Impact of IFRS Implementation on Earnings Stability in Indian Listed Companies

Abstract

Adoption of International Financial Reporting Standards (IFRS) or what is called, Indian Accounting Standards (Ind AS) in India is a crucial change to financial reporting in India, to bring in an increased level of transparency, comparability and reliability in the disclosures by the companies. This paper attempts to fill this wide gap in the literature of the emerging markets by examining the effect of IFRS adoption on the earnings volatility of Indian listed firms. The main purposes involve testing sector-level differences in earnings volatility, determining the connection between the persuasion of IFRS and the earnings volatility by firm size, and determining whether the financial statements comparability and reliability have been improved. Through quantitative research design, the research would examine the secondary financial data of 2012 to 2023 considering the Banking and Financial Services industry because it has high exposure to changes imposed by IFRS. The results indicate that the adoption of IFRS has resulted in a significant decline in the earnings volatility, especially in the banking industry where more stringent norms of provisions and generalizing reports played a major role in increased stability. As well, bigger firms showed larger improvements in stability of their earnings as compared to the smaller firms, an important indicator of the relevance of organizational resources in effective implementation of IFRS. The research also establishes a fact that implementation of IFRS has enhanced comparison and reliability of financial statements because the ERC has escalated and discretionary accruals have diminished. Such findings highlight the revolutionary nature of IFRS in India financial reporting environment and reinforce the necessity of sector-knowledge and firm-size contingent requirement of policy formulation.