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100 Questions (and Answers) About IFRS
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DOI: 10.2139/ssrn.1526846
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100 Questions (and Answers) about IFRS (revised Dec 2011)
100 Questions (and Answers) about IFRS

Professor Rachel Baskerville
School of Accounting and Commercial Law, Faculty of Commerce, Victoria University of Wellington
PO Box 600, Wellington, New Zealand Email: Rachel.Baskerville@vuw.ac.nz
December 31, 2011
(replacing the first version dated December 24 2009)
Abstract:
IFRS are cultural artefacts. They are spreading worldwide, often under the benign encouragement by entities
such as the World Bank, and possibly through regulators suggesting the advantages of competitive innovation.
But the spread of IFRS1 is not like the spread of muskets two centuries earlier. They do not similarly offer a
prohibitive advantage to new adopters, but have to be gently harnessed to each local legal and professional
habitus.
Once this happens, IFRS are not the same worldwide. Think of McDonalds hamburgers. When eating
hamburgers in Shanghai or Siena, what I am offered is different: there is no Kiwiburger (with its typical beetroot)
over there. IFRS, being cultural artefacts, are transformed to meet local consumer demand (user needs) e.g.
they may be used for a selective number of entities, or every entity (as happened in NZ from 2007: including a
charity, sports club, the national Government, or a local city council).
Plus, a translator of IFRS into the local language is more than a shape-shifter or skin-changer (as Tolkien
described Beorn): languages embody different ways of thinking. You would be very unwise to attempt to
understand the differential reception or impact of IFRS with a largely discredited quantitative approach such as
Hofstedes cultural indices. A nation state is rarely one culture, and yet IFRS become culturally embedded.
More and more, quality research as reported in this Handbook reflects that the impact of IFRS in share markets
worldwide depends on local enforcement and monitoring. Even in one small share market, IFRS is not a
package deal. It is a number of standards applied to a greater or lesser degree to variety of transactions in a
diversity of companies, monitored by numerous auditors. The auditor might use the English version of the IFRS
or IAS, or they might use the local version. Roll your sleeves up and talk to a good number of local auditors and
preparers. Understand their understandings. We need such research.
Heres another metaphor: when you have an X-ray the utility or benefit it of it depends on the expertise of those
interpreting the picture of what lies within. At first, the use of X-ray (Roentgen Rays) had some disastrous side
effects (childhood leukaemia in babies X-rayed in utero) because the exact impact was not well understood. As
with looking at an X-ray, financial reports based on IFRS have to be examined with an expert gaze to
understand what lies beneath, or within the entity, as seen in its financial report. World-wide we are all learning
what can be seen and what cant. We cannot stop another financial crisis occurring with IFRS adoption. But we
might reduce its disastrous impact with better educated and more expert users of IFRS (preparers and auditors).
I hope you are on the path towards developing such an expert eye, and that this Handbook will assist.
This Handbook has been revised extensively since its first publication in December 2009. It contains a hundred
questions and answers about IFRS, prepared as a resource for my students at the Universities of Victoria
(Wellington, New Zealand) and Exeter in the UK, so it is idiosyncratically written with a level of personal
familiarity, as they know me well.
It might have been called IFRS for Dummies, excepting that was published last year, and the name is heavily
copyrighted. This Handbook is replete with references to other authors, as it is intended as a resource so that
when planning research projects, or writing essays and assignments, students may find an entry point into the
extensive IFRS literature. For any one of these 100 questions, the Abstracts offer key search words to use with
any Search Engine of choice. Most of the material is referenced from www.iasplus.com, www.ifrs.org or
www.ssrn.com. These three websites offer an excellent starting point.
1
IFRS is the same for both singular or plural, like the word sheep. It is pronounced if-res.
Page 1 of 64
Electronic copy available at: http://ssrn.com/abstract=1526846

Copyright:
The copyright of this Handbook belongs to R. F. Baskerville. The copying, reproduction,
redistribution, retransmission or storage of any parts of the contents of this Handbook is permitted as
long as the source is correctly attributed, it is for the purpose of education and research, and for no
commercial gain of any variety.
Links to Other Sites

I provide referrals to other sites from this Handbook. Such a link should not be seen as an
endorsement, approval or agreement with any information or resources offered at sites you can access.
No inference or assumption should be made and no representation should be inferred that I am
connected with, operate, or control these Web sites. Any link does not represent either explicitly or by
implication that I have received any endorsement, sponsorship or support for this Handbook.
Warmest thanks to Carolyn Cordery, Simon Cox,

and to my ACCY 231 students at Victoria
University of Wellington for their review and
suggestions of useful questions
Cite this as: Baskerville, Rachel F., 100

Questions (and Answers) About IFRS
(December 31, 2011).
http://ssrn.com/abstract=1526846
Disclaimer by R. F. Baskerville
1. The information in this Handbook may be subject to change without notice.
2. I accept no liability for use of or reliance on information contained on this Handbook
3. I accept no liability for any error or omission in relation to content of this Handbook.
4. I accept no liability to you for any direct or indirect loss suffered, whether financial or
otherwise, as a result of accessing this Handbook, or technical errors, irrespective of the cause.
5. I do not represent or warrant that the information accessible via this Handbook is accurate,
complete or current.
6. I do not have any liability whatsoever in respect of any use which you make of this
information.
Page 2 of 64
Electronic copy available at: http://ssrn.com/abstract=1526846

At a glance: These 100 questions are arranged in alphabetical order
1. Access to IFRS: How can I access IFRS?

2. Accounting Policy choice - what does this mean for IFRS?
3. Accrual accounting: what is it and why does it matter?
4. Adoption of IFRS: What happens when companies change to using IFRS? (see next question too.)
5. Adoption of IFRS: How do Investors React to IFRS Adoption?
International Financial Reporting Standards in a sample of 25 jurisdictions:
6: Adoption of IFRS: What happened in Australia?
7. Adoption of IFRS: What happened in Brazil?
8. Adoption of IFRS: What is happening in Canada?
9. Adoption of IFRS: What happened in China?
10. Adoption of IFRS: What happened in the EU?
11. Adoption of IFRS: What happened in Finland?
12. Adoption of IFRS: What happened in Germany?
13. Adoption of IFRS: What happened in Greece?
14. Adoption of IFRS: What happened in Hungary?
15. Adoption of IFRS: What happened in Ireland?
16. Adoption of IFRS: What happened in Italy?
17. Adoption of IFRS: What is happening in Japan?
18. Adoption of IFRS: What happened in Malaysia?
19. Adoption of IFRS: What happened in New Zealand?
20. Adoption of IFRS: What happened in Norway?
21. Adoption of IFRS: What happened in Poland
22. Adoption of IFRS: What happened in Portugal?
24. Adoption of IFRS: What happened in Russia?
25. Adoption of IFRS: What is happening in Singapore?
26. Adoption of IFRS: What happened in South Africa?
27. Adoption of IFRS: What happened in Spain?
28. Adoption of IFRS: What is happening in Turkey?
29. Adoption of IFRS: What happened in UK?
30. Adoption of IFRS: What is happening in USA?
31. Adoption of IFRS multi-country comparisons
32. Assumptions: What are two underlying assumptions used in IFRS?

33. Audit quality: What is it and do IFRS impact on Audit quality?
34. Balance Sheet (aka Statement of Financial Position). Is the balance sheet more important than an
Income Statement?
35. Banks: what particular issues do they have with IFRS adoption?
36. Books about IFRS: what books other than textbooks are there about IFRS?
37. Can I use an old edition of the book of IFRS for my accounting studies?
38. Can I visit the IASB and IFRS.org?
39. Capital maintenanceWhat does that mean?
40. Comparability: what is it and why do people keep going on about it?
41. Comprehensive Income: where is that in a financial report?
42. Why is there Confusing jargon in IFRS and other places?
Conceptual Framework.see Framework
43. Consolidations and Business Combinations: what IFRS apply to accounting for a group of entities?
44. Convergence, and its meanings
45. Cost of equity or cost of capital what is that, and is it impacted by the adoption of IFRS?
46. Creditor Protection? Why do they need it?
47. Culture: How much does the culture or ethnicity of each country impact on accounting and IFRS
harmonisation?
