Value Relevance of Accounting Information in New Zealand after IFRS Adoption

This research paper analyzes the value relevance of accounting information in New Zealand after the adoption of International Financial Reporting Standards (IFRS). It explores the advantages of having superior quality internationally recognized financial reporting standards, the impacts of IFRS implementation in New Zealand, and the importance of value relevance in reporting reliable financial information.

Running head: VALUE RELEVANCE OF ACCOUNTING INFORMATION
An Analysis of Value Relevance of Accounting Information within the Nation after Adoption of
International Financial Reporting Standards
Name of the University:
Name of the Student:
Authors Note:

1VALUE RELEVANCE OF ACCOUNTING INFORMATION
Table of Contents
1. Problem Statement...........................................................................................................2
2. Research Significance......................................................................................................4
3. Literature Review............................................................................................................5
3.1. Accounting in New Zealand.....................................................................................5
3.2. IFRS Adoption and Implementation in New Zealand..............................................6
3.3. Accounting Information and Value Relevance.........................................................7
4. Methodology....................................................................................................................8
5. Limitations.....................................................................................................................10
References..........................................................................................................................11

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1. Problem Statement
 Research Question 1: What are the advantages of having superior quality internationally
recognized financial reporting standards?
Sub Question 1: Is the financial reporting of the companies is comparable, transparent
and is consistent?
Sub Question 2: What are the limitations that exist in the domestic accounting standards
of New Zealand?
 Research Question 2: What are the impacts of IFRS implementation in New Zealand?
Sub Question 1: Why banks along with the investment organizations in New Zealand
need to develop their financial statements?
Sub Question 2: What accounting standards are issued by New Zealand to regulate the
accounting practices within the nation?
 Research Question 3: What is the importance of value relevance in reporting
reliable financial information?
Sub Question 1: Why relevance is considered as among the major qualitative
characteristics of the companies accounting information?
Sub Question 2: What significant implications are present in relevance of accounting
information?

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2. Research Significance
Over the previous decades, the global economy and capital markets have turned out to be
highly globalised and integrated. In such consideration, the advantages of having a set of
superior quality internationally recognized financial reporting standards are important. There is
convergence and harmonization of international financial reporting standards along with
generally accepted accounting principles (Ball, Li & Shivakumar, 2015). This ensures that that
the financial reporting of the companies is comparable, transparent and is consistent. From
evaluation of the current business environment it is observed that there is increased use of
accounting standards by the organizations in preparation of their financial statements. This is
resulting in diversity within the accounting practices of the organizations in New Zealand.
However, despite of abiding by the reporting standards, most of the organizations are dealing
with economic consequences related to such standards (Cascino & Gassen, 2015). One of such
concern is present regarding the understanding and financial statement interpretation relied on
the domestic standard. This is adversely affected because of the differences in accounting
practices all through the nation and in international industry.
In addition, the application of domestic accounting standards makes comparability of the
accounting information greatly complex (Christensen, Lee, Walker & Zeng, 2015). This can be
considered as a concern that declares the differences in accounting standards across nations
which further decreases quality and relevance of accounting information. The limitations that
exist in the domestic accounting standards of New Zealand offers an impetus for the call of
harmonizing the accounting principles and rules among the nations. It is also gathered that there
is very limited research that ascertains the impact of IFRS implementation in New Zealand

4VALUE RELEVANCE OF ACCOUNTING INFORMATION
(DeFond, Hung, Li & Li, 2014). Moreover, there is also limited research available in analyzing
the impact of IFRS on value relevance of accounting information for its users or investors.
Individuals and the companies consider employing accounting information for various
purposes and investors are deemed to the most important users of accounting information. These
investors are observed to rely on such information gathered from financial statements in order to
analyze the financial strengths and performance of the organizations (Ledford & Gast, 2018).
This can facilitate the investors in taking vital decisions whether to invest in the organization or
not. Moreover, in order for the accounting information to be useful for the investors, it needs to
be relevant along with being reliable. The users of the accounting information those make better
investment decisions based on financial statements of the organizations are highly interested in
analyzing the financial reporting quality (Lewis, 2015). The financial reporting quality
determines the importance of the accounting information. Accounting standards is deemed to
provide important guidelines for the financial transactions treatment along with proper disclosure
of information within the financial statement.
The accounting standards issued in a nation by national accounting body or government
as this as in this case to regulate the accounting practices within the nation (Li, 2015). These are
known to be the domestic standards and along wit that the standards published by a international
body is deemed as international accounting standards that is important to be maintained by the
organizations in maintaining effective and reliable financial reporting. Considering the scenario,
this research will have a significance of contributing to the knowledge in several ways. The
research will focus on offering evidence that suggests implementation of IFRS did not bring any
considerable improvement in the accounting information value relevance of the non-financial
companies in New Zealand (Martínez‐Ferrero, Garcia‐Sanchez & Cuadrado‐Ballesteros, 2015).

