True and Fair View Revisited – A Reply to Alexander and Nobes

This paper is a response to the critical comments of Alexander (2006) and Nobes (2006) on our article on revenue recognition, which was published last year in this journal (Wüstemann and Kierzek, 2005). While Alexander primarily objects to our statement that there is a ‘requirement of legal certainty in the European Union’, Nobes challenges our interpretation of the true and fair view principle and its role in the endorsement and application of International Financial Reporting Standards (IFRS) in the EU. We rebut Alexander's objections by providing references, which evidence that the principle of legal certainty represents a fundamental concept of Community law. We refute Nobes' counterarguments by inferring from the objective of the IAS Regulation and the purpose of the endorsement mechanism that a common meaning of the true and fair view principle must exist in the EU, that IFRS should only become applicable in the EU if they are not contrary to this ‘European’ true and fair view principle and that the true and fair view principle should also be considered in the application of IFRS in the EU, particularly in the choice of accounting policies for unregulated issues.     

Interpreting the European Union’s IFRS Endorsement Criteria: The Case of IFRS 9

EU Regulation requires that any international accounting standards (International Financial Reporting Standards, IFRS) and interpretations (IFRIC) pronounced by the International Accounting Standards Board (IASB) meet three sets of criteria before they become binding for EU-based companies: a ‘true and fair view’ criterion, a list of qualitative criteria, and a ‘European public good’ criterion. During the endorsement process, EU institutions evaluate each standard or interpretation’s compliance with these three criteria. Nevertheless, despite plenty of past endorsement decisions, there is still disagreement about a unanimous interpretation of the criteria in the literature. In this study, we interpret all three criteria against the background of European accounting law and academic accounting research. Then, the paper illustrates for the case of the new IFRS 9 standard on accounting for financial instruments how these criteria can be applied in the endorsement practice. We conclude that the standard cannot reasonably be rejected on grounds of the IAS Regulation. We also explain that the vagueness of the endorsement criteria and the inherent discretion in the eventual endorsement decision help maintain the EU’s political influence on the IASB’s standard-setting ex ante.     

Revenue Recognition and EU Endorsement of IFRS

This paper comments on a previous paper in this journal concerning EU endorsement of IFRS. It is suggested here that the previous authors should consider whether there can be more than one true and fair view even in one country and especially across European countries. It is further suggested that the previous analysis of five accounting standards does not support the claim that the European Commission wrongly endorsed them. It is also argued here that the previous analysis of the nature of most gains under IFRS is faulty.     

La crisis del concepto prudencia a causa del tránsito de las normas nacionales austriacas de información financiera a las normas internacionales

As a member of the European Union (EU), Austrian nation has gradually incorporated International Financial Reporting Standards (IFRS), Normas Internacionales de Información Financiera (NIIF) in spanish, to its accounting and Disclosure of Financial Information processes in replacement of Local National Standards called Unternehmensgesetzbuch (UGB). During this process of convergence, prudence principle has been in crisis within IFRS conceptual frame because it has been changed by fair value principle. That is way this paper presents the basic principles of national Austrian, UGB, compared with those of the IFRS to analyze, first, the reasons why prudence concept went into crisis and, secondly, if fair value principle is right to replace it.     

Private Equity Fair Value Measurement: A Critical Perspective on IFRS 13

In this paper, we discuss IFRS 13 Fair Value Measurement with regard to private equity valuation. We raise issues on the fair value definition as an exit price and question the reliability of valuation techniques, which are categorised into Level 2 fair value hierarchy. Our paper questions whether fair value as defined by IFRS 13 is an appropriate measure for private equities and can contribute to enhancing transparency and comparability in financial statements, which is one of the purposes of the International Accounting Standards Board and the European Union Regulation 1606/2002.     

Control over accounting standards within the European Union: The political controversy surrounding the adoption of IFRS 8

This paper presents an analysis of the struggle for power within the international accounting arena by examining a highly politicised debate surrounding the adoption of International Financial Reporting Standard (IFRS) 8, Operating Segments, which saw the European Union (EU) attempting to contest the authority of the International Accounting Standards Board (IASB). Informed by a broadly institutional approach, the paper reports the results of interviews with preparers, legislators, regulators, auditors and users about the introduction of IFRS 8 and focuses on how the European Parliament (EP) required the European Commission (EC) to initiate its own consultation procedures as part of a new endorsement process. Findings from this study highlight how the debate over the adoption of IFRS 8 led to the EU implementing a structure that is arguably more aligned to the European tradition of State involvement in the regulatory process. In this sense, while the EU's position vis-à-vis the IASB remains relatively weak, they have, however, initiated a forum whereby the pronouncements of the IASB can be contested.     

