The Impact of IFRS Adoption on an Agribusiness Company's Financial Statements

This fictional case is based on a Canadian public company that produces greenhouse vegetables. Focusing on the differences between International Financial Reporting Standards (IFRS) and Canadian Accounting Standards for Private Enterprises (ASPE), this case provides students an opportunity to (1) apply IFRS in a real world setting; (2) prepare and reconcile financial statements under ASPE and IFRS; (3) analyze the impact of IFRS adoption on key financial ratios; and (4) detect and explain differences in financial statements under ASPE and IFRS through common size analysis.     

IFRS Conversion: The Case of a Marine Defence Company

This case is based on a privately held company that had implemented Accounting Standards for Private Enterprises (ASPE) but has now, in anticipation of a public offering, voluntarily decided to change from ASPE to Canadian IFRS for its December 31, 2013 fiscal year‐end. This case demonstrates that the fear associated with implementation of new accounting standards is often blown out of proportion, with the result that companies incur significant and unnecessary financial costs and employees experience undue stress. Although businesses can have complex IFRS issues, the approach of training staff, extensive planning, and preparing the board of directors and owners for the implications on the bottom line can be utilized by both large and small organizations to reduce the stress of IFRS implementation. Students are required to prepare a report to identify the accounts that will require changes, to analyze and recommend a course of action for those accounts for which IFRS provide options, to develop an implementation plan for parallel tracking for a 12‐month period, as well as make recommendations for project team members, budget, and timeline.     

Regroupements d'entreprises et IFRS: le cas de GlobeCom Corporation et Synthetics Inc.

This case addresses the accounting for mergers and acquisitions in Canada. Since January 1, 2011, any new transactions from mergers and acquisitions made by a public company must be recorded in accordance with the International Financial Reporting Standards (IFRS). In the case of a partial acquisitions, two theoretical approaches to accounting is allowed under IFRS 3: the approach of a separate entity and the modified approach of the parent entity. For mergers and acquisitions that occurred before this date, firms could either be early adopters to IFRS or firms could apply the Canadian standards that were allowed at the time of reunification. Under Canadian GAAP (CICA, Chap. 1581), partial acquisitions are accounted for using the approach of the parent entity. Canadian public companies that have chosen to recognize their business combinations which occurred before January 1, 2011, according to the approach of the parent entity, may continue to do so even after the enforcement of IFRS. Thus for years to come, we can see in the financial statements of various Canadian public companies business combinations presented in three different ways: according to the separate entity approach, the parent entity approach and, the modified approach of the parent entity. We also include in the case the U.S. GAAP for mergers and acquisitions. In this case, we strongly draw on an acquisition that actually happened, which we adapted to illustrate the three theoretical approaches to account for mergers and acquisitions. In particular, we have changed the name of the company.     

Canada Generators Limited*

This case depicts an armchair situation involving a newly formed small private Canadian company that has recently begun operations in Western Canada. Of concern to the owners is their understanding that Canadian generally accepted accounting principles (GAAP) are about to be replaced by International Financial Reporting Standards (IFRS) at the end of 2010, and so the statements in their present form will have to be conformed to the new standards if the company decides to go public with a share offering, which is an option it is considering. Other issues facing the company concern the appropriate accounting and reporting requirements that will be required in order to allow the company to secure additional financing and engage in some necessary research and development. This case is suitable for students who have progressed beyond the introductory financial accounting level; it involves adjustments to inventory and capital asset accounts as well as income effects including taxation, and it draws out some of the more important nontransitional differences between GAAP and 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.     

Artisan Flowers Inc.: A Framework‐Based Approach to IFRS Leasing Standards

Artisan Flowers Inc.'s (AFI) business is centered on importing and selling cut flowers. The company has entered into a number of lease transactions that have the president of AFI perplexed with their accounting treatment and implications. Now, the audit firm needs to explain to AFI's president the appropriate treatment and implications of these lease transactions using current IFRS (IAS 17) and (optionally) the 2013 Lease Exposure Draft. The purpose of this case is for students to gain an understanding and appreciation of the intricacies of IAS 17 as well as the proposed Lease Exposure Draft and the implication of these standards on debt covenants. Students are asked for an explanation of the conceptual basis for the standards and for an analysis of the impact of the standards on AFI's statement of financial position.     

