Accounting Classification in the IFRS Era

The degree to which, and the purposes for which, International Financial Reporting Standards (IFRS) have been adopted vary internationally. This paper uses classification techniques in order to investigate the reaction of countries, or companies within them, to IFRS. In addition, this paper investigates five aspects of this; for example, whether European countries mandate IFRS for unconsolidated financial reports. Previous classifications in accounting are used to help to predict and explain this.     

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.     

Firm Size and National Profiles of IFRS Policy Choice

Previous research on the International Financial Reporting Standards (IFRS) policy choices of large listed companies found a very strong association between policy choice and country. Nationally based pre‐IFRS practices largely explain IFRS policy choices. Nevertheless, some of the policy choices appear to be influenced from abroad, perhaps chosen in order to increase comparability. It has been suggested that smaller companies might be less influenced from abroad, and therefore might display even clearer national profiles of IFRS practice. This paper examines the accounting policy choices made within IFRS financial statements by small listed companies in five major countries. We find highly significant differences between the policies of small and large companies. We also find that small companies make more homogeneous choices, within a country, than large companies do. As a result, the previously published national profiles of the IFRS practices of large companies are misleading in the context of smaller ones.     

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.     

China's Convergence with IFRS: Analysis of Dual-listed Companies

This study investigates China's convergence towards International Financial Reporting Standards (IFRS) using generally accepted accounting principles (GAAP) differences data disclosed in AH-share companies’ annual reports from 2006 to 2017. We firstly find that 92% of AH-share companies disclosed GAAP differences in 2006, immediately prior to implementation of converged Chinese accounting standards (CAS). This ratio decreased to 88% in 2007, 58% in 2010, and 38% in 2011, respectively. After 2011, less than one third of AH companies disclosed GAAP differences. Secondly, an increasing number of AH companies (35%) have published CAS-based financial statements in Hong Kong from 2014. Thirdly, except for the first few years after 2007, the disclosed GAAP differences have dropped to a very low level; since 2010 the net profit and net assets GAAP differences ratios have been below 0.5%. Fourthly, reduction of the disclosed GAAP differences appears to be the result of efforts by Chinese standard setters and regulators, work related to the International Accounting Standards Board, or changes in China's special socio-economic environment. Distinct from word-by-word comparison between CAS and IFRS, this research shows that China has achieved its original goal, namely an enterprise applying CAS should produce financial statements that are the same as those of an enterprise that applies IFRS. Our findings provide insights regarding China's institutional evolution in terms of the country's IFRS convergence effort, which are useful for further empirical study.     

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.     

Extending the Classification of European Countries by their IFRS Practices: A Research Note

Abstract

This paper expands the IFRS accounting systems’ classification proposed by Nobes [(2011). IFRS practices and the persistence of accounting system classification. Abacus, 47(3), 267–283] to a broader set of European countries. The results suggest a classification distinguishing between four groups of European countries, and add to the evidence, reported by Kvaal and Nobes [(2010). International differences in IFRS policy choice. Accounting and Business Research, 40(2), 173–187] and Nobes (2011)., that pre-IFRS accounting differences influence the options adopted by firms. This study contributes to the literature suggesting that the widespread adoption of IFRS has not eliminated the differences between national accounting practices and that accounting systems classification did not lose its relevance.     

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.     

Examining dual accounting systems in Europe

After adoption of International Financial Reporting Standards (IFRS) for consolidated financial statements by European-listed companies, a number of European countries still require the use of local standards in the preparation of legal entity financial statements. This study investigates whether this requirement can be explained by a low demand for high-quality financial reporting and an orientation of accounting toward the fulfilment of regulatory needs in these countries. Specifically, using accounting quality as an indicator of the focus of accounting on capital providers' needs, we compare accounting quality between countries permitting and prohibiting the use of IFRS in individual financial statements. Consistent with our expectations, we find that countries requiring the use of local standards in the preparation of legal entity financial statements exhibit a significantly lower level of accounting quality, both prior to and after IFRS adoption. We interpret these results as evidence that these countries have local standards more oriented toward the satisfaction of regulatory needs, rather than investors' needs. Furthermore, since differences in accounting quality persist after the implementation of IFRS, results suggest that firms in these countries face a lower demand for high-quality financial reporting.     

