Discretionary reporting and analyst forecasts of operating income under IFRS

Leveraging the unique institutional features of Korea's adoption of International Financial Reporting Standards (IFRS) in 2011, we examine analysts' and investors' reactions to the elimination of standardized OI reporting. We find that financial analysts are less likely to issue OI forecasts immediately after IFRS adoption. Additionally, the accuracy of OI forecasts declines compared with sales or net income forecasts. Consequently, equity investors become less responsive to analysts' OI forecast revisions. However, these adverse effects dissipate after 2012 when regulators intervened and reinstated the OI definition used prior to IFRS adoption. Our findings support the International Accounting Standards Board's recent initiative to include earnings subtotals in financial reporting (i.e., IFRS 18).