Insights from Accounting Practitioners on China's Convergence with IFRS

This study provides insights from accounting practitioners on China's convergence with International Financial Reporting Standards (IFRS). Through a survey of 33 senior financial executives of Chinese listed companies in 2014, the study reports their perceptions on the following issues: first, the degree of convergence between IFRS and Chinese Accounting Standards (CAS); second, the choice between fair value and historical cost accounting, and the usefulness of fair value accounting for Chinese companies’ financial reporting; third, challenges in the process of China's harmonisation with IFRS; and finally, essential capabilities of Chinese accounting professionals in the process of China's harmonisation with IFRS. Multivariate regression was used for further analysis. The survey findings reveal that in general CAS have converged with IFRS, with a few exceptions that reflect the unique Chinese context. Historical cost accounting is the preferred measurement base to fair value accounting. Exercising professional judgement was identified as a challenge for China's full convergence with IFRS. Ownership structure and the expertise of accounting practitioners were found to affect respondents’ judgements on China's convergence with IFRS. This study has policy implications for international accounting standard setters and accounting educators to consider the contextual issues of implementing IFRS in an emerging economy.     

THE SUBSTANCE OF ACCOUNTING FOR PUBLIC‐PRIVATE PARTNERSHIPS

This article evaluates Public‐Private Partnerships (PPP) accounting practice and the related financial accounting and reporting requirements. Governments across the world are seeking to access private finance to improve public infrastructure. Accounting for PPPs has encountered many difficulties, one of which is the practice by which PPPs are not accounted for as fixed assets on the balance sheet of either the public sector client or the private sector operator. Accounting for PPPs has grown in importance at a time of transition from national Generally Accepted Accounting Practice (GAAP) to International Financial Reporting Standards (IFRS). Under UK GAAP, both client and operator accounting adopt the reasoning – familiar from leasing standards – of the allocation of risks and rewards between the parties to determine the party which should recognize the fixed asset on its balance sheet. The gap in IFRS with regard to operator accounting has been filled by the interpretation IFRIC 12 on service concession agreements: this moves the reasoning from risks and rewards to control, familiar from consolidation standards. The UK Treasury and the International Public Sector Accounting Standards Board (IPSASB) have required/proposed the adoption of the mirror‐image treatment of IFRIC 12. In most, but not all, cases, control will be assessed to rest with the client, which will recognize property, plant and equipment, and not with the operator, which will recognize either a financial asset or an intangible asset on the basis of an assessment of which party bears the majority of risks and rewards. Under both UK GAAP and IFRS, accounting policy choices are strongly influenced by, for the client, governmental control frameworks, and for the operator, by the implications for the profile of distributable profits and for taxation. An important public policy issue is that the national accounts, which for European Union member states must comply with European System of Accounts 1995, will remain on a risks and rewards basis. It is these numbers that will be used in assessments of macro‐fiscal policy and fiscal risks, notwithstanding that the Eurostat version of risks and rewards is even more open to manipulation than were the national financial reporting standards.     

Does IFRS Mandatory Adoption Affect Information Asymmetry in the Stock Market?

The purpose of International Financial Reporting Standards (IFRS), adopted mandatorily by European listed firms in 2005, is to increase the transparency and the comparability of accounting information, which should have led to improvements in these firms’ information environments. This study uses market microstructure proxies for information asymmetry to examine the effects of IFRS adoption on the level of information asymmetry in the Spanish stock market. Therefore, we consider a setting with substantial differences between local standards – Spanish Accounting Standards (SAS) ? and IFRS and where the level of enforcement is low. By controlling for conventional determinants of information asymmetry and firms’ characteristics that influence their information environments, we find a reduction of information asymmetry after IFRS adoption. Our findings suggest that the mandatory switch from local accounting standards to IFRS conveys benefits to the market, even when the enforcement level is not strong.     