Expensing of share-based payments and its impact on large UK companies

This paper investigates the impact of one of the most controversial and strongly-opposed accounting standards of recent years affecting UK companies, IFRS 2/FRS 20. The standard requires the expensing of share-based payments. The findings of the study show that the accounting standards IFRS 2/FRS 20 have had only a modest impact upon selected performance measures. Findings of this research are out of line with previous studies, which examined the position prior to the implementation of mandatory expensing and mainly cover other countries. Given the modest impact, a question arises as to why the standard was opposed so strongly. It could be concluded that the impact of the standard was overstated to fuel opposition.     

How arbitrary are international accounting classifications? Lessons from centuries of classifying in many disciplines,and experiments with IFRS data

The process of classification is central to the daily task of doctors and librarians; and it is the foundation of study and research in chemistry and biology. Double-entry bookkeeping and the preparation of financial statements are classification activities of accounting practice. Classifying national accounting systems has long been an aspect of accounting research. This paper seeks to extract lessons for accounting researchers from anthropology, biology, chemistry, cosmology and medicine. In particular, we examine how the classifiers themselves and the characteristics that they choose can affect classification. We observe that objectivity is neither possible nor desirable in classification. Despite the arbitrariness, some classifications can be more reasonable or more useful than others. For previous accounting classifications, we analyze the classifiers, the scope, the characteristics used, the data and the classification techniques. We report various problems. We then empirically investigate the sensitivity of classifications to such issues as the characteristics chosen, and the countries and sectors included. For this, we hand pick data on the practices of large listed companies from 12 jurisdictions relating to 14 accounting topics under International Financial Reporting Standards. We show how different researchers could produce different classifications, particularly depending on which accounting topics are used to represent the countries.     

The impact of national GAAP and accounting traditions on IFRS policy selection: Evidence from Germany and the UK

The adoption of IFRS in the European Union in 2005 aimed to increase the comparability of publicly traded companies’ consolidated accounts. However, previous literature questions whether IFRS are applied consistently across countries with differing institutional environments, and therefore, whether de facto harmony has been achieved. We further examine this question by investigating IFRS accounting policy choices of listed companies in Germany and the UK between 2005 and 2009. We find that most firms, when choosing IFRS options, tend to retain accounting policies required by national rules. We also investigate national accounting traditions in the case of options under national GAAP and find that most companies continue these after adopting IFRS. Moreover, there appears to be little significant change in accounting choices over time from 2005 to 2009. Given the differences in accounting rules and practices that exist across countries, our results suggest that international differences in financial reporting are likely to continue under IFRS.     

The Impact and Implications of International Financial Reporting Standards in the United Kingdom: Evidence from the Alternative Investment Market

This paper investigates the implications of the adoption of International Financial Reporting Standards (IFRS) from the perspective of small and growing companies listed on the United Kingdom's (UK) Alternative Investment Market (AIM). We consider the cost–benefit issues of IFRS adoption and investigate its economic consequences. The results reveal that only a small number of comparatively larger AIM companies have voluntarily adopted IFRS for some anticipated economic objectives. The results also suggest that most of the mandatory adopters have done so for regulation compliance purposes and they would not have adopted IFRS if a choice was available to them. As the existing literature mainly covers the impact of IFRS adoption on large listed companies, the findings of this study will give better insights into extending IFRS to private companies. The findings show an association between the early adoption of IFRS and firm size and conclude that size matters in both the adoption and implications of IFRS. This study also contributes to the debate on the implications of the new IFRS‐based UK GAAP for SMEs‐FRS 102, which will replace the majority of existing UK accounting standards for small and medium enterprises (SMEs) with effect from 2015. Our findings have implications for managers, regulators, market participants, practitioners and other stakeholders.     

Accounting for Extractive Industries: Has IFRS 6 Harmonised Accounting Practices by Extractive Industries?

Accounting for extractive industries has historically been practiced by one of a number of methods: successful efforts, full costing, area of interest, appropriation and reserve recognition accounting. The choice of method adopted leads to different accounting figures. The difference in the treatment of the costs leads to different accounting figures being reported in the financial statements of extractive companies. This means that the ‘tell it like it is’ criteria of accounting functions differently, so that stakeholders find like‐with‐like comparisons for decision‐making purposes difficult. These difficulties have culminated in the release of IFRS 6 Exploration for and Evaluation of Mineral Resources, to help harmonise accounting practice. This paper, through content analysis of annual reports of 122 upstream oil and gas companies from around the world, investigates the role of IFRS 6 in harmonising extractive industries’ accounting practices. Our analysis identifies seven types of company, which differ in their compliance with IFRS 6. Hence, we conclude that IFRS 6 has had some success in harmonising accounting treatments of exploration and evaluation expense but that this success is limited and more needs to be done to achieve wider harmonisation for the extractive industries.     

