Dual Reporting System 1 2

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The International Journal of Accounting 46 (2011) 51 – 78

Examining dual accounting systems in Europe☆
Marta Macías ⁎, Flora Muiño
Department of Business Administration, Universidad Carlos III de Madrid, Calle Madrid, 126, 28903 Getafe,
Madrid, Spain
Received 13 February 2009

Abstract
After adoption of International Financial Reporting Standards (IFRS) for consolidated financial statements by European-listed companies, a number of European countries still require the use of local standards in the preparation of legal entity financial statements. This study investigates whether this requirement can be explained by a low demand for high-quality financial reporting and an orientation of accounting toward the fulfilment of regulatory needs in these countries. Specifically, using accounting quality as an indicator of the focus of accounting on capital providers ' needs, we compare accounting quality between countries permitting and prohibiting the use of IFRS in individual financial statements. Consistent with our expectations, we find that countries requiring the use of local standards in the preparation of legal entity financial statements exhibit a significantly lower level of accounting quality, both prior to and after IFRS adoption. We interpret these results as evidence that these countries have local standards more oriented toward the satisfaction of regulatory needs, rather than investors ' needs. Furthermore, since differences in accounting quality persist after the implementation of IFRS, results suggest that firms in these countries face a lower demand for high-quality financial reporting.
© 2010 University of Illinois. All rights reserved.
Keywords: IFRS endorsement; Accounting quality; Value relevance; Domestic GAAP

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We appreciate the financial support from the Spanish Ministry of Education through grants SEJ 2007 and SEJ2010, and the Comunidad de Madrid through grant CCG06-UC·M/TIC-0766. We thank the editor

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