The Impact of IFRS Adoption on Accounting Quality and Value Relevance in Korea

Using a sample of Korean firms, we investigate the impact of the mandatory adoption of International Financial Reporting Standards (IFRS) on accounting quality and value relevance in Korea. We find that mandatory adoption of IFRS significantly influences Korean firms’ reported earnings and book value of equity (BVE). Specifically, we show that return on assets (ROA) under Korean Generally Accepted Accounting Principles (KGAAP) is negatively associated with the reconciliation adjustment of ROA between Korean-International Financial Reporting Standards (K-IFRS) and K-GAAP. We also find that the reconciliation adjustment in earnings appears to be incrementally value relevant for Korea Securities Dealers Automated Quotation (KOSDAQ)-listed firms and non-chaebol subsample. Overall, our results portray a consistent picture of the transition effects of K-IFRS on financial statements in Korean firms.