Does the impact of IFRS on audit fees differ between early and late adopters?

• DOI: https://doi.org/10.1108/IJAIM-04-2021-0085
• Published date: 29 October 2021
• Date: 29 October 2021
• Pages: 1-21
• Subject Matter: Accounting & finance,Accounting/accountancy,Accounting methods/systems
• Author: Vincent Konadu Tawiah

Does the impact of IFRS on audit

fees dif‌fer between early and

late adopters?

Vincent Konadu Tawiah

DCU Business School, Dublin City University, Dublin, Ireland

Abstract

Purpose –This study aims to examine whether the impactof international f‌inancial reporting standards

(IFRS) on audit feesdiffers between early and late adopters.

Design/methodology/approach –The authors use robust econometricestimation on a sample of 314

f‌irms fromboth early and late IFRS adopting countries.

Findings –The authors f‌ind that IFRS is positively and signif‌icantlyassociated with an increase in audit

fees for early adopters, but the impact is very weak for late adopters and insignif‌icant in some cases. The

results onauditing time suggest that increase in audit feesaround IFRS adoption is due to an increase in audit

reporting lags. After accountingfor pre- and post-years, the authors f‌ind that the relationshipbetween IFRS

and audit fees, as well as audit time for late adopters,is signif‌icant only in the adoption year. However, early

adopters experiencea signif‌icant increasein audit fees and audit time in the transition year to one-year post-

adoption.

Practical implications –The f‌indings imply that countries that are yet to adopt IFRS are less likelyto

experience a signif‌icant increase in audit fees audit time. Hence, is probable that the benef‌it of IFRS will

outweighthe cost.

Originality/value –The results, therefore, suggestthat early adopters paid a premium for been the f‌irst

users of IFRS, which is consistent with any innovation.The study provides new insights by demonstrating

that the consequencesof IFRS differ between early andlate adopters.

Keywords Africa, IFRS, Audit fees, Early adopters, Audit reporting lags, Late adopters

Paper type Research paper

1. Introduction

Although there is considerable literature on the effect of international f‌inancial reporting

standards (IFRS) on the auditing market, these studies are limited in explaining how the

effect differs between early and late adopters (De George et al., 2013; Dinh and Piot, 2014;

Griff‌inet al.,2009;Kim et al.,2012;Risheh and Al-Saeed, 2014;Yaacob and Che-Ahmad,

2012). Additionally, existingstudies largely ignore Africa, probably due to the low adoption

of IFRS[1] but with a unique mix of early and late adopting countries (Boolaky et al.,2020).

For example, most southern African countries, such as Zimbabwe, Botswana and South

Africa started using IFRS before or aroundthe same time of European union (EU) adoption

whiles few West Africancountries adopted it from 2010 onwards with the bulk of remaining

non-adopters as of 2018.

© Vincent Konadu Tawiah. Published by Emerald Publishing Limited. This article is published

under the Creative Commons Attribution (CC BY 4.0) licence. Anyone may reproduce, distribute,

translate and create derivative works of this article (for both commercial and non-commercial

purposes), subject to full attribution to the original publication and authors. The full terms of this

licence maybe seen at http://creativecommons.org/licences/by/4.0/legalcode

Impact of IFRS

on audit fees

1

Received26 April 2021

Revised10 September 2021

Accepted22 September 2021

InternationalJournal of

Accounting& Information

Management

Vol.30 No. 1, 2022

pp. 1-21

EmeraldPublishing Limited

1834-7649

DOI 10.1108/IJAIM-04-2021-0085

The current issue and full text archive of this journal is available on Emerald Insight at:

https://www.emerald.com/insight/1834-7649.htm

Therefore, in this paper, we examine the effectof IFRS adoption on audit fees and audit

timing with specif‌ic reference to early and late adopters in Africa. We argue that the

difference in adoption timing provides new insights on the consequences of IFRS between

early and late adopters. As argue by Key and Kim (2020), late adopters have different

incentives and exposure to IFRS reportingbefore adoption; hence, the effect can differ from

early adopters. Also, given that the audit market and f‌inancial reporting environment of

most African countries is signif‌icantly different from other countries (Elbannan, 2011;

Lassou and Hopper, 2016; Khlif and Samaha, 2014; Agyei-Boapeah et al., 2020), this

analytical studyon Africa extends the literature.

In a bid to provide this new insight(s), we use a sample of 1,570 f‌irm-year observations

(314 f‌irms over f‌ive years) from Nigeria and SouthAfrica to provide a comparative analysis

between early and late IFRS adopters. We focus on these two countries because of the

signif‌icant difference in the adoption years between the two countries. South Africa was

among the early adopters of IFRS in 2005, as opposed to Nigeriaadoption in 2012, and thus

labelled as late adopters. Despite the differencesin the adoption year, both countries share a

common similarity of been among the largest economiesin Africa with a strong accounting

environment.

Consistent with our expectation,we f‌ind that the effect of IFRS on audit fees and auditing

time differ between early and late adopters.We f‌ind that IFRS is positivelyand signif‌icantly

associated with an increase in audit fees forearly adopters, but the impact is very weak for

late adopters and insignif‌icant in some cases. Similarly, the results show a signif‌icant

increase in auditing time around IFRS adoption for early adopters. However, in the case of

late adopters, although auditing time increases, it is barely signif‌icant. In further analyses,

we f‌ind that the positive relationship between IFRS and audit fees and auditing time is

signif‌icant in transition year throughto one-year post-IFRS adoption. But in the case of late

adopters, the relationship is signif‌icant at only adoption year. The results on auditing time

provide an understanding that an increase in audit fees around IFRS adoption is due to an

increase in auditing time. Our f‌indings, therefore, suggest that early adopters paid a

premium for been the f‌irst users of IFRS, which is consistent with any innovation. The

results are robust to the alternativemeasurement of audit fees and auditing time.

The f‌indings of late adopters shed new light on how the cost and benef‌it of IFRS vary for

adopters at different timing. More distinctively, unlike past studies (Cameran and Perotti,

2014, on Italy; De George et al., 2013, on Australia; Dinh and Piot, 2014, on Europe; Griff‌in

et al.,2009;Higgins et al. (2016) on New Zealand; Hassan et al., 2014, on the UK; Isaboke and

Chen (2019 Lin and Yen (2016) on China; Rished and Al-Saeed,2014; on Jordan; Yaacob and

Che-Ahmad, 2012, on Malaysia), which are limited to only early adopters, we extend the

analysis by covering late adopters for the f‌irst time in the literature. By presenting a

comparative analysis between early and late adopters, the timing of adopting any new

accounting systemis likely to result in different outcomes.

Another point of differencein our paper is that we use the same f‌irm-level data set for the

same period to investigate the IFRS-auditing effect as opposed to prior studies where the

impact of IFRS on audit fees and auditing time were analysed using different data sets and

period. Hence, it does not provide a reliable and relevant basis for comparative and

compelling evidence. We submit that the two are related; hence, a single data set provides

more compelling evidence than different settings for each. By analysing the two effects

simultaneously, we provide a fair and robust explanation that the increase in audit fees

around IFRS adoption is due to a signif‌icant increasein auditing time.

In summary, we extend the IFRS-auditing effect by showing that the impact of IFRS on

auditing differs among early and late adopters. We attribute this contrasting f‌inding

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