The Comparability of IFRS Accounting Information: Evidence from Korea

The purpose of this study is to examine whether the international convergence of Korean accounting information improves via the adoption of International Financial Reporting Standards (IFRS) in the year 2011. To achieve this purpose, I empirically examine whether the international and domestic comparability of Korean firms’ accounting information improves after IFRS adoption. In addition, I investigate whether the degree of improvement in comparability varies depending on corporate governance scores. I draw samples from 15 European Union (EU) firms adopting IFRS, United States (US) firms applying US GAAP, and Korean firms adopting IFRS. I employ the comparability measures developed by De Franco et al. (2011) and the corporate governance score provided by the Korea Corporate Governance Service (KCGS). The results suggest that not only the comparability between EU and Korean firms but also the comparability between US and Korean firms improve after IFRS adoption, and the degree of improvement is greater for firms with poor corporate governance in both. The results also suggest that the comparability among domestic firms improves after IFRS adoption, and the worse the corporate governance, the greater the degree of improvement. Overall, these findings provide empirical evidence that Korean firms secure the international convergence of accounting information, the main purpose of adopting IFRS, as expected. I also find evidence that firms with poor corporate governance experience the greater effect of IFRS adoption. However, my findings do not infer that accounting information quality has necessarily improved by IFRS adoption. This is because accounting information quality improves only when both external auditing and accounting supervision operate properly, together with enhancing accounting standards quality.