IFRS Convergence and Revisions

Abstract

This chapter is aimed at examining the impact of IFRS convergence and revisions on the financial statements of companies listed in East Africa. This was achieved by determining whether firms report losses (LNEG) when they occur (timely loss recognition) or report small positive income (SPOS) or whether incomes reported exhibit variability in net income (NI) over time. Simultaneously, the chapter tests whether there is any influence of corporate governance on these three measures which are considered indicators of financial reporting quality. Four models applying GLS random effects are applied on 520 firm year observations for firms listed in Nairobi Securities Exchange (NSE) between 2005 and 2014. The result shows that a positive coefficient on frequency of large losses reported in the finding interpreted as firms with converged and revised IFRS recognize large losses (LNEG) as they occur. The findings also show a negative coefficient on small positive income (SPOS) interpreted as firms applying non-converged and revised standards manage earnings towards small positive amounts more than firms applying converged standards. The post convergence\revisions are significant for Chi, R2 and the residual which suggest that variability in net income (NI) improved in the post convergence period while corporate governance show insignificant mixed coefficient with the three indicators.