Page 3 of 64
48. Debt Contracting: are there any IFRS impacts?

49. Debt Financing: were there any IFRS impacts?
50. Depreciation and Impairment in IFRS what is their relationship?
51. Discounted Cash Flow Valuations: what rate should be used?
52. Downloading and Printing: Why can I not download and print off all parts of the IFRS material
from the IASB website?
53. Due process: What does due process mean?
54. Early Adoption of IFRS what happens to firms when they use IFRS early?
55. Earnings quality: does the use of IFRS alter earnings quality?
56. Earnings management does IFRs permit more or less of such practices?
57. Economic consequences of IFRS - What would they be?
58. Elements and Entities - what do these mean?
59: What is the Emerging Economies Group (EEG)?
60: What is an entity?
61. ESO i.e. stock options; are these governed by any IFRS?
62. Fair Value: what is fair value?
63. FASB what is this group?
64. Financial Instrument recognition: what has happened to IAS 39?
65. Framework (the same as a Conceptual Framework): is this an accounting standard?
66. Fundamental concepts: what are these four, and how do they differ from Qualitative
characteristics?
67. Funding: How is the IASB funded?
68. GAAP, not a clothes shop? No.
69. Goodwill: what is that! Where is it in an IFRS?
70. Goodwill Impairment: how is this calculated?
71. Governance of the IASB: How are members of the IASB appointed?
72. Hierarchy of Authority - Is that important?
73. How can I find out the differences between local GAAP in my own country and IFRS GAAP?
74. IAS: What are IASs?
75. IFRS: What do the IFRS Foundation and the IASB do?
76. IASC what is that body?
77. IFRS Foundation . Who are they?
78. IFRIC what are IFRICs?
79. IFRS: How many IFRS are there? And how many IASs are there?
80. Impairment: what issues are there here?
81. Life Insurance do these companies have any IFRS issues?
82. Lobbying when is a good time to do it if I have a gripe?
83. Mark-to-market: what does mark to market mean?
84. Pension Plans or Schemes: are they part of IFRS GAAP?
85. Qualitative characteristics what does that mean?
86. Politics: what are the politics around the IASB and its stakeholders?
87. Principles versus Rules: what is the deal with this phrase?
88. Ratios: how does IFRS adoption impact on ratio calculations?
89. Revenue Recognition where has the IASB got to on this topic?
90. SEC how is the SEC involved?
91. Sector-Neutrality, meaning?
92. SMEs: Do IFRS apply to SMEs?
93. Tax what are some issues in revising the IFRS for Tax?
94. Translation: Are there translations of IFRS?
95. True and Fair is this a problem in EU states?
96. Understandability as a Qualitative characteristics: what does that mean?
97. Value Relevance, meaning?
98. Who has to comply with IFRS?
99. Why can I not find an IFRS which deals with the accounting practice I need to find out about?
100. XBRL: any takers?
Page 4 of 64
1. Access to IFRS: How can I access IFRS?

Best idea is to join IAAER, as membership of US $20 for students includes full and unlimited access
to all electronic International Financial Reporting Standards.
eIFRS includes the most up-to-date electronic html versions of all International Financial Reporting
Standards including International Accounting Standards (IASs), Interpretations (IFRICs/SICs) and
IASB-issued supporting documents-application guidance, illustrative examples, implementation
guidance, bases for conclusions and all appendices. Look at
www.iaaer.org/join to sign up for student access.
Or have a look at http://www.ifrs.org/IFRSs/IFRs.htm
The IFRS Foundation provides access free of charge to the current years consolidated
unaccompanied IFRSs in English as issued by the IASB and published in the Bound
Volume.You may download the content of these pages for your own personal non-
commercial use onlyTo access the unaccompanied IFRSs you need to be a registered
user. Registration is free and takes only a few minutes.
2. Accounting Policy choice - what does this mean for IFRS?
When an IFRS gives you a choice of ways to recognise or measure an element (see Elements) you
have an accounting policy choice.
Some examples are:
a) choosing whether or not to measure the value of your buildings on the Balance Sheet at
Historic Cost, or at Fair value (IAS 16 para 31)
b) Choosing which depreciation method to use to depreciate your assets (IAS 16 para 60)
c) Choosing which method to value your inventory/stocks (IAS 2)
d) Choosing, when you build a new factory, whether or not to include your bank loan (interest)
cost as part of the costs of the asset construction (IAS 23)
The accounting policy choice literature from academic research has identified many factors that are
useful in explaining variations in the accounting choices of companies. There are lots of choices in
IFRS.
Chris Nobes is recognised world-wide as an expert in the area of International Accounting; many of
you will have used his textbook written with Bob Parker.
When Kvaal and Nobes looked at systematic differences in 16 IFRS accounting policy treatments
between countries, they used annual reports of blue chip stocks in the largest five stock markets that
use IFRS. For starters, they determined that IFRS practices are not the same across countries. Instead
they found significant evidence that pre-IFRS national practice continues where this is allowed within
IFRS, thus documenting the existence of national patterns of accounting within IFRS. Ref: Kvaal,
Erlend and Nobes, Christopher William, International Differences in IFRS Policy Choice (September
2, 2009). Accounting and Business Research, Forthcoming 2010. http://ssrn.com/abstract=1466693
A comparison of the evidence for conservative accounting policy choices by UK and Australian
companies, with the mandatory or optional use of fair value measurement was offered by Cairns et al,
2008, and they found there appeared to be a lack of incentives to use fair value measurement for most
companies although banks, Australian property companies, and insurance companies may be an
exception as far as their financial assets are concerned. Ref: Cairns, David, Massoudi, Dianne Renee,
Taplin, Ross and Tarca, Ann, IFRS Fair Value Measurement and Accounting Policy Choice in the
United Kingdom and Australia (February 6, 2009). AAA 2009 Mid-Year International Accounting
Section (IAS) Meeting. http://ssrn.com/abstract=1274024
An Abacus article by Jaafar and McLeay on Country Effects and Sector Effects on the
Page 5 of 64
Harmonization of Accounting Policy Choice reflected their frustration at the lack of explanations of
the impact of the harmonization process; as adoption of different accounting methods is attributable
not only to the rules and regulations in the different jurisdictions, but also to specific characteristics of
the firms. They offer a statistical analysis of financial reporting harmonization, by employing a
logistic regression to predict the odds of using alternative accounting methods for inventory,
depreciation and goodwill valuations. The empirical results suggest that, after allowing for
international exposure and firm size, country effects continue to be far greater than sector effects,
which is inconsistent with harmonized accounting. Ref: Jaafar, Aziz and McLeay, Stuart, Country
Effects and Sector Effects on the Harmonization of Accounting Policy Choice. Abacus, Vol. 43, No. 2,
pp. 156-189, June 2007. http://ssrn.com/abstract=988568
3. Accrual accounting: what is it and why does it matter?
Accrual accounting means that you record revenues and expenses when they happen, regardless of
when cash is exchanged. You end up with lists in your Balance Sheet of
a) people you owe money to (your creditors ) and
b) those who owe you money (your debtors ).
