International Accounting Standards and Accounting Quality

DOI: 10.1111/j.1475-679X.2008.00287.x
Journal of Accounting Research
Vol. 46 No. 3 June 2008
Printed in U.S.A.

International Accounting Standards and Accounting Quality
M A R Y E . B A R T H , ∗ WAY N E R . L A N D S M A N , †
AND MARK H. LANG†
Received 15 March 2005; accepted 20 September 2007

ABSTRACT

We examine whether application of International Accounting Standards
(IAS) is associated with higher accounting quality. The application of IAS reflects combined effects of features of the financial reporting system, including standards, their interpretation, enforcement, and litigation. We find that firms applying IAS from 21 countries generally evidence less earnings management, more timely loss recognition, and more value relevance of accounting amounts than do matched sample firms applying non-U.S. domestic standards. Differences in accounting quality between the two groups of firms in the period before the IAS firms adopt IAS do not account for the postadoption differences. Firms applying IAS generally evidence an improvement in accounting quality between the pre- and postadoption periods. Although we cannot be sure our findings are attributable to the change in the financial reporting system rather than to changes in firms’ incentives and the economic environment, we include research design features to mitigate effects of both.

∗ Graduate School of Business, Stanford University; †Kenan-Flagler Business School, University of North Carolina. We appreciate helpful comments from Bill Beaver, Utpal Bhattacharya,
Ole-Kristian Hope, Karl Lins, Doug Shackelford, Patricia Walters, T. J. Wong, Steve Young,
Ray Ball (editor), an anonymous referee, and workshop participants at the Athens University of Economics and Business, Southern Methodist University, the 2005 Pennsylvania State University Accounting Research Conference, the 2005 Joint Journal of