Abstract:

It is mandatory for the Korean listed companies to apply IFRSs in 2011 in preparing and disclosing their financial statements. IFRS brings transparency by improving international comparability and quality of accounting information, enhances accountability by reducing the information gap among stakeholders, and is expected to contribute to economic efficiency by helping investors identify opportunities and risks. Soderstrom & Sun (2007) estimate that the quality of accounting information has an economic effect on the cost of capital and the efficiency of capital allocation and that the IFRS adoption appears to have a positive effect on the quality of accounting information. Increasing firms’ commitment to transparency and disclosure can lower information asymmetry in capital markets and thus increase investors’ willingness to trade, thereby boosting the stock price (Diamond and Verrecchia 1991; Lambert, Leuz, and Verrecchia 2007; Botosan and Plumlee 2002). Another impact of IFRS adoption is the readability of the annual report of the firm. Readability is essential to the IFRS authorities due to the global use of the IFRS depends on the successful translation of the IFRS into non-English versions. Among many factors influencing the readability of translated versions of the IFRS is the translation strategy of the IFRS Foundation. Due to the highly technical nature of the standards, the translation policy in which the IFRS Foundation has adopted word-for-word or literal translation. The authoritative accounting standards-setting body of Korea, the Korea-adopted International Financial Reporting Standards or K-IFRS, is a word-for-word translation of the IFRS.