It is thought of as opposite to cash accounting, which would be like taking all the entries in your bank
statements and organising them into a revenues and expenses to calculate your profit. Accrual
accounting is a method which has been used for centuries for companies, but less so in other sectors
such as the public sector, non-for-profit sector, or for Trusts, clubs, or incorporated societies. Its use
sector-wide is still debated, and it is attracting a steady stream of diverse research approaches.
e.g. When Goncharov and Jacob wanted to examine whether the use of accruals in taxable income has
an effect on variability and magnitude of corporate tax revenues, they used a tax accrual index that
counted accrual norms required in tax accounts in an OECD sample of 27 countries. In high-accrual
countries tax revenues are less volatile and exhibit higher correlation with economic income, and tax
revenues are on average higher in these countries as well. Ref: Goncharov, Igor and Jacob, Martin,
Accrual Accounting and Tax Revenues (September 27, 2011). http://ssrn.com/abstract=1912003
Adela Deaconu et ors show the materialization of accrual accounting benefits for Romania as an
emerging economy and in terms of all independent variables used in the study, fixed assets, liabilities,
revenues and costs. It also shows the gradual evolution of finding the advantages of the Romanian
accounting systems transition from a cash basis to an accrual basis in the two analyzed stages, the
transition and post-reform periods. It proves thus the correlation between the pace of regulatory
changes and their application in practice, indirectly confirming the orientation of the Romanian
standard-setters towards IPSAS and accrual accounting. Moreover, this research is an argument for
the importance of accounting and of the economic analysis which the study can support through
proper financial reporting. Deaconu, Adela, Cristina Silvia, Nistor and Crina, Filip, The Impact of
Accrual Accounting on Public Sector Management: An Exploratory Study for Romania (2011).
Transylvanian Review of Administrative Sciences, No. 32E, February 2011.
How accrual accounting and cash flows relate to share[stock] prices is one of the Holy Grails of
accounting research: see the literature informing a study suggesting that accrual accounting rules
prescribe that earnings add to shareholder value, but cash flow is irrelevant to the valuation of
equity.... [and] cash flow from operations also reduces the market value of the business dollar-for-
dollar and is unrelated to the changes in market value of the equity Ref: Penman, Stephen and
Yehuda, Nir, The Pricing of Earnings and Cash Flows and an Affirmation of Accrual Accounting
(October 10, 2004). http://ssrn.com/abstract=603482
See also Sakthi Mahenthiran, Mara Blanco and David Cademartori, 2008, Effects of Accruals, Cash
Flows, and Taxes on Earnings Management: Evidence from Chile and Malaysia,
Page 6 of 64
Pfeiffer, Thomas and Velthuis, Louis J., Incentive System Design Based on Accrual Accounting: A
Summary and Analysis (2009). Journal of Management Accounting Research, Forthcoming.
Jagalla, Tobias, Becker, Sebastian and Weber, Jurgen, A Taxonomy of the Perceived Benefits of
Accrual Accounting and Budgeting: Evidence from German States. Financial Accountability &
Management, Vol. 27, No. 2, pp. 134-165, 2011. http://ssrn.com/abstract=1815806
The usefulness of accrual accounting for decision making in 106 Greek local government bodies :
Cohen, Sandra, Kaimenakis, Nikolaos and Venieris, George, Reaping the Benefits of Two Worlds:
An Exploratory Study of the Cash and the Accrual Accounting Information Roles in Local
Governments (July 31, 2009). Journal of Applied Accounting Research (forthcoming).
Using the intersect between Game theory and Agency Theory, Michael Raith modelled a two-period
principal-agent model in which a manager can be compensated based on an early signal of a future
outcome of his action, or (later) based on the outcome itself. In this dynamic setting it is optimal to
use both performance measures even if the signal is strictly noisier than the outcome. Accrual
accounting enables the firm and the manager to "settle up" in each period, which is optimal if the
manager cannot commit to a long-term contract Ref: Raith, Michael, An Agency Theory of
Conservative Accrual Accounting (2009). http://ssrn.com/abstract=1326089
See also:
A Romanian study by Adriana Tudor and Alexandra Mutiu, 2006, Cash versus Accrual Accounting in
Public Sector, http://ssrn.com/abstract=906813 who note:
In public sector the cash basis of accounting has been traditionally used, but in the last
period there have been discussions over the benefits of a change to the accrual basis. There
are a lot of important supporters of cash basis like IFAC, who issued 21 IPSAS, based on
IAS/IFRS, EU commission and IMF. Many organizations like SIGMA and the DFID which
work in transitional and developing countries, question the priority, for these countries at least,
of moving from the cash to the accrual basis of accounting. So the move to the accrual basis
for public sector financial reporting has not gained universal acceptance. In Europe, there are
a lot of countries who refuse to make the change, or who have increased doubts. In this
confused international context Romania started in 2006 to implement the accrual accounting
for public sector. In our article we intend to analyze the evolution of the movement from cash
to accrual accounting in public sector, and the factors who influenced the movement in the
case of Romanian accounting public sector
or Christoph Kaserer and Carmen Klingler, 2008, The Accrual Anomaly Under Different
Accounting Standards Lessons Learned from the German Experiment Journal of Business Finance &
Accounting, Vol. 35, No. 7-8, pp. 837-859, http://ssrn.com/abstract=109988
Several studies document that investors systematically overreact to accrual-based accounting
information. We address the question to what extent this accrual anomaly is related to different
accounting standards. We provide empirical evidence that the accrual anomaly is also present in
Germany. However, this anomaly seems mainly to be driven by firms presenting their financial
statements under IFRS or US-GAAP, while the anomaly is unlikely to exist for those firms complying
with German GAAP. It is argued that introducing true and fair view accounting, like IFRS, that relies
on difficult-to-verify information, may not be suitable to improve accounting information quality in
the context of a weak corporate governance system.
4. Adoption of IFRS: What happens when companies change to using IFRS? (see next question
too.)
Lets see what people like Ray Ball think (see 2006, International Financial Reporting Standards: Pros
and Cons for Investors, in Accounting and Business Research, http://ssrn.com/abstract=929561 ) He
says:
Page 7 of 64
Accounting in shaped by economic and political forces. It follows that increased worldwide
integration of both markets and politics (driven by reductions in communications and
information processing costs) makes increased integration of financial reporting standards and
practice almost inevitable. But most market and political forces will remain local for the
foreseeable future, so it is unclear how much convergence in actual financial reporting
practice will (or should) occur. Furthermore, there is little settled theory or evidence on which
to build an assessment of the advantages and disadvantages of uniform accounting rules
within a country, let alone internationally. The pros and cons of IFRS therefore are somewhat
conjectural, the unbridled enthusiasm of allegedly altruistic proponents notwithstanding. On
the "pro" side of the ledger, I conclude that extraordinary success has been achieved in
developing a comprehensive set of "high quality" IFRS standards, in persuading almost 100
countries to adopt them, and in obtaining convergence in standards with important non-
adopters (notably, the U.S.). On the "con" side, I envisage problems with the current
fascination of the IASB (and the FASB) with "fair value accounting." A deeper concern is
that there inevitably will be substantial differences among countries in implementation of
IFRS, which now risk being concealed by a veneer of uniformity. The notion that uniform
standards alone will produce uniform financial reporting seems naive. In addition, I express
several longer run concerns. Time will tell.
And in a different approach, Minga Negash looks at four recent studies (2009), The Effects of IFRS
Adoption: A Review of the Early Empirical Evidence http://ssrn.com/abstract=115450)
This review documents the conceptual and methodological issues that relate to the domain of
financial reporting research that attempts to examine whether there are measurable gains, (if
any) stemming from the adoption of international financial reporting standards, (IFRS). It
selects and reviews four recent papers from conceptual, research design and policy
perspectives. Information content, uncertainty-disclosure, value relevance and earnings and
accounting quality studies have all attempted to show the benefits of finer and increased
information environments. Notwithstanding the early evidence, this review argues that the
papers face both epistemological and research design problems, in that IFRS adoption effect
studies do not take cognizance of the contributions of the literatures on financial integration,
earnings sustainability and market microstructure.