Evolving Connections Between Tax and Financial Reporting in Italy

We analyze the evolution of the relationship between tax and financial reporting in Italy after the mandatory introduction of International Financial Reporting Standards (IFRS) in 2005. Italy represents an interesting case study among European countries, with domestic generally accepted accounting principles (GAAP) oriented towards creditor protection and characterized by a close connection of financial and tax accounting. Unusually, the adoption of IFRS is compulsory for the unconsolidated financial statements of listed companies, but the process of alignment of domestic GAAP to IFRS, that has affected some countries, has had little effect on Italy. Thus, two accounting systems, IFRS and Italian GAAP, are used for the preparation of unconsolidated financial statements by different categories of companies and, as a consequence, two different linkages between tax and financial reporting emerge. In order to assess the degree and the direction of the book-tax linkages we use the methodology developed by Lamb, Nobes and Roberts (1998. International variations in the connections between tax and financial reporting, Accounting and Business Research, 28(3), pp. 173–188). IFRS and tax reporting show a high degree of disconnection, while Italian GAAP, in line with the accounting tradition of most continental European countries, are closely related to tax rules. The analysis points out a rapidly evolving situation, with links between accounting systems and taxation becoming tighter, mainly because of the changes in tax law introduced during the last few years.     

Assessing international accounting harmonization in Latin America

We draw on institutional theory and interviews with key informants to assess international accounting harmonization in the 13 countries of the Group of Latin American Accounting Standards Setters (GLASS). Some GLASS countries have effected full formal adoption of International Financial Reporting Standards (IFRS), but in others, IFRS are not permitted. In several GLASS countries, IFRS are supplemented by national standards for micro-entities and cooperatives. We conclude that it will be difficult to achieve material harmonization in GLASS countries due to a lack of trained accountants, unreliable enforcement systems, and competing institutional logics of taxation systems, banks and insurance companies.     

中国对于国际会计协调的基本态度与所面临的问题

本文从分析当前国际经济全球化的背景和国际财务报告准则制定及其应用的急剧变化出发,认为我们应当积极关注国际财务报告准则发展和国际会计协调与趋同的进展情况。尽管我国目前尚没有完全采用国际财务报告准则,但是中国实际上也是国际财务报告准则的使用者和受益者,为此,中国一方面支持国际会计准则理事会制定全球公认会计准则的努力,另一方面也将积极参与国际会计协调与趋同进程。与此同时,考虑到中国当前所面临的特殊会计环境及其对我国会计国际协调与趋同的影响,中国会计国际化将适应经济发展的需要,走一条渐进式改革之路。为此,本文提出了一个务实、可行的会计国际化策略。     

Do IFRS Reconciliations Convey Information? The Effect of Debt Contracting

We examine whether earnings reconciliation from U.K. generally accepted accounting principles (GAAP) to International Financial Reporting Standards (IFRS) convey information. As a result of debt contracting, mandatory accounting changes are expected to affect the likelihood of violating existing covenants based on rolling GAAP, leading to a redistribution of wealth between shareholders and lenders. Consistent with this prediction, we find significant market reactions to IFRS reconciliation announcements. These market reactions are more pronounced among firms that face a greater likelihood and costs of covenant violation and early announcements. While the association between later announcements and weaker market reactions is consistent with contractual implications of technical changes to earnings, which investors quickly learn to predict, it is inconsistent with IFRS forcing all firms in the sample to reveal firm-specific information through accruals. Thus, by showing that mandatory IFRS also affects debt contracting, we expand on existing IFRS research that focuses on how accounting quality and cost of capital are impacted.     