IFRS Developments in the USA and EU,and Some Implications for Australia

There have been several developments recently, both in the United States (US) and the European Union (EU), which will have consequences in Australia. The two major developments in the US are the decision by the Securities and Exchange Commission (SEC) to drop the reconciliation requirement for foreign registrants that adopt International Financial Reporting Standards (IFRS) and the serious consideration that the SEC is currently giving to allow US publicly traded companies to adopt IFRS. The developments in the EU involve its ever‐lengthening endorsement process and the increasing pressure being brought on the International Accounting Standards Board (IASB) and its oversight body, the International Accounting Standards Committee Foundation (IASCF) trustees, to alter their composition and the character of their operations. At the same time, there has been the FASB's appeal to the EU to accept IFRS without any endorsement process. The developments in the US have been lauded by the IASB and in Europe. They represent an impressive vote of confidence in the IASB and in the efforts being made by national standard setters and securities market regulators around the world. The US has already taken a long stride towards joining the more than 110 countries and other jurisdictions that have committed themselves to allow or require the use of IFRS for some or all reporting entities.     

The European IFRS Endorsement Process – in Search of a Single Voice

We analyse the creation and development of the European Financial Reporting Advisory Group (EFRAG), a key part of the EU endorsement mechanism for International Financial Reporting Standards (IFRS), which was probably the first example of a dedicated IFRS endorsement system. We discuss the historical background to the EU approach and we analyse how EFRAG evolved over its early years up to the Maystadt reform. Our analysis addresses its remit, its operational structure and financing and the key decisions made in the endorsement process over this period. We find that while national standard-setters had a limited role in the early stages, and EFRAG had limited resources, over time the pressure to find more resources and to try to achieve a unified voice in the creating of international standards have resulted in national standard-setters playing an ever-greater role. Nonetheless, a single voice for Europe is not likely to be attained     

Financial reporting for sustainable development: Critical insights into IFRS implementation in the European Union

By adopting a political economy perspective to accounting, this paper provides an overall post-implementation assessment of International Financial Reporting Standards (IFRS) adoption relative to the European Union’s (EU’s) fundamental goal of sustainable development. The paper questions the consistency of the International Accounting Standards Board’s business view with the EU’s and provides some critical insights into the potential long-run effects of IFRS on the European economy and society. Therefore, it raises several doubts about unquestioned accounting standardization at a global level and makes some suggestions for future policymaking and research.     

Have IFRS Affected Earnings Management in the European Union?

There has recently been considerable discussion of those features of IFRS that are likely to help improve financial reporting in the European Union. However, certain issues may also have a negative impact on the quality of information. This paper focuses on the effect of IFRS on earnings management. Its main purpose is to examine whether the adoption of IFRS in the European Union has increased or decreased the scope for discretionary accounting practices by comparing discretionary accruals in the periods preceding and immediately after the regulatory change. Another objective is to determine which firms' features and country factors may explain the accounting discretion observed before and after IFRS. We consider a sample of non-financial firms listed on 11 EU stock markets. The results obtained show that earnings management has intensified since the adoption of IFRS in Europe, as discretionary accruals have increased in the period following implementation. The variables explaining accounting discretion are the same before and after IFRS (business size, leverage, investor protection and legal enforcement). These results suggest that variations in earnings management might be due to some room for manipulation under international standards when compared with local standards.     

International financial reporting standards — credible and reliable? An overview

The study discusses how IFRS's objective of the harmonization of accounting standards and improvement of quality of financial reporting may have been negatively affected due to public authorities' influences in the European Union (EU), the U.S., the U.K. and China. In addition, we discuss issues related to the inconsistent interpretations and implementations of IFRS as principle-based accounting standards. Moreover, we discuss how the funding system of the IASB may (or may not) have affected its independence. The review of relevant literature and discussion is critical to IFRS adoption/convergence efforts in the U.S.     

