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
IJAIM
30,1
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