Examination of the convergence route to IFRS reporting and disclosure

Abstract

Value relevance (VR) of earnings and book value of equity is studied in a setting where the International Financial Reporting Standards (IFRS) have been adopted through a convergence and customization route. Quantile regression methodology is applied to level and return models. We find no significant increase in VR of earnings or book equity. Smaller firms show some sensitivity to the change in the regime as compared to the largest set of firms, though accounting metrics overall, help explain the value of larger firms better. We conclude that the convergence route leads to continuous, incremental benefits over the pre-adoption period which pre-empts any significant increase in VR upon IFRS adoption. Gradual convergence with IFRS supported by positive, investor-friendly changes (Roca, 2021) to existing institutional and regulatory frameworks over time, results in better adoption and early, continuous capture of value, though the process itself is long drawn out. More research is needed to test the relevance of alternate metrics in the current technology and intangibles-driven economies (Barth, Li, & McClure, 2021). India’s unique approach to IFRS adoption may hold lessons for all IFRS adopters across the world while responding to new/revised standards in the future. This is the first comprehensive study on the value relevance and information content of the Indian Accounting Standards (Ind AS)