Abstract

The Korean International Financial Reporting Standards (K－IFRS), which was fully adopted in 2011, was expected to have the effect of improving the international consistency and comparability of financial statements prepared by Korean companies. Concerns also coexisted that the quality of financial reporting and comparability could deteriorate due to the increased discretion of the manager. Since then, the effect of full adoption of K－IFRS has been researched in many ways, and conflicting research results have been reported. In this study, the effect of full adoption of K－IFRS was analyzed using cosine similarity, a quantitative attribute that measures the difference between texts. This study differs from previous studies by confirming the differences by company－year in text properties of the Notes to the financial statements attached to the audited financial statements of corporations submitting business reports from 1998 to 2019 with respect to a large－scale sample. As a result of the study, it was confirmed that there was a positive (＋) significant correlation between the difference in the Notes by company－year and the information usefulness measured by the absolute value of Cumulative Abnormal Return. This means that the investor found the new information obtained from the Notes useful. Next, it was confirmed that the company－year difference in the Notes increased after the fully adoption of K－IFRS, and it was found that the company－year difference in the Notes by companies that voluntarily adopted K－IFRS was larger than that of companies that mandatorily adopted K－IFRS. As the preparers’ discretion was expanded by the principle－based accounting standards, the information usefulness of the Notes was improved by the adoption of K－IFRS, and in the case of companies that adopted mandatorily, compliance with disclosure regulations was more focused.

Keywords

• K－IFRS
• Principle based accounting standards
• Text analysis
• Cosine similarity

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