The Effect of Economic Conditions on Accounting Conservatism under IFRS in Europe

We analyse in detail conservative accounting practices in seventeen European countries, taking into account institutional factors. In addition, we examine the impact of IFRS adoption and the influence of changes in economic conditions on conditional conservatism. Specifically, we study the level of...

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Main Authors: Cerqueira Antonio, Pereira Claudia
Format: Article
Language:English
Published: Sciendo 2020-06-01
Series:Review of Economic Perspectives
Subjects:
Online Access:https://doi.org/10.2478/revecp-2020-0007
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author Cerqueira Antonio
Pereira Claudia
author_facet Cerqueira Antonio
Pereira Claudia
author_sort Cerqueira Antonio
collection DOAJ
description We analyse in detail conservative accounting practices in seventeen European countries, taking into account institutional factors. In addition, we examine the impact of IFRS adoption and the influence of changes in economic conditions on conditional conservatism. Specifically, we study the level of accounting conservatism before and after IFRS adoption detailing for the pre and crisis period and post-crisis period surrounding the 2007/2008 financial crisis. Our findings are consistent with a conservative accounting practice in Europe as a whole and in each country individually. Besides, opposite to that expected, the results provide evidence of more conservative accounting practice in Anglo-Saxon countries, but we find no significant differences in conservatism in Nordic countries. Another finding is a significant decrease in the level of conservatism after IFRS adoption. Regarding the joint impact of IFRS adoption and economic conditions, we find a decrease in conservatism in the pre and crisis period, followed by a substantial increase in the post-crisis period. Our results seem to be in line with the positive accounting theory when suggesting that conservatism plays a fundamental role as corporate governance and efficient contracting mechanism between managers and other stakeholders of the firm. Furthermore, the results suggest that the flexibility provided by IFRS allows adjusting the level of conservatism when economic conditions change.
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spelling doaj.art-9fc7f45b0f6a44a182852409c2e5f48d2022-12-21T19:33:13ZengSciendoReview of Economic Perspectives1804-16632020-06-0120213716910.2478/revecp-2020-0007revecp-2020-0007The Effect of Economic Conditions on Accounting Conservatism under IFRS in EuropeCerqueira Antonio0Pereira Claudia1University of Porto, School of Economics and Management, Porto, PortugalPolytechnic of Porto, CEOS.PP - Center for Organisational and Social Studies of P. Porto, S. Mamede de Infesta, PortugalWe analyse in detail conservative accounting practices in seventeen European countries, taking into account institutional factors. In addition, we examine the impact of IFRS adoption and the influence of changes in economic conditions on conditional conservatism. Specifically, we study the level of accounting conservatism before and after IFRS adoption detailing for the pre and crisis period and post-crisis period surrounding the 2007/2008 financial crisis. Our findings are consistent with a conservative accounting practice in Europe as a whole and in each country individually. Besides, opposite to that expected, the results provide evidence of more conservative accounting practice in Anglo-Saxon countries, but we find no significant differences in conservatism in Nordic countries. Another finding is a significant decrease in the level of conservatism after IFRS adoption. Regarding the joint impact of IFRS adoption and economic conditions, we find a decrease in conservatism in the pre and crisis period, followed by a substantial increase in the post-crisis period. Our results seem to be in line with the positive accounting theory when suggesting that conservatism plays a fundamental role as corporate governance and efficient contracting mechanism between managers and other stakeholders of the firm. Furthermore, the results suggest that the flexibility provided by IFRS allows adjusting the level of conservatism when economic conditions change.https://doi.org/10.2478/revecp-2020-0007conditional conservatismeconomic conditionsifrsinstitutional factorsm41g01g32
spellingShingle Cerqueira Antonio
Pereira Claudia
The Effect of Economic Conditions on Accounting Conservatism under IFRS in Europe
Review of Economic Perspectives
conditional conservatism
economic conditions
ifrs
institutional factors
m41
g01
g32
title The Effect of Economic Conditions on Accounting Conservatism under IFRS in Europe
title_full The Effect of Economic Conditions on Accounting Conservatism under IFRS in Europe
title_fullStr The Effect of Economic Conditions on Accounting Conservatism under IFRS in Europe
title_full_unstemmed The Effect of Economic Conditions on Accounting Conservatism under IFRS in Europe
title_short The Effect of Economic Conditions on Accounting Conservatism under IFRS in Europe
title_sort effect of economic conditions on accounting conservatism under ifrs in europe
topic conditional conservatism
economic conditions
ifrs
institutional factors
m41
g01
g32
url https://doi.org/10.2478/revecp-2020-0007
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