The International Financial Reporting Standards Adoption and Value Relevance of Financial Statements of Listed Companies in the East African Community

This study examined whether the adoption of International Financial Reporting Standards (IFRS) by listed companies in the East Africa Community (EAC) improved the value relevance of financial statements. The concerns of standard setters and capital markets regulators, whose primary role is to ensure that information available to capital market participants is purposeful for decision making and the public outcry over the deteriorating quality of financial reporting in the EAC region motivated this study. This study addressed two research questions using proposition. The first question examined the extent to which the adoption of IFRS has improved the value relevance of financial information amongst listed companies in the EAC. The second investigated the extent to which incremental changes in value relevance of earnings and change in earnings are associated with the use of IFRS. This study used the price model to investigate the value relevance of financial statement of listed companies across the EAC countries and the return model to examine the incremental changes in value relevance for earnings and change in earnings under IFRS. This study employed a quantitative research methodology with a descriptive design using publicly available secondary data. The study population consisted of firms listed in the EAC between 1998 to 2014. The findings of this study suggest that the value relevance of financial statements did not significantly improve under IFRS, and the incremental value relevance of both earnings and change in earnings were also not significant under IFRS. The finding of this study is of importance to both standard setters and multiple regulators across countries as they quest to improve the efficient operation of the capital markets in the EAC through the modification of accounting standards and strengthening of the regulatory framework respectively.