Matching between revenues and expenses and the adoption of International Financial Reporting Standards

• We examine changes in the matching between revenues and expenses in Australian.
• The matching has declined during 2001–2005, but improved following IFRS.
• The improvement is due to increases in the effect of operating and “other” expenses.
• The results are in sharp contrast to documented declines in matching among US firms.
• The results highlight a positive outcome of Australian mandatory adoption of IFRS.

We examine changes in the matching between contemporaneous revenues and expenses in Australian financial reporting. Matching is fundamental to the economic demand for accrual accounting in preference to simple cash measures. Our results indicate that the revenue–expense relation has declined in Australia during 2001–2005, but improved following implementation of International Financial Reporting Standards (IFRS). The improvement is largely attributable to increases in the association of operating expenses and “other” expenses with contemporaneous revenues. These results are in sharp contrast to documented declines in matching among US firms, and also highlight a positive outcome associated with Australian firms' mandatory adoption of IFRS.