IFRS implementation in the European Union and the survival of accounting families

This study examines eight IFRS implementation choices available to European Union (EU) and European Economic Area (EEA) member countries under the EU's 2002 IAS Regulation. Great disparities in IFRS implementation exist among the countries covered under the Regulation, including statistically significant differences in the IFRS elections for financial and non-financial firms. Using hierarchical cluster analysis, a classification of EU and EEA member countries according to similarities and differences in their IFRS implementation is developed, which identifies an IFRS antagonistic, an IFRS leaning, and an IFRS integrated group. These groupings may provide a springboard for future studies on effects of IFRS implementation differences. Following Meek and Thomas (2004) call to study the continuing relevance of taxonomies of accounting systems in the IFRS era, the study also provides evidence for a survival of the traditional micro-based vs. macro-uniform, strong vs. weak equity market, and outsider vs. insider economy classifications of accounting systems into the IFRS implementation decisions of EU and EEA member countries. These results suggest that traditional accounting system classifications remain important in the post-IFRS era.     

IAS 39: Where Different Accounting Models Collide

The implementation of International Financial Reporting Standards (IFRS), particularly in the European Union, has led to frequent comments that IFRS are “fair value based standards” and that the IASB is moving inexorably towards full fair value accounting. This article examines the extent to which IFRS do, in fact, require the use of fair values for the measurement of assets and liabilities. It explains the definition of fair value in IFRS, the evolution of that definition and the need for further clarifications and guidance with respect to the application of the definition. It then identifies the four main uses of fair value in IFRS. Three of these uses reflect what should have happened under many national standards. The fourth use is, in practice, restricted to very few assets and liabilities. The article concluded with suggestions about the possible areas in which the IASB might extend the use of fair values.     

The Role and Current Status of IFRS in the Completion of National Accounting Rules – Evidence from Switzerland

Abstract

Although Switzerland is not a member of the European Union, the EU directives have largely influenced the Swiss accounting regulation. IFRS also have been highly influential since many large companies used them long before they became mandatory for listed firms. Moreover, IFRS served as a benchmark for the development of Swiss GAAP. This article compares the current Swiss accounting regulation to the new EU accounting directive and to IFRS. Despite many similarities, the Swiss regulation retains major specificities, the most notable being the permission of hidden reserves.     

The Impact of IFRS Adoption on Foreign Direct Investments: Insights for Emerging Countries

International Financial Reporting Standards (IFRS) adoption research supports the arguments of an increase in the credibility of corporate financial information. We investigate the association between IFRS adoption and foreign direct investments (FDI) inflows. The aim is to analyse several characteristics of the adoption process specific to European emerging countries. Our results indicate that the countries adopting IFRS are more likely to benefit from a higher increase in FDI inflows than the non-adopters. Additional tests reveal that the impact is driven by the adoption level related both to listed and unlisted companies. IFRS adoption by unlisted companies has a lower impact on FDI inflows, as compared to IFRS adoption by listed companies. Furthermore, difference-in-difference analysis illustrates a higher increase of FDI inflows after adopting IFRS in the case of non-European Union (EU) countries as compared to EU countries.     

Implementing IFRS from the perspective of EU publicly traded companies

This study examines implementation of International Financial Reporting Standards (IFRS) by European Union (EU) companies. All listed EU companies are required to prepare their consolidated financial statements in accordance with IFRS for years beginning on or after January 1, 2005 (Regulation (EC) 1606/2002). The paper provides insight into the IFRS adoption process based on a questionnaire sent to EU-listed companies in 2004. The 112 responses received indicate: (1) a majority of respondents have adopted IFRS for more than just consolidation purposes; (2) the process is costly, complex, and burdensome; (3) companies do not expect to lower their cost of capital by implementing IFRS; (4) the more comprehensive the approach to conversion, the more respondents tend to agree with the benefits and costs of the transition; (5) companies expect increased volatility in financial results; (6) the complexity of IFRS as well as the lack of implementation guidance and uniform interpretation are key challenges in convergence; and (7) a majority of respondents would not adopt IFRS if not required by the EU Regulation. The results of our questionnaire were confirmed by several personal interviews with finance and accounting executives of EU publicly traded companies.     

