Challenges and economic consequences of IFRS 9: evidence from China
Abstract
Purpose
This study investigates the implementation challenges and economic consequences of the International Financial Reporting Standards 9 (IFRS 9) Financial Instruments.
Design/methodology/approach
Descriptive evidence on equity asset reclassifications and estimated impairment using the new expected credit loss (ECL) model are presented. Multivariate analyses on the disposal of available-for-sale (AFS) and fund investment post-announcement and the value relevance of impairments to financial assets post-implementation are performed.
Findings
Over 60% of sample firms report inconsistent equity asset reclassifications and do not change estimated impairment using the new expected credit loss model. Firms also switch from AFS to equity fund investments post-announcement. Lastly, impairments to financial assets increase in value relevance to investors’ post-implementation, but only in financial institutions and firms with Big 4 auditors.
Originality/value
This study's findings suggest that IFRS 9 presents implementation challenges and changes equity investment strategies. They also indicate cross-sectional differences in firms' ability to effectively apply the new standards. This study is valuable for policymakers, business leaders, investors and academics.
Keywords
Acknowledgements
The authors appreciate valuable questions and comments from Robert Bushman, Jianqiao Lu and Tom Smith (editor). Professor Ye acknowledges the financial support by the MOE Project of Key Research Institute of Humanities and Social Science in University (No: 22JJD790093, 22JJD790094) and NSFC (No. 92146004, 72172085). Professor Rao acknowledges funding support by Shanghai Pujiang Talent Project (2020PJC047).
Since submission of this article, the following author(s) have updated their affiliations: Beilei Mei is at the China Zheshang Bank Co., LTD, Hangzhou, China.
Citation
Guo, S.(Y)., Mei, B., Rao, Y. and Ye, J. (2023), "Challenges and economic consequences of IFRS 9: evidence from China", Journal of Accounting Literature, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/JAL-06-2023-0109
Publisher
:Emerald Publishing Limited
Copyright © 2023, Emerald Publishing Limited