-quality, understandable, enforceable, and globally accepted financial reporting standards may reduce the differences in specific countries' reporting standards and help to create international capital markets that are more efficient. Between 2009 and 2012, several Latin American (LA) countries adopted the IFRS for all public firms with listed securities in their local stock exchanges. The purpose of this paper is to analyze whether the implementation of the new accounting rules has affected the quality of the accounting information provided by LA firms.
The evidence concerning the impact of the application of the IFRS on the quality of accounting information is not conclusive. Even though several studies have found an increasing quality in financial reports after the voluntary and mandatory implementation of the IFRS (Barth, Landsman, & Lang, 2008; Ahmed, Neel, & Wang, 2013), there are at least two reasons to expect that the IFRS would not improve the quality of accounting information. The IFRS are regarded as standards that are more principle-based than, for example, the rule-based standards used in the United States. The intrinsic flexibility in principlebased standards could provide greater opportunities for managers to manipulate earnings, thereby decreasing accounting quality. In addition, findings in Bradshaw and Miller (2007) suggest that the regulatory and litigation environment is also important to the application...
