The impact of contemporary accounting reform on financial reporting quality: evidence from an emerging economy

Purpose The study examines how the recent adoption of International Financial Reporting Standards (IFRS) – converged “Ind-AS” accounting standards influences financial reporting quality (FRQ) in India, an emerging market. It is motivated by India’s momentum in the International Accounting Standard Board (IASB)’s initiative of the global endorsement of IFRS. Design/methodology/approach FRQ is captured with accounting- and market-based metrics. Panel data regression models are employed to capture FRQ. Two-stage least squares regression is used to address the endogeneity. The study considers a consistent sample of 2,320 company-year observations from the National Stock Exchange (NSE)-listed companies. The observations are classified into two periods: (1) the pre-Ind-AS adoption period from April 1, 2012 to March 31, 2016 and (2) the post-Ind-AS adoption period from April 1, 2016 to March 31, 2020. Findings The study shows a major improvement in FRQ after Ind-AS implementation using univariate and multivariate analyses. Specifically, Ind-AS-compliant companies exhibit less earnings smoothness, less benchmark beating, higher earnings persistence, more timely loss recognition, less accrual-based earnings management (AEM), higher earnings predictability, higher value relevance\ and higher earnings timeliness. Overall, the arguments of agency, stakeholder and institutional theories support the results. Practical implications Following the implementation of Ind-AS, the accounting standard-setters, policymakers and regulators need to conduct regular enforcement reviews and impose stricter penalties for noncompliance with Ind-AS in order to improve FRQ and maintain stakeholders’ trust in financial reporting. They should also consider strengthening the legal and institutional frameworks to complement the Ind-AS adoption. Originality/value To the best of the authors’ knowledge, this is the first study that investigates the impact of IFRS-converged Ind-AS on accounting-based and market-based FRQ metrics using longer timeframe in the emerging economy of India. Using agency, stakeholder and institutional theories, this study provides an additional contribution to the consideration concerning FRQ based on IFRS accounting standards in India.