Abstract

This study empirically investigates whether the adoption of IFRS has differentially improved accounting quality depending on firm size, under the premise that larger firms possess relatively greater capabilities associated with human and physical resources. Based on the model of Downes et al.(2019), this study examines changes in financial reporting quality by analyzing whether the association between accounting accruals (accounting estimates；EST) and future cash flows has improved after the adoption of IFRS. For this purpose, a sample of 15,922 firm－year observations from KOSPI and KOSDAQ－listed companies over the period 2000 to 2021 is used, excluding the years 2010 and 2011 to control for the initial effects of IFRS adoption. The analysis results indicate that the impact of IFRS adoption on the association between accounting estimates and future cash flows differs by firm size. Large firms with relatively greater resources experienced a more significant improvement in the relationship between accounting estimates and future cash flows following IFRS adoption. These findings suggest that uniform application of IFRS does not necessarily lead to improvements in accounting quality. They also highlight the need for differentiated policy considerations for smaller firms with relatively limited accounting capabilities, taking into account cost－benefit aspects. This study contributes to the literature by moving beyond traditional value relevance approaches to measuring accounting quality and examining the association between accruals and future cash flows－more closely aligned with the objectives of financial reporting under IFRS－to reveal differential effects of IFRS adoption based on firm size.

Keywords

• IFRS
• Accounting quality
• Accounting estimates
• Future cash flows
• Firm size

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