5VALUE RELEVANCE OF ACCOUNTING INFORMATION
Moreover, the research will also investigate that accounting information content of the earning
per share is highly value relevant in consideration to IFRS. The research has great significance in
contributing the existing literature on earnings per share, book value of equity, stock return and
share price. It will also explain the literature on IFRS implementation in New Zealand along with
value relevance of accounting information (Müller, Riedl & Sellhorn, 2015).
3. Literature Review
3.1. Accounting in New Zealand
Neuman and Robson, (2014) revealed that there are three vital regulatory authorizes in
New Zealand business sector, the minister of planning and economy, the central bank along with
authority of raw materials. In addition, the accountants along with the auditors association are
one of the official bodies that represent the accounting profession within the nation. Ledford and
Gast, (2018) further stated that the necessary disclosure requirements of the state indicates that
all the organizations within the nation must develop financial statements, cash flow statements,
balance sheets, statement of changes within the company’s capital and notes related with the
accounts. It must also be gathered that in New Zealand, the non-financial companies must
prepare their annual report within the two to three months towards the end of the financial year.
Martínez‐Ferrero, Garcia‐Sanchez and Cuadrado‐Ballesteros, (2015) indicated that as per
the Central Bank circular No 20/99, the financial institutions, banks along with the investment
organizations in New Zealand are needed to develop their financial statements. Such statements
must be in adherence to the International Financial Reporting Standards that in effect from
annually 1, 1999. In the year 2004, the New Zealand established International Financial Centre
that is an offshore capital market established within the financial free zone. Müller, Riedl and

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Sellhorn, (2015) evidenced that the legal framework needs the banks and the companies listed
within New Zealand International Foreign Affairs to implement the IFRS standards. These
researchers also ensured that the companies listed within the New Zealand market are needed to
publish IFRS financial statements from the year 2003.
3.2. IFRS Adoption and Implementation in New Zealand
Martínez‐Ferrero, Garcia‐Sanchez and Cuadrado‐Ballesteros, (2015) stated that New
Zealand and the related colonized nations gathered its accounting practice from its previous
colonial country. Te initial attempt to regulate the accounting practice within New Zealand took
place at the time when group of the nation’s accountants came with an idea of IFRS accounting
framework implementation in company’s financial statements. Before that there was lack of
domestic accounting standards in New Zeeland that guided preparation of financial statements
and resulted in development of New Zealand accounting standards board. Müller, Riedl and
Sellhorn, (2015) added that several benefits have been derived by the organizations that
implemented IFRS including New Zealand. Research conducted by these researchers also
evidenced that IFRS implementation can increase inflow of foreign direct investment. Value
relevance existence within the companies of New Zealand is categorized into three parts. One of
them includes relative association research that investigates whether there is statistical
relationship between accounting numbers and stock prices.
In contrast, Neuman and Robson, (2014) stated that the value relevance concept is
measured by employing regression analysis and the anticipated coefficient value is recognized to
be statistically significant. This is further different from the variable of zero accounting that is
considered being more relevant. IFRS implementation in New Zealand increased earnings value

