Does the Mandatory Adoption of IFRS Improve the Association between Accruals and Cash Flows? Evidence from Accounting Estimates

What is it about?

The predictive value of earnings about future cash flows is emphasized by the International Accounting Standards Board (IASB) as an objective of financial statements. International Financial Reporting Standards (IFRS) are a set of principles-based accounting standards that restrict the number of allowable accounting alternatives to limit opportunistic accounting choices. These standards require accounting measurements by managers that better reflect a firm's underlying economic reality. Numerous studies examine whether IFRS adoption improves financial reporting quality, but the results depend on the particular metric of financial reporting quality examined. This study investigates whether the mandatory adoption of IFRS in the European Union (EU) influenced the association between accrual estimation components (i.e., accounting estimates) and future cash flows.

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