H1
This hypothesis should test if IFRS adoption improves accounting quality in R&D firms. However, many research studies that have been conducted established that lower predictability and persistence in earnings. There is also a decrease in earnings influence to stakeholder value, weak volatilities in prices charged by markets, better predictability of cash flow of a company as well as financial predictions. Also, there is a rise in accruals together with timeliness loss of recognition as well as a reduction in expenditure on research and development. According to Ahmed, Neel, and Wang (2012), their study established that increase in income smooth from firms using IFRS about organizations that are benchmarked after a mandatory adoption of IFRS. Adoption of IFRS has affected businesses positively and negatively through increase or decrease of accounting quality. After adoption of IFRS, accounting quality can have a mixed impact on financial reporting of enterprises undertaking research and development.
H2
It has been expected by regulators that adoption of IFRS standards enhances financial statement comparability. Corporate transparency is improved which increases the quality of accounting reporting. This has mostly benefitted the investors. Financial reporting under IFRS provides harmonization of accounting information, which leads to better information quality. The quality accounting information is useful to investors. The investors will use the information to make their decision whether or not to invest in a firm. The cost of capital is adjusted in accordance to the company’s risk exposure. Active disciplines in the market are dependent on the shareholder’s being able to be provided with necessary information to enable assessment of a firm’s working position, risk, together with earning prospects (DASKE et al., 2008). Thus, the evaluation is dependent on the extent of financial reporting disclosure as well as the accounting quality. Companies have improved levels of comparability through the adoption of IFRS. Transparency also advocated by the standards has acted in such a manner that value relevance of earnings per share has increased significantly. Investors can be able to make comparisons of different earnings per share they will get after investing in various companies in the market (Yip and Young, 2012). There is a need to test whether it is true that due to transparency and improved quality of accounting reports have indeed increased the value relevance of earnings per share.
H3
Following the mandatory adoption of IFRS, there have been consequences that firms have faced with which are mainly how to make statement presentation on the accounting information relevance value. Comprehending implications brought about by the adoption of IFRS accounting standards is an urgent requirement for regulators, investors, and managers in countries that exercise a major law institution structures. This is because IFRS is derived from the common view of financial reporting. Adoption of IFRS has had an effect on the book value of equity as well as earnings. However, some transformations in some countries sometimes favor the effectiveness of implementation of IFRS. Some studies that have been carried out lately established that the book value of earnings and equity under the IFRS standards are jointly as well as systematically more relevant than in other corresponding accounting standard amounts (Clarkson et al., 2011). Earnings increase their pertinent value significance more than the book value of equity when moving to IFRS. It has been established that adoption of IFRS increases the book value relevance for most of the financial companies, but the value remains unchanged in firms operating in the industrial sector. Therefore, there is need to test if IFRS increases the relevance of value of book equity.
References
Ahmed, A. S., M. J. Neel, and D. Wang. 2010, Does mandatory adoption of IFRS improve accounting quality? Preliminary evidence. Working paper, available at http: Ssrn.com abstract=1502909, retrieved April 27, 2016.
Yip, R. and Young, D. (2012). Does Mandatory IFRS Adoption Improve Information Comparability? The Accounting Review, 87(5), pp.1767-1789.
Clarkson, P., Hanna, J., Richardson, G., and Thompson, R. (2011). The impact of IFRS adoption on the value relevance of book value and earnings. Journal of Contemporary Accounting & Economics, 7(1), pp.1-17.
Daske, H., Hail, L., Leuz, C., and Verdi, R. (2008). Mandatory IFRS Reporting around the World: Early Evidence on the Economic Consequences. Journal of Accounting Research.
