What is it about?
The adoption of IFRS (International Accounting) has changed the covenants' structure on contracts. This paper shows that firms changed the financial ratios after the adoption of IFRS in Brazil. A possible explanation is the discretion allowed in comparison to the previous GAAP (Brazilian Accounting Standards).
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Why is it important?
Contracts play a role in the business context. The development of a contract with covenants to control management decisions would help firms to avoid problems in the future.
Perspectives
Our life is coordinated by contracts (formal or informal, complete or incomplete). The understanding of how incentives change covenants structure could help managers, investors and practitioners on business context.
Jose Elias Almeida
Universidade Federal do Espirito Santo
Read the Original
This page is a summary of: Structural changes in covenants through the adoption of IFRS in Brazil, Accounting Forum, September 2017, Elsevier,
DOI: 10.1016/j.accfor.2017.06.004.
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