Plus a more positive point of view from: Ole-Kristian Hope, Tony Kang and Justin Yiqiang Jin, 2006,
Empirical Evidence on Jurisdictions that Adopt IFRS, Journal of International Accounting Research,
Vol. 5 No. 2 http://ssrn.com/abstract=751264, taking a different viewpoint:
.. Despite the importance of IFRS in the context of global accounting standards
harmonization, little is known regarding what institutional factors influence countries'
decisions to voluntarily adopt IFRS. This issue is relevant to standard setters because a better
understanding of the motivations for adoption will enable them to promote IFRS more
effectively to countries that currently do not employ IFRS. Consistent with bonding theory,
we find that countries with weaker investor protection mechanisms are more likely to adopt
IFRS. Our evidence also shows that jurisdictions that are perceived to provide better access to
their domestic capital markets are more likely to adopt IFRS. Taken together, our results are
consistent with the view that IFRS represent a vehicle through which countries can improve
investor protection and make their capital markets more accessible to foreign investors.
Regarding the continued development of accounting standards, Shyam Sunder discusses some
important considerations, IFRS Monopoly: The Pied Piper of Financial Reporting,
The links among better financial reporting, better markets, and better economy and society
are arguable, but they remain poorly understood. The addition of IFRS to the set of available
alternatives may improve these linkages, but granting them monopoly status does not. Claims
that the universal adoption of IFRS as a single set of high-quality principles-based standards
will yield global comparability are overblown. Accounting standards operate less like a
uniform system of weights and measures and more like a single currency, in that both play
Page 8 of 64
multiple roles in modern economies. An IFRS monopoly is evolutionarily disadvantageous in

that it eliminates the opportunity to compare alternative practices and learn from them. It also
disallows the tailoring of financial reporting to local variations in economic, business,
commercial, legal, auditing, regulatory, and governance conditions across the globe.
Empirical studies of statistical covariation across financial reports produced by IFRS have
yielded mixed results and, in any case, provide little insight as to the merits of granting IFRS
a world monopoly. The vociferous campaign in support of IFRS monopoly is reminiscent of
the 1990s campaign in support of the now-discredited "Washington Consensus." Then, as
now, it was a case of promoting theoretical benefits while obscuring potential costs and risks.
This is the familiar story of the pied piper leading his trusting victims to their doom.
Tan , Welker and Wang investigated how accounting harmonization affects one particular group of
financial statement users - financial analysts. We find that mandatory IFRS adoption attracts foreign
analysts, particularly those from countries that are simultaneously adopting IFRS along with the
covered firms 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 GAAP and IFRS and with the extent to which IFRS adoption
eliminates GAAP differences between the firms country and the analysts 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. Tan,
Hongping, Wang, Shiheng and Welker, Michael, Analyst Following and Forecast Accuracy After
Mandated IFRS Adoptions (2011). Journal of Accounting Research, Forthcoming .
Also see, Anna Loyeung, Zoltan Matolcsy, Joseph Weber and Peter Wells, An Analysis of the
Accounting Errors that Arise During the Transition to IFRS, http://ssrn.com/abstract=1752485
Bhat, Gauri, Callen, Jeffrey L. and Segal, Dan, Credit Risk and IFRS: The Case of Credit Default
Swaps (October 7, 2011). http://ssrn.com/abstract=1653887
Natascia Multari and Michela Cordazzo, 2009, Implications of IFRS Transition for Firms
Accounting Figures: Italy vs. Germany, http://ssrn.com/abstract=1511603
5. Adoption of IFRS: How do Investors React to IFRS Adoption?
This is a really popular question with academic researchers; and if you look lists of references in the
following papers you will find heaps more work on this. And they cant decide!
Messod Beneish, Brian Miller and Teri Yohn, 2009, The Effect of IFRS Adoption on Cross-Border
Investment in Equity and Debt Markets http://ssrn.com/abstract=1403451 who thought
We find that the widespread adoption of IFRS in 2005 has no discernable effect on adopting
countries' ability to attract foreign equity investment2, or on its equity home bias. By contrast,
we find that IFRS adoption positively impacts cross-border debt investment 3: adopting
countries attract more debt investment, and lower the extent of their debt home bias. In tests
that condition on institutional and market factors, we find that the post-adoption increase in
cross-border debt investment is driven by adopting countries that have weaker investor
protection (higher ownership concentration, weaker legal enforcement, and weaker
shareholder rights), and higher financial risk (higher dividend payout, lower liquidity, and
lower credit rating). Our findings indicate IFRS adoption reduces the agency costs of debt 4 in
countries with less developed investor protection and greater financial risk
2
People buying shares
3
e.g. Banks lending the companies more money
4
E.g. the interest rate the bank charges
Page 9 of 64
Another study is Ulf Brggemann, Holger Daske, Carsten Homburg, and Peter Pope, How Do
Individual Investors React to Global IFRS Adoption? (2009). AAA 2010 Financial Accounting and
Reporting Section (FARS) Paper. http://ssrn.com/abstract=1458944
We examine the impact of global IFRS adoption on cross-border equity investments by
individual investors. The Open Market at Frankfurt Stock Exchange, a segment designed for
German individual investors to trade a large selection of foreign stocks, provides an ideal
setting to address this research question. Using a sample of 4,869 firms from 31 countries
around the world, we find that stocks experience an increase in Open Market trading activity
following mandatory adoption of IFRS. This increase is both economically and statistically
significant. Our results are consistent with the idea that collective IFRS adoption has the
potential to reinforce foreign equity investments by individual investors.
Additional studies have focused on the effects of IFRS adoption and stock price informativeness and
portfolio allocation, see Gilberto Loureir and Alvaro Taboada, 2010, The Impact of IFRS Adoption on
Stock Price Informativeness, http://ssrn.com/abstract=1952593
We examine how the adoption of IFRS across 32 countries affects stock price
informativeness. Overall, we document a decline in stock price informativeness over time.
However, we find that voluntary adopters, arguably the more serious and committed adopters,
experience a less severe decline in stock price informativeness following IFRS adoption.
These results suggest that the benefits associated with IFRS adoption may accrue more to
voluntary adopters. In addition, we find that enforcement plays a critical role on the impact of
IFRS adoption. Firms in countries with better enforcement have higher firm-specific return
variation, and experience a less severe decline in stock price informativeness relative to those
firms in countries with weaker enforcement. In addition, we document a positive impact of
enforcement on the post-IFRS stock price informativeness of mandatory adopters. Our results
are robust to alternate measures of stock price informativeness and enforcement.
Also see, Annita Florou and Peter Pope, 2009, Mandatory IFRS Adoption and Investor Asset
Allocation Decisions, http://ssrn.com/abstract=1362564
In this paper we examine whether the mandatory introduction of International Financial
Reporting Standards leads to an increase in institutional ownership of equities. Using a large
global ownership database covering over 144,000 unique institutional investors from around
the world we find that the equity ownership increases in the year of IFRS adoption and in the
next year. However, positive IFRS-related ownership effects are found only for countries with
strict legal enforcement and relatively low levels of corruption and earnings management.
Further IFRS-related ownership changes are higher for value and growth investors as well as
for active investors, who rely most on financial statements in their investment decision
processes. Our study is the first to show that the mandatory adoption of IFRS affects the asset
allocation decisions of institutional investors and that the legal context determining
compliance and enforcement is an important determinant of institutional demand for
equities.
Did the Adoption of IFRS Encourage Cross-Border Investment? was asked by Lee and Fargher asking
whether the adoption of IFRS is associated with an increase in the level of investment in foreign
equities held by Australian investors. The results show that the adoption of IFRS is associated with
greater cross-border equity investment. The results are consistent with investors benefitting from a
reduction in information asymmetry through an increase in the comparability of financial reports.
Lee, Gladys and Fargher, Neil L., Did the Adoption of IFRS Encourage Cross-Border Investment?