Mandating IFRS in an Unfavorable Environment: The Greek Experience

There is an ongoing debate concerning the efficacy of mandating high-quality accounting standards in unfavorable economies with inadequate institutional infrastructures. Greece provides us with an example of an unfavorable jurisdiction for enforcement of International Financial Reporting Standards (IFRS) due to its code-law tradition, bank orientation, concentrated corporate ownership, poor shareholders' protection, and low regulatory quality. Assuming that these conditions undermine managers' and auditors' incentives for high-quality financial reporting, how likely is it that mandating IFRS in such an environment will be effective? To address this research question, we explore potential effects of IFRS enforcement on two salient properties of accounting income: value relevance and conditional conservatism. Our results indicate only minor improvements in both of them after IFRS implementation.     

Measuring convergence of National Accounting Standards with International Financial Reporting Standards

This paper analyses three methods for measuring the success achieved in effecting convergence between any two sets of accounting standards. We begin by reviewing a measurement method based on the concept of Euclidean distances. We then propose two better measures (involving Jaccard's coefficients and Spearman's coefficients) to assess the progress of National Accounting Standards setting bodies in converging their standards with International Financial Reporting Standards [IFRS]. For illustrative purposes, we measure the convergence of National Accounting Standards in Portugal with International Accounting Standards [IAS] and IFRS over the period 1977–2003.     

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.     

Anticipating the Impact of IFRS on the Management of German Manufacturing Companies: Some Observations from a British Perspective

The introduction of International Financial Reporting Standards (IFRS) in 2005 marked a significant departure from Germany's traditional financial accounting practices. This paper questions whether this change may have consequential effects on the distinctive traditional management accounting practices in the field of Controlling. We examine the possible impact on manufacturing companies drawing upon perceptions and expectations of managers in three Bavarian companies and two management consultancy firms. We consider whether financial accounting will assume an increased importance within firms, and whether this may lead to abandonment of some traditional management accounting practices and the adoption of different techniques in internal reporting compatible with the new IFRS regime for external reporting. This prompts consideration of whether such changes would lead to financial accounting domination of management accounting in Germany analogous to that argued by Johnson and Kaplan in 1987 in their ‘Relevance Lost’ thesis. We conclude that, at this juncture in the development of their information systems, German managers face an important choice between integrating external and internal reporting in ways that might fundamentally change established Controlling practices, or of continuing to operate dual accounting systems in much the same way as in the past so that adoption of IFRS is restricted to external reporting.     

IFRS in the United States: If,When and How

This paper provides an overview of the convergence efforts of the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board. It begins with their 2002 Memorandum of Understanding and traces developments up to the December 2011 announcement by the IASB Chair that convergence has come to a close, and it is now time to incorporate IFRS into the US financial reporting system. The paper then assesses approaches being considered by the SEC for incorporating IFRS into the US financial reporting model. The conclusion calls on the SEC to ‘make a decision’ and set a date for US adoption of IFRS. Otherwise, the SEC effectively will have abandoned its goal of a single set of high quality global accounting standards.     

An Instructional Case Comparing the Accounting Policies and Financial Results of Online Retailers

In the role of financial analyst for a venture capital firm, you are assigned the responsibility of evaluating two online retailers who have applied for financing to build a distribution center in western Canada. Based on your developing knowledge of Canadian accounting standards for private enterprises (ASPE), you evaluate the financial reporting policies and financial results of the two companies to identify the company that is best suited for your firm's support. Through this case, you will refine your understanding of ASPE and you will exercise your reasoning and analytical skills.     

Accounting Policies in the Extractive Industry: A Global and a Turkish Perspective

This paper investigates the influence of accounting standards on financial reporting for companies in the extractive industry. In Turkey, listed firms have prepared their financial reports according to the International Accounting Standards and the International Financial Reporting Standards (IAS/IFRS) since 2005, as has the European Union. The aim of this study is to determine the degree of compliance with IFRS 6, comparing global and Turkish extractive entities. We find that the entities reporting in accordance with IFRS 6 in Turkey are more likely to fail to declare their accounting policies, whereas global companies are more likely to be compliant with IFRS 6.