FINANCIAL STATEMENT ANALTSIS - Essay Example

Section 2 provides a comparative analysis of the impact of IFRS’ adoption on financial reporting quality and capital market). Section 3 evaluates the consequences and overall impact of adoption of the IFRS in EU and Section 4 is concluding part of the essay. Accounting quality is an important aspect of financial reporting as this information serves as a strategic source for stakeholders and influences their decisions. With the adoption of the IFRS the rules and norms of financial reporting have been changed and modified, causing different opinions among various groups of stakeholders (Lopes, Cerqueira, and Brandao, 2010).

It is widely debated whether the adoption of the IFRS has improved the quality of financial reporting among the EU firms (Lopes, Cerqueira, and Brandao, 2010). Thus, for example, several researchers have analysed the impact of IFRS adoption and the change in cash flows and net income, and concluded that the companies applying IAS have more value relevance of earnings, less earnings management and more timely loss recognition between the period before and after adoption of IFRS (Barth et al 2008; Christensen, Lee & Walker, 2008).

These researchers believe that reliance of the IFRS leads to higher accounting quality, however, only in case of the firms are incentivised to be transparent and to adopt IFRS (Lopes, Cerqueira, and Brandao, 2010). According to Christensen, Lee & Walker (2008), the firms, which were forced to adopt the IFRS, did not show improvements in accounting quality. Some researchers have identified some potential problems associated with the IFRS adoption and financial reporting quality. One of the concerns related to IFRS adoption and its impact on the accounting quality is associated with risk of different interpretations of IFRS (Lopes, Cerqueira, and Brandao, 2010).

Researchers determined some of the following areas for possible variations in interpretation: intangible