(October 5, 2010). http://ssrn.com/abstract=1686571
How does the adoption of IFRS across 32 countries affects stock price informativeness? Overall, we
document a decline in stock price informativeness over time. However, we find that voluntary
adopters, arguably the more serious and committed adopters, experience a less severe decline in stock
price informativeness following IFRS adoption. These results suggest that the benefits associated with
IFRS adoption may accrue more to voluntary adopters. In addition, we find that enforcement plays a
Page 10 of 64
critical role on the impact of IFRS adoption. Firms in countries with better enforcement have higher
firm-specific return variation, and experience a less severe decline in stock price informativeness
relative to those firms in countries with weaker enforcement. In addition, we document a positive
impact of enforcement on the post-IFRS stock price informativeness of mandatory adopters.
Loureiro, Gilberto R. and Taboada, Alvaro G., The Impact of IFRS Adoption on Stock Price
Informativeness (2011). http://ssrn.com/abstract=1952593
In contrast, Beuselinck, Joos, Khurana, and Van der Meulen examine whether mandatory adoption of
IFRS reduces firm opacity and contributes to stock price informativeness. Using data from EU
countries, we document a V-shaped pattern in stock return synchronicity around IFRS adoption which
is consistent with IFRS disclosures revealing new firm-specific information in the adoption period
(i.e., a reduction of synchronicity) and subsequently lowering the surprise of future disclosures (i.e.,
an increase in synchronicity). We also find that mandatory IFRS adoption (1) increases analyst ability
to incorporate industry-level information into stock prices and (2) reduces the private information
advantage enjoyed by institutional owners. Further, our results are especially driven by firms
domiciled in strong enforcement countries, highlighting the importance of enforcement quality for the
transparency effects of IFRS. Beuselinck, Christof, Joos, Philip, Khurana, Inder K. and Van der
Meulen, Sofie, Mandatory IFRS Reporting and Stock Price Informativeness (2009).
See also Joanna Shuang Wu and Ivy Zhang, 2009, The Adoption of Internationally Recognized
Accounting Standards: Implications for Credit Markets, http://ssrn.com/abstract=1425209 : Our
results suggest that voluntary adoptions of IFRS/U.S.GAAP come with significant increases in the
sensitivity of credit ratings to the accounting default factor. No such evidence is found for mandatory
adoptions except in countries with stronger rules of law.
Okuda, Shin'ya, Who Benefits from the Adoption of IFRS? (September 28, 2010).
http://ssrn.com/abstract=1684169 suggesting that in certain conditions, there is a conflict between
firms' managers and investors, with regard to the adoption of IFRS. It also demonstrates that although
the quality of accounting standards is an important condition, it does not necessitate IFRS preference
by managers and investors. This sheds light on the fact that the ratio of foreign investors affects the
decision.
Drake et ors ask: Are Liquidity Improvements Around the Mandatory Adoption of IFRS Attributable
to Comparability Effects or to Quality Effects? Using a treatment sample of more than 5,000 firms
from 22 countries that required reporting under IFRS on or before fiscal 2005, we find an increase in
aggregate market liquidity around mandatory IFRS reporting. We examine whether the positive
market effect on liquidity of mandatory IFRS reporting is attributable to the convergence of diverse
accounting standards into a single set of accounting standards (i.e., Comparability Effects), to
improved financial reporting quality (i.e., Quality Effects), or both. We find evidence suggesting that
liquidity improvements are attributable to increased comparability. In addition, we find that the
Quality Effect around the IFRS mandate is generally negative, suggesting that the markets in our
sample behave as if the mandatory adoption of IFRS will not increase financial reporting quality
(beyond domestic generally accepted accounting principles) in most sample countries. Drake, Michael
S., Myers, Linda A. and Yao, Lijie, Are Liquidity Improvements Around the Mandatory Adoption of
IFRS Attributable to Comparability Effects or to Quality Effects? (September 2010). AAA 2010
Financial Accounting and Reporting Section (FARS) Paper. http://ssrn.com/abstract=1466353
The next twenty five questions are to alert students to different country studies, because it is important
to realise that responding to questions about IFRS adoption, advantages and disadvantages of IFRS
etc will vary hugely across the world. Be very sure when you are researching for this type of question
that you note where studies are undertaken, and when. Get the geography, ethnicity, and the
chronology right, and then you will be talking about it usefully and constructively.
Page 11 of 64
6: Adoption of IFRS: What happened in Australia?

The most useful publication for understanding how Australia has adopted IFRS is the Deloitte
publication (PDF) on their iasplus.com site, which describes all the differences between what they
term A-IFRS and the IASB IFRS. http://www.iasplus.com/au/0509differences.pdf
Julie Cotter, Ann Tarca and Marvin Wee, 2009, IFRS Adoption and Analysts' Earnings Forecasts:
Australian Evidence, http://ssrn.com/abstract=1487371
We study 145 large listed Australian firms to explore the impact of IFRS adoption on the
properties of analysts' forecasts and the role of firm disclosure about IFRS impact. We find
that analyst forecast accuracy improves and there is no significant change in dispersion in the
adoption year, suggesting that analysts have benefited from IFRS adoptionThe findings
raise questions about the timeliness and usefulness of financial statement disclosure, even in a
setting where disclosure was mandated by accounting standards (AASB 1047 and AASB 1)
and firms had strong incentives to provide information to analysts.
Ron Day, Christine Ryan and James Guthrie contended that an examination of the history of private
and public sector involvement in the accounting standard setting process to date, and the explanations
and applications of regulatory theory, will do much to contextualise and inform the decision
process. private interests have dominated the consciousness of the professional accounting
standard setters at all important stages of standard setting in Australia, culminating in the merger of
the Public Sector Accounting Standards Board with the Australian Accounting Standards Board, to
form a new AASB, under the Financial Reporting Council strategic direction. We then argue that this
new AASB was itself captured by a corporatist mix of private interests, government strategy, and
international developments, to enable the decision to adopt sector-neutral IFRS standards to take place.
After exploring the process that led to these decisions, we examine the consequences of it, particularly
in relation to the public sector. Day, Ron, Ryan, Christine Merle and Guthrie, James, Theoretical and
Historical Context of Adoption of Sector Neutral IFRS in Australia - Issues and Consequences for the
Public Sector (2005) http://ssrn.com/abstract=1361361
See also: An Analysis of the Accounting Errors that Arise During the Transition to IFRS where it is
shown that characteristics of the firm, the CFO, and the firms auditor are all associated with IFRS
transition errors, and that these errors are associated with larger bid/ask spreads (i.e. greater
information asymmetry) and increased audit fees as market participants react to the firms difficulties
adopting a new GAAP. We suggest that this evidence is helpful to both U.S. firms and regulators as
the U.S. moves towards IFRS adoption, and also useful to academics, as it suggests the long term
benefits of IFRS are likely understated, as transition errors may temporarily understate these benefits.
Loyeung, Anna, Matolcsy, Zoltan P., Weber, Joseph Peter and Wells, Peter Alfred, An Analysis of the
Accounting Errors that Arise During the Transition to IFRS (January 31, 2011).
Philip Brown, John Preiato and Ann Tarca, 2009, Mandatory IFRS and Properties of Analysts
Forecasts: How Much Does Enforcement Matter?, UNSW Australian School of Business Research
Paper No., 2009, ACCT 01
Chalmers, Keryn, Clinch, Greg, Godfrey, Jayne M. and Wei, Zi, Intangible Assets, IFRS, and
Analysts Earnings Forecasts (October 1, 2010). Accounting and Finance, Forthcoming.
S. Haswell and J. McKinnon, 2003. IASB Standards for Australia by 2005: Catapult or Trojan Horse?
Australian Accounting Review, 13(1), 8 - 16.