Effects of Adoption of International Financial Reporting Standards in Belgium: The Evidence from BEL-20 Companies

This study examines the adoption of International Financial Reporting Standards (IFRS) by BEL-20 companies in Belgium. The research analyses the application of IFRS in the consolidated financial statements of Belgian publicly traded companies. In Belgium, as in several other continental European countries, a close link exists between accounting and taxation. The study provides insight into IFRS implementation problems based on a survey sent to BEL-20 companies. The survey focused on the impact that IFRS conversion has on companies, their internal organization and accounting and finance strategy. The benefits and challenges of the adoption of IFRS are analysed, as well as the level of understanding and experience with IFRS, perception of the quality of IFRS, and the impact of adoption of IFRS on consolidated equity and net income. Principal differences between IFRS and Belgian generally accepted accounting principles (GAAP), having a major impact on the conversion to IFRS, are identified. This study should be important not only to the European Union (EU) countries but to countries which will join the EU in the future, and to other countries worldwide that are adopting IFRS.     

LARGE ACCOUNTING FIRMS’ SURVEY REVEALS EMERGENCE OF “TWO STANDARD” SYSTEM IN THE EUROPEAN UNION

Convergence with International Financial Reporting Standards (IFRS) as promulgated by the International Accounting Standards Board (IASB) is receiving great attention. In 2005, all listed companies domiciled in the European Union (EU) will be required to prepare consolidated accounts based on IFRS. Individual EU member states are, however, permitted to decide whether IFRS will be required or allowed for non-listed companies or for listed companies’ individual accounts. Based primarily on data collected by the six largest international accounting firms during their most recent convergence survey, this paper examines each of the 15 EU member states’ convergence plans and their perceived barriers to convergence.The findings indicate that most EU members do not plan to converge national GAAP with IFRS, thereby highlighting the great significance of the large firms’ concerns regarding emergence of a “two-standard” system in the EU. The survey indicates the majority of EU countries will continue to require or allow national GAAP for individual accounts. While Belgium is considering requiring IFRS for all consolidated accounts, other EU countries have decided to allow or are considering allowing non-listed companies to prepare IFRS consolidated accounts.In most EU countries, the link between financial accounting and tax accounting represents a major barrier to convergence. Other frequently cited barriers include disagreement with certain IFRS and the complicated nature of certain IFRS. International requirements for financial instruments are viewed as particularly problematic.     

Impact of anti-discrimination laws on credit scoring

The political desire for further integration within the European Union will have an increasing effect on the financial services industry, including banking and credit lending. Harmonisation can potentially have great benefit for consumers as the European banks compete for their business across the Union. Harmonisation, however, brings with it a set of decisions for both credit grantors and regulators. There are issues associated with information that can be used in risk assessment to ensure fair decisions in granting credit. In the past the rules have been developed under national legislation. EU directives seek to harmonise the national rules and provide a new guidance on variables that may be held. The major concern relates to the issue of discrimination. The aim of the law is to promote the principle of equal treatment, which can be interpreted in a number of ways. The legal interpretation of discrimination does not necessarily coincide with the economic standpoint. Furthermore, previous empirical research suggests that prohibition of variables may not only affect the ability to distinguish between good and bad risk, but may also be disadvantageous to the groups the legislation is supposed to protect. This paper explores these issues from both theoretical and practical points of view.     

Convergence with IFRS in an expanding Europe: progress and obstacles identified by large accounting firms’ survey

The International Accounting Standards Board (IASB) acquired greater legitimacy and stature when the European Union (EU) decided to require all listed companies to prepare consolidated accounts based on International Financial Reporting Standards (IFRS) beginning in 2005. This study examines the progress and perceived impediments to convergence in 17 European countries directly affected by the EU's decision. These include: (1) the 10 new EU member countries, (2) EU candidate countries, (3) European Economic Area (EEA) countries, and (4) Switzerland. We utilize data collected by the six largest international accounting firms during their 2002 convergence survey. Additionally, we analyze subsequent events and studies.While all surveyed countries will either require or effectively allow listed companies to prepare consolidated financial statements in accordance with IFRS by 2005, few are expected to require IFRS for non-listed companies. This suggests the development of a “two-standard” system. The two most significant impediments to convergence identified by the survey appear to be the complicated nature of particular IFRS (including financial instruments) and the tax-orientation of many national accounting systems. Other barriers to convergence include underdeveloped national capital markets, insufficient guidance on first-time application of IFRS, and limited experience with certain types of transactions (e.g. pensions).