LAUSR

Abstract This study examines the effect of mandatory adoption of IFRS on the accrual anomaly in Germany. Using the setting in Germany between 2002 and 2008, we find that the accrual anomaly occurs between 2002 and 2004 (pre-IFRS period) but disappears between 2006 and 2008 (post-IFRS period). Results are consistent after extending the test period to 2010 and controlling for analysts' cash forecasts. We also find that German firms with more significant improvements in analysts following, forecast accuracy, forecast dispersion, and earnings management following mandatory adoption of IFRS in 2005 have greater decline of the accrual anomaly between 2006 and 2008. Overall, our findings suggest that IFRS adoption together with improved reporting enforcement significantly reduces the accrual anomaly in Germany.