Tyrone Carlin and Nigel Finch, 2008, Financial Reporting Reform and Organisational Change
Evidence from Australias IFRS Adventure, http://ssrn.com/abstract=1308782
7. Adoption of IFRS: What happened in Brazil?
Orleans Martins and Edilson Paulo, 2010, The Reflection of the Adoption of IFRS in the Performance
Analysis of Publicly Traded Companies in Brazil, http://ssrn.com/abstract=1721050
Page 12 of 64
This study aims to investigate the reflection of IFRS adoption on the performance indicators of
Brazilian companies, seeking to identify during the period investigated there was a reduction of the
differences between the indicators calculated from the national accounting standard and international
standard. For this, we conducted an exploratory and descriptive study supported by the inductive
method, using the techniques of collecting material from the literature review and documentary
research. Thus, the financial statements were collected from thirteen companies listed on BM&F
Bovespa, prepared in accordance with BR GAAP and IFRS for the years 2007, 2008 and 2009, from
which were analyzed seven performance indicators. In their results, we can observe that the adoption
of IFRS has been reflected in the analysis of company performance through positive changes in
indicators of financial dependency, debt ratio, return on assets and return on equity, and negative
changes on indicators of immobilization of permanent staff, general liquidity and current ratio.
However, differences between the indicators calculated from the two sets of standards have declined
due to the increasing convergence of Brazilian accounting standards to international accounting
standards
Ricardo Lopes Cardoso, 2008, Accounting Regulation and Regulation of Accounting: Theories and
the Brazilian Case of Convergence to IFRS http://ssrn.com/abstract=128806
The convergence process of national accounting practices into international standards requires
significant changes on accounting regulation. ... However, as important as to adopt and audit the
adoption of International Financial Reporting Standards, it is important to understand changes on
accounting regulation. Although, there are not been discussed the incentives and consequences of this
accounting regulation tsunami in the Latin-American context. This theory-based paper examines the
Brazilian IFRS convergence experience in an interdisciplinary perspective. All five theories of
regulation examined (Public Interest, Capture, Interests Group, Reale's, and Habermas') are
concurrent among them but are helpful in examining IFRS convergence phenomenon; in some cases
they provide complementary explanations.
Murcia and Santoss study focused specifically on derivative transactions. For these, a disclosure
index has been elaborated using recent Brazilian standards, which are based on the IAS 39
Financial Instruments Recognition and Measurement and on the IAS 32 Financial Instruments:
Disclosure and Presentation. [looking at] the top 100 largest non-financial public companies.
Information has been gathered from Financial Statements for the years ended in 2006, 2007 and 2008
with the use of content analysis. Main findings are: (i) more than half of companies did not disclose
the initial accounting effects of new standards, (ii) the majority of companies did disclose the fair
value of these financial instruments but did not disclose the criterion utilized in computing them and
(iii) some companies still do not evidence any information regarding their transaction with derivatives.
In sum, new accounting standards, based on IFRS, did have a positive impact of corporate disclosure
but companies still do not disclose all the information required. Murcia, Fernando D.R. and Santos,
Ariovaldo Dos, Evidences of IFRS Implementation in Brazil: The Case of Derivatives (2010).
8. Adoption of IFRS: What is happening in Canada?
The best place to start for this jurisdiction is the Deloitte iasplus.com site, where Deloitte Canada has
published the December 2009 issue of their Countdown IFRS transition newsletter, to discuss
practical issues Canadian companies are facing in IFRS transition as well as to provide an update on
recent IFRS events. http://www.iasplus.com/index.htm
They note: January 1st 2010 will be the date of transition to IFRS for many Canadian publicly
accountable entities signalling the preparation of the opening IFRS balance sheet as well as the start
of dual reporting. In addition, there will be some Canadian early adopters filing their first IFRS
financial statements in 2010.
9. Adoption of IFRS: What happened in China?
Oxelheim, Lars, Globalization, Transparency and Economic Growth: The Vulnerability of Chinese
Firms to Macroeconomic Shocks (September 23, 2008). Journal of Asian Economics, Vol. 21, No. 1,
2010; IFN Working Paper No. 768. http://ssrn.com/abstract=1274224 finding China has recently
Page 13 of 64
adopted IFRS in her efforts to improve the quality of information available for risk management and
for pricing of risk. This paper claims that further improvements are needed and presents a new
framework for how to understand and measure the impact of different scenarios on corporate
performance. It also elaborates on how to communicate the macroeconomic effects to external
stakeholders of the firm in a way that fosters further economic growth in China.
Jean Jinghan Chen and Haitao Zhang, 2009, The Impact of Regulatory Enforcement and Audit upon
IFRS Compliance: Evidence from China, http://ssrn.com/abstract=143931
provided empirical evidence from China that adopting IFRS does not necessarily lead to IFRS-type
accounting practices. Using a sample of 103 Chinese B-share companies between 1999 and 2004,
we reveal that the decline in earnings difference between firms financial statements under Chinese
GAAP and IFRS is the result of the implementation of the 2001 policy and the audit committee which
effectively control the firms application of standards rather than the differences between the
standards. we do not find evidence for international audit firms outperforming their Chinese local
CPAs with regard to IFRS compliance
Songlan Peng and Kathryn Bewley, 2009, Adaptability of Fair Value Accounting in China:
Assessment of an Emerging Economy Converging with IFRS, http://ssrn.com/abstract=1326004
This paper examines fair value accounting (FVA) adoption and implementation, within the historical
and social-economic context of an emerging economy, China. As FVA is a major component of IFRS ,
the findings provide insights on global challenges to international accounting convergence. . The
findings show (1) a roller-coaster trajectory going from complete ignorance, to an abortive
introduction, to abrupt prohibition, and finally to aggressive re-introduction within a short period.
China's practices in adopting and implementing FVA in IFRS appears to be driven by political and
economic conditions, not by the readiness of the capital market or of other fundamental infrastructure.
(2) China has extensively adopted FVA derived from IFRS but substantial divergence persists, posing
a challenge to IASB's goal of uniform accounting. (3) China's implementation of FVA has improved
only slightly since the first failed attempt at fair value reform, calling into question the effectiveness
of future implementation efforts.
a) See also Luo Ping, 2008, China's Convergence to IFRS with Particular Respect to its Banking
Industry, Financial Markets, Institutions & Instruments, Vol. 17, Issue 1, pp. 43-49
b) Jean Chen and Haitao Zhang, 2009, The Impact of Regulatory Enforcement and Audit Upon
IFRS Compliance: Evidence from China, http://ssrn.com/abstract=1439312
c) Karthik Ramanna, G Donovan and Nancy Dai, 2009, IFRS in China,
d) John L. Haverty, 2004, Are IFRS and U.S. GAAP Converging? Some Evidence from People's
Republic of China Companies Listed on the New York Stock Exchange, American
Accounting Association, 2004, Mid-Atlantic Region Meeting Paper
10. Adoption of IFRS: What happened in the EU?
There is an extensive literature in the EU, and the specific country studies in this handbook may be
more useful in understanding its impact. But you might like to look to at references cited by
(a) Franois Aubert and Pascal Dumontier, 2009, Analyzing Brokers Expertise: Did Analysts Fully
Anticipate the Impact of IFRS Adoption on Earnings? The European Evidence
Since 2005, all European Union listed firms must comply with IFRS. The resulting mandatory
changes in accounting methods have substantially affected reported earnings predictions. . analysts
were not able to efficiently anticipate the consequences of the IFRS adoption on earnings, forecast
errors being significantly associated with differences in earnings resulting from the compliance with
the new financial reporting standards
Page 14 of 64
(b) Alain Devalle, Riccardo Magarini and Enrico Onali, 2009, Assessing the Value Relevance of
Accounting Data after the Introduction of IFRS in Europe http://ssrn.com/abstract=152067
We examine whether value relevance increased following the introduction of IFRS, using a
sample of 3,721 companies listed on five European stock exchanges: Frankfurt, Madrid, Paris,
London and Milan. We find mixed evidence of an increase in value relevance. However, the influence
of earnings on share price increased following the introduction of IFRS in Germany, France and the
UK, while the influence of book value of equity decreased (except for the UK).