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relevance but had less improvement in the value relevance of book value in post IFRS time
(Taylor, Bogdan & DeVault, 2015).
3.3. Accounting Information and Value Relevance
According to Martínez‐Ferrero, Garcia‐Sanchez and Cuadrado‐Ballesteros, (2015) for the
accounting information to be reliable to its stakeholders and investors it must be relevant. Within
IFRS conceptual framework, relevance is considered as among the two major qualitative
characteristics of the companies accounting information. As per IFRS, accounting information
that resulted in persuading the investors to take a distinct decision from one intended is deemed
as relevant information. Müller, Riedl and Sellhorn, (2015) stated that such information might
have both among the predictive and the confirmative value. Evidence within the accounting
literature also indicated that the research within the relevance of accounting information has
significant implications. It is also argued that the new and useful accounting information impacts
the capital market efficiency.
Based on such argument, Martínez‐Ferrero, Garcia‐Sanchez and Cuadrado‐Ballesteros,
(2015) stated that correlation between the share return and earning indicated increased
correlation among two variables. This further signifies that accounting information is of superior
quality. These researchers also suggested that the term `”value relevance” is in great connection
with the accounting information presented by the companies in their work. Considerably, several
definitions are present in the accounting literature regarding the financial information’s value
relevance. Müller, Riedl and Sellhorn, (2015) presented the view that one of these definitions
considers accounting information to be value relevant in case information has presented
relationship with the value of equity market. Value relevance of accounting information is also
desired as the capability of such information to impact the share price of organizations.

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4. Methodology
The research intends to carry out an investigation on “Value Relevance of Accounting
Information within the Nation after Adoption of International Financial Reporting Standards
(IFRS)”. Considering the same, the research will employ both the primary and secondary data
collection technique (Neuman & Robson, 2014). Primary data will be collected from the selected
respondents of New Zealand through conducting a questionnaire survey. In addition, positivism
research philosophy and deductive research approach will be employed in this research as it
facilitates in analyzing previous trends and proven facts regarding IFRS adoption in New
Zealand Companies. Moreover, secondary data associated with IFRS implementation and value
relevance of financial information will be gathered from the reliable online journals, websites,
books and government sources (Oulasvirta, 2014). In selecting the survey participants for the
research simple random sampling process will be employed. This is because of the reason that it
is highly suitable in offering equal chances to the respondents of the selected in the process of
survey. For this reason, quantities data has been gathered through the process of this sampling
method from a large sample (Ramanna & Sletten, 2014). Considering this sampling technique,
31 shareholders or investors of the selected non-financial companies in New Zealand will be
selected for gathering their constructive viewpoint on their adoption of IFRS principles and their
accounting information based value relevance.
The collected data will be analyzed with employing several analytical techniques. In
consideration to same it is indicated that effective analytical techniques selection is important for
attaining reliable and suitable conclusion (Silverman, 2016). MS Excel data analysis tool will be
employed in maintaining transparency along with interpreting the composed information.
Gathered quantitative data will be represented in the graphical and table form for its efficient

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interpretation. Using the MS excel application will facilitate in correlation and regression
analysis of the gathered responses in order to test the validity of the selected shareholders or
investors responses on the value relevance of their companies information (Taylor, Bogdan &
DeVault, 2015). In accomplishing the research the researcher has focused on maintaining
suitable code of conduct in maintaining research validity. It is also ensured that the researcher
maintained confidentiality of its respondents and avoided asking delicate questions to them
(Martínez‐Ferrero, Garcia‐Sanchez & Cuadrado‐Ballesteros, 2015).
Task Week
1
Week
2
Week
3
Week
4
Week
5
Week
6
Selection of topic
and search for
justification
Constructing
literature
Selecting
appropriate
methods
Data collection
Data analysis and
representation
Reviewing the
outcomes

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Conclusions and
recommendations
Submitting draft
of the project
Printing and final
submission
Table 1: Research Timeline
(Source: Authors Creation)
5. Limitations
Despite of having several useful implications in understanding the value relevance of
accounting information presented by the organizations in New Zealand, this research is observed
to have certain limitations. Focusing on one location serves as one of the limitation related with
the research (Wang, 2014). Moreover, primary data has been gathered from the shareholders of
the selected non-financial companies in New Zealand. In this the reliability of gathered
information acts as major restraint that generates a barrier between the research results along
with the research accomplishments. The investors or shareholders might have the intention to
indicate positive image of the organizations through not revealing major concerns during the
survey (Yu & Wahid, 2014). For this reason, the researcher might face difficulty in recognizing
major concerns and making relevant information to deal with them. Data collection can also
present the risk of being less reliable as the participants might or express their genuine opinions.

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References
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information prepared under IFRS: Evidence from debt contracts around IFRS
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Cascino, S., & Gassen, J. (2015). What drives the comparability effect of mandatory IFRS
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determines accounting quality changes around IFRS adoption?. European Accounting
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DeFond, M. L., Hung, M., Li, S., & Li, Y. (2014). Does mandatory IFRS adoption affect crash
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