Analyst Following and Forecast Accuracy After Mandated IFRS Adoptions

This study investigates how accounting harmonization affects one particular group of financial statement users—financial analysts. We find that mandatory International Financial Reporting Standards (IFRS) adoption attracts foreign analysts, particularly those from countries that are simultaneously adopting IFRS along with the covered firm's country and those with prior IFRS experience. We also find that mandatory IFRS adoption improves foreign analysts’ forecast accuracy. The change in analyst following increases with the distance between prior local Generally Accepted Accounting Principles (GAAP) and IFRS and with the extent to which IFRS adoption eliminates GAAP differences between the firm's country and the analyst's country. IFRS adoption also attracts more local analysts, particularly those with prior IFRS experience and with an international portfolio prior to mandated IFRS adoption in their home country. Local analysts’ forecast accuracy is not affected by IFRS adoption. Overall, our results suggest that accounting harmonization brings comparability benefits that enhance the usefulness of accounting data.     

An Empirical Evaluation of the Costs of Harmonizing Romanian Accounting with International Regulations (EU Directives and IAS/IFRS)

After the fall of communism, Romanian accounting has undergone several waves of reform. The first began with the 1991 Accounting Law and its 1993 Regulations implementing a French-inspired accounting chart and guidelines. The second wave of reform produced Regulations (in 1999 and 2001) for the harmonization of large entities' accounting with EU accounting directives and International Accounting Standards/International Financial Reporting Standards (IAS/IFRS). An interesting feature was the inclusion of IASB's conceptual framework into the text of these Regulations. Our study seeks to identify and evaluate the costs of harmonizing Romanian accounting with international regulations (EU Directives and IAS/IFRS). We hypothesize that three types of costs are prevalent: personnel training costs, consultants' fees and costs to adjust existing information systems. We also hypothesize that harmonization benefits are noticeable for those entities that make frequent use of foreign finance and for those entities with majority foreign shareholders. To collect data, we sent out questionnaires to the finance directors of listed Romanian companies. As full application of IAS/IFRS by non-financial companies has recently been postponed until 2007, we also comment on the benefits and costs of gradual reforms as opposite to a one-step adoption of IAS/IFRS.     

The Development of Accounting Regulation in Iraq and the IFRS Adoption Decision: An Institutional Perspective

This paper reviews the historical development of accounting regulation in Iraq and analyzes, from an institutional perspective, both the decision to adopt International Financial Reporting Standards (IFRS), and the factors likely to impact the expansion of IFRS application beyond listed companies. We find that all three forms of institutional isomorphism (coercive, mimetic, and normative) explain the initial decision to adopt IFRS. The most significant force in the decision to adopt IFRS is coercive pressure, from western forces following the fall of the Ba'ath regime, and from international aid organizations. Further, we find that the accounting system in Iraq is likely to be further advanced due to mimetic and normative pressures from Iraq's trade partners, multinational corporations, and the accounting profession. The paper concludes with a discussion of lessons that can assist other developing nations, and in particular countries in the Middle East in their decision to adopt IFRS. It is important that IFRS adoption is accompanied by reform to governance and investor protection regimes, together with investment in education and training to support ongoing implementation. Otherwise, IFRS adoption may be perceived as merely symbolic.     

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.     

The Effect of IFRS Adoption and Investor Protection on Earnings Quality Around the World

This study examines the effects of mandatory IFRS adoption and investor protection on the quality of accounting earnings in forty-six countries around the globe. The results suggest that earnings quality increases for mandatory IFRS adoption when a country's investor protection regime provides stronger protection. This study extends the current literature that shows that accounting practices are influenced by country-level macro settings. The results highlight the importance of investor protection for financial reporting quality and the need for regulators to design mechanisms that limit managers' earnings management practices.     

Using Google Trends to track the global interest in International Financial Reporting Standards: Evidence from big data

This study proposes a novel method for identifying international accounting differences under International Financial Reporting Standards (IFRS). Using Google Trends data extracted between January 2014 and August 2022, it creates an index, the Global IFRS/IAS Search Index (GISI), which comprises the search activities of 121 jurisdictions for 45 IFRS accounting standards. To assess its relative validity, I classify Nobes' (1983) 14 jurisdictions in addition to 20 OECD countries. The cluster analysis demonstrates that the GISI is a viable alternative for analyzing international differences under IFRS. The results indicate that incorporating big data could be beneficial for examining global accounting issues. A judgmental international classification of financial reporting practices