See also
a) Aubert, Franois and Grudnitski, Gary, The Impact and Importance of Mandatory Adoption of
International Financial Reporting Standards in Europe. Journal of International Financial
Management & Accounting, Vol. 22, No. 1, pp. 1-26, 2010. http://ssrn.com/abstract=1726921
b) Loureno, Isabel Costa and Dias Curto, Jos, The Level of Shareholder Protection and the
Value Relevance of Accounting Numbers: Evidence from the European Union Before and
After IFRS (2008). AAA 2009 Mid-Year International Accounting Section (IAS) Meeting.
c) Agostino, M., Drago, D. and Silipo, Damiano Bruno, International Accounting Standards and
Information Efficiency in the European Stock Market (2008).
11. Adoption of IFRS: What happened in Finland?
Hannu J. Schadewitz and Markku J. Vieru, 2007, How Markets Valuate and Response to IFRS
Reconciliations Adjustments in Finland, http://ssrn.com/abstract=100560
This study focuses on the value relevance and market responses of mandatory transition to
IFRS , using samples of Finnish first-time IFRS adopters. The Finnish data is used since prior
research findings suggest large differences between Finnish accounting standards (FAS) and
IFRS. Some evidence of value relevance is found in IFRS adjustments on earnings but not
with IFRS adjustments in shareholders' equity. Furthermore, only minor market responses on
stock returns and no excess trading after the release of IFRS reconciliation adjustments are
evidenced. This suggests that great deal of IFRS reconciliations, if relevant, were anticipated
by investors.
Heny Jarva and Anna-Maija Lantto, 2010, Information Content of IFRS versus Domestic Accounting
Standards: Evidence from Finland, http://ssrn.com/abstract=1588087
This paper compares the information content of financial statements based on IFRS with those
based on Finnish Accounting Standards (FAS) using a sample of mandatory IFRS adopters.
Finland is particularly well suited for this comparison because it has a high-quality reporting
environment, its domestic standards differ significantly from those of IFRS, and it allowed early
adoption of IFRS. The results show that earnings under IFRS are no more timely in reflecting
publicly available news than earnings under FAS. Furthermore, book values of assets and
liabilities measured under IFRS are no more value relevant than they are under FAS. However,
additional analyses reveal that IFRS earnings provide marginally greater information content
than FAS earnings for predicting future cash flows. Several possible reasons for these results are
discussed.
12. Adoption of IFRS: What happened in Germany?
Mari Paananen and Cecilia Lin, 2008, The Development of Accounting Quality of IAS and IFRS over
Time: The Case of Germany, http://ssrn.com/abstract=1066604
We examine the characteristics of accounting numbers using a sample of German companies
reporting under IAS (2000-2002), and IFRS (2003-2004) and (2005-2006). We investigate the
change in accounting quality during these time periods as IASB revises and issues new
standards. Contrary to expectations, we find that earnings and book value of equity are less
value relevant during the IFRS periods than the IAS period. The findings on earnings
Page 15 of 64
smoothing and timely loss recognition corroborate the value relevance test. Our results
suggest that firms in the IFRS periods manage earnings more and do not recognize losses in a
timely manner as compared to the IAS period. These results are reasonably robust even when
we remove new and less experienced adopters of IFRS.
Or Joachim Gassen and Thorsten Sellhorn, 2006, Applying IFRS in Germany - Determinants and
Consequences, Betriebswirtschaftliche Forschung und Praxis, Vol. 58, No. 4, pp. 365-386
We address three research questions motivated by the recent ascent of International
Financial Reporting Standards in Europe. First, analyzing the determinants of voluntary IFRS
adoption by publicly traded German firms during the period 1998-2004, we find that size,
international exposure, dispersion of ownership, and recent IPOs are important drivers.
Second, using the results from this determinant model to construct propensity score-matched
samples of IFRS and German-GAAP (HGB) firms, we document significant differences in
terms of earnings quality: IFRS firms have more persistent, less predictable and more
conditionally conservative earnings. Third, analyzing information asymmetry differences
between IFRS and HGB firms, we show that IFRS adopters experience a decline in bid-ask
spread of 70 base points and an average of 17 more days with price changes per year. On the
other hand, IFRS adopter's stock prices seem to be more volatile. In the light of some
important limitations of our study, we discuss IFRS-related research opportunities in post-
2005 Europe
See also:
Alexander Schiebel, 2007, Empirical Value Relevance of German GAAP and IFRS, Journal of
Economic and Financial Sciences, Vol. 1, No. 2, pp. 141-170
13. Adoption of IFRS: What happened in Greece?
Ioannis Tsalavoutas, Paul Andr and Lisa Evans, 2009, Transition to IFRS and Value Relevance in a
Small but Developed Market: A Look at Greek Evidence, http://ssrn.com/abstract=1286474
We examine the value relevance of accounting fundamentals before and after the mandatory
transition to IFRS in Greece. We find no significant change in the value relevance of book value of
equity and earnings between the 2004 pre IFRS and 2005 post IFRS periods. We also find no change
in the relative value relevance of accounting information (i.e., R2) between the two periods. We
conclude that the accounting framework is not in itself sufficient for changing market participants
perception about value relevance of accounting information. However, market participants viewed the
extra information provided by reconciliations between Greek GAAP and IFRS for 2004 figures as
incrementally value relevant, mainly for smaller firms.
See also Tsalavoutas, Ioannis and Evans, Lisa, Transition to IFRS in Greece: Financial Statement
Effects and Auditor Size (2010). Managerial Auditing Journal, Vol. 25, No. 8, 2010.
14. Adoption of IFRS: What happened in Hungary?
Szilveszter Fekete, Dumitru Matis and Jnos Lukcs, 2009, Factors Influencing the Extent of
Corporate Compliance with IFRS - The Case of Hungarian Listed Companies,
Since 2005 European listed companies report their financial figures based on IFRSs. This paper
investigates whether Hungarian listed companies comply with IFRS disclosure requirements,
identifying some factors associated with the level of compliance. Although the issue of consolidation
is not a new topic for Hungarian specialists, the analysis focuses on the disclosure aspects of
consolidation because publishing consolidated accounts is considered still a problematic field (Fekete,
2008). Findings suggest that corporate size and industry type (more specifically being in the IT&C
sector) are statistically associated with the extent of compliance with IFRS disclosure requirements.
This suggests that big, high tech companies comply best to IFRS rules, possibly because they can
benefit the most from them.
Page 16 of 64
15. Adoption of IFRS: What happened in Ireland?

According to iasplus.com, since 2005, listed groups in Ireland have been required to prepare their
consolidated financial statements using IFRS. Almost all other groups have a choice. They can use
IFRS, Irish GAAP as developed by the Accounting Standards Board (ASB), and if they are small they
have a further option of using the Financial Reporting Standard for Smaller Entities (FRSSE). But
from 2012, the options are expected to change. Irish GAAP is expected to be replaced with the IFRS
for Small and Medium-sized Entities http://www.iasplus.com/country/ireland.htm (see SME)
16. Adoption of IFRS: What happened in Italy?
Cordazzo provided empirical evidence of the nature and the size of the differences between Italian
accounting principles and IFRS, finding a greater discrepancy between Italian GAAP and IFRS in
the accounting treatment of intangible assets, income taxes, and business combinations with reference
to both net income and equity; while the individual reported differences in provisions, financial
instruments, and leases evidence a significant impact only on equity. Cordazzo, Michela, The Impact
of IFRS on Accounting Practices: Evidence from Italian Listed Companies (November 12, 2009).
