The interaction effect of mandatory IFRS adoption and audit quality on the value relevance of accounting earnings: Evidence from the United Kingdom

摘要

The goal of this research is to gain further insight into the impact of mandatory IFRS adoption on the value relevance of accounting earnings. Using a sample of UK firms, we first test whether the mandatory introduction of IFRS has a positive impact on the value relevance of earnings. Next, we examine whether auditor quality affects the value relevance impact of mandatory IFRS adoption. Using a portfolio-based and a regression-based approach, we find that mandatory IFRS adoption has a positive effect on the value relevance of earnings, but not for firms audited by a non Big 4 auditor. Although earnings quality seems to have improved with the mandatory adoption of IFRS, our results suggest that investors perceive the quality improvement only if the reported IFRS earnings are reviewed by a Big 4 auditor.