Oriani and Sobrero used a sample of Italian publicly traded firms in the period of 1996-2006, to
analyze whether and to what extent the mandatory adoption of IFRS has affected the value relevance
of intangible assets. Prior literature has claimed that IFRS adoption should improve the quality of
accounting information and reduce information asymmetries. We find a statistically significant
decrease in the value relevance of intangible assets, and in particular of goodwill, after the IFRS
adoption. In contrast, in the Italian setting investors evaluation of R&D expenditures seems not to be
value relevant under either accounting standards. Morricone, Serena, Oriani, Raffaele and Sobrero,
Maurizio, The Value Relevance of Intangible Assets and the Mandatory Adoption of IFRS (June 1,
2009). http://ssrn.com/abstract=1600725
See also Giovanni Melis, Andrea Melis and Alessandro Pili, 2006, Fair Value and Stakeholder-
Oriented Accounting Systems: Some Evidence from Italy, Corporate Ownership and Control, Vol. 4,
pp. 127-138
17. Adoption of IFRS: What is happening in Japan?
In 2008, the IASB and the Accounting Standards Board of Japan (ASBJ) published a MoU, known
as the Tokyo Agreement, which described work to achieve substantial convergence between IFRS and
Japanese GAAP by June 2011. In 2009 the Japanese Business Accounting Council (BAC), a key
advisory body to the Commissioner of the Japanese Financial Services Agency (FSA), approved a
roadmap for the adoption of IFRS in Japan.
http://www.ifrs.org/Use+around+the+world/Global+convergence/IFRS+global+convergence.htm
Market Reactions to Accounting Policy Choices for Mergers and Acquisitions: Evidence for the
Japanese Adoption of International Accounting Standards by Tadanori Yosano, Yoshinori Shimada in
2010 noted: The purpose of this paper is to explore, through M&As accounting policies, whether the
Japanese adoption of IFRS is favorable for market participants. .we found that investors interpreted
earning figures congruently despite the different accounting policies used. This phenomenon is
consistent with the functional fixation hypothesis, which suggests that investors are bottom-line
oriented. Second, we found that acquiring firms' who choose to expense entire goodwill values within
the current fiscal year in order to alleviate investors' concerns that the M&A would negatively impact
bottom-line earnings, and we have found that this is done successfully, convincing investors to regard
the immediate write-off as an irrelevant item to the firm's future earnings. The immediate write-off
deserves our attention, because it yields the same future bottom-line earnings as firms who use the
purchase with impairment method prescribed in IFRS 3 and SFAS 141/142 (on ssrn)
18. Adoption of IFRS: What happened in Malaysia?
Mohd Halim Kadri and Mohamed Zulkifli, 2008, Relationship Between Market Value and Book
Value of Malaysian Firms Under Pre and Post FRS
Page 17 of 64
Many researches have been conducted on the effect of adoption of IFRS on value relevance of
firms Even though they were employing similar model their results were not conclusive. In
Malaysia, the effect of adoption of FRS on value relevance of accounting numbers is still not known
yet. The results show that significant relationship exists between market value, book value and
earnings throughout the period under study. When the sample is separated into MASB and FRS
periods, a more significant relationship between market value, book value and earnings exists during
the FRS period.
See also Nur Hidayah Laili, 2008, IFRS Adoption and Organisational Change - Evidence from
Malaysia, Journal of Law and Financial Management, Vol. 7, No. 2, pp. 8-25
19. Adoption of IFRS: What happened in New Zealand?
IFRS were adopted slightly later than Australia and the EU, but were adopted widely through the
public and not-for-profit sectors, as well as companies.
See the discussion in: M. E. Bradbury and R. F. Baskerville, The NZ in 'NZ IFRS': Public Benefit
Entity Amendments (2008). Australian Accounting Review Forum, Vol. 18, No. 46, pp. 185-190
http://ssrn.com/abstract=1503674; we noted that
In 1992, New Zealand adopted a sector-neutral approach to standard setting where the difference in
accounting treatment is driven by differences in the nature of transactions and not by ownership or the
objectives of the reporting entity. This study reviews the impact of adaptations of IFRS to ensure their
successful application in a sector-neutral environment. A fundamental question of the move to IFRS is
whether the public benefit entity amendments in NZ IFRS have contaminated the IFRS for profit-
orientated entities or diluted the available guidance for public benefit entities. This suggests that it is
worthwhile for Australia and New Zealand to monitor and reconsider their sector-neutral approach to
adopting IFRS.
For an update on the economic consequences of IFRS adoption see Nurul Houqe and Tony Van Zijl,
2011, The Economic Consequences of IFRS Adoption in New Zealand,
This study contributes to the current debate about IFRS adoption by documenting the
association between IFRS adoption and economic consequences (proxied by ex ante cost of
equity capital) in New Zealand listed companies. Using a sample of 392 firm year observation
over the period 1998-2009, we document a significant negative association between IFRS
adoption and ex ante cost of capital. This metric will help for the decision making of
professional investors and corporate financial managers equally. From a regulatory
perspective, a principle function of the capital market is to supply capital to firms as cheaply
as possible. In reality, supports have often advocated IFRS on this basis. For example, the
former SEC chairman Arthur Levitt, once stated that The truth is, high quality standards
lower the cost of capital (Levitt 1998). Furthermore, it points out that firms which
implemented the IFRS have gained a comparative advantage on the equity market. These
results are robust to numerous variations in sample composition and model specifications.
20. Adoption of IFRS: What happened in Norway?
Norway is interesting, as the European IAS regulation applies not only to the 27 EU Member States
but also to the three members of the European Economic Area (EEA) Iceland, Liechtenstein, and
Norway. So, as Norway is an EEA Member, Norwegian companies listed in a share market have
followed IFRS since 2005.
Leif Atle Beisland and Kjell Henry Knivsfl, 2009, studied Have IFRS Changed How Investors
Respond to Earnings and Book Values? http://ssrn.com/abstract=133453
We use a sample from the Oslo Stock Exchange in Norway over the years 2003-2006 to
examine whether this shift in reporting regime from local GAAP to IFRS has changed how
investors respond to accounting information. We find that while the association between stock
prices and book values has increased after the transition to IFRS, the earnings response
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coefficient has decreased. The increased association between book value and stock market
value is attributed to more recognition of intangible assets and more measurement at fair
value. The reduced response to earnings is found to be driven by non-recurring items. Thus,
fair value revaluations appear to be detrimental to the value relevance of earnings.
21. Adoption of IFRS: What happened in Poland
Karol Klimczak examined abnormal returns around annual consolidated report publication, and the
value relevance of earnings and book value of equity. Results show that annual report publication
does not produce unexpected information either before, on, or after the adoption. Similarly, value
relevance estimations do not provide evidence of a change in the valuation of accounting numbers
after IFRS adoption. Klimczak, Karol Marek, Market Reaction to Mandatory IFRS Adoption:
Evidence from Poland (2011) http://ssrn.com/abstract=1752809
Dorota Dobija and Karol Klimczak, 2009, Development of Accounting in Poland: Market Efficiency
and Value Relevance of Earnings, http://ssrn.com/abstract=108442 noted
Transition economies are faced with a challenge of quick creation and adaptation of their
financial markets to match developed countries. This paper outlines the evolution of the
information environment of the Warsaw Stock Exchange in Poland. It traces changes in
financial reporting regulation from 1994, through adoption of IFRS and corporate governance
codes, to the crisis of 2007/2008. The effect of these developments is then evaluated
empirically by testing market efficiency and the association between stock returns and
reported earnings of listed corporations from 1997 to 2008. Results show that the Polish stock
market is weak-form efficient for weekly and monthly returns, but not for daily returns.
Value-relevance tests show returns are correlated with contemporaneous earnings throughout
this period. However there is no improvement in the value relevance of earnings over time.
22. Adoption of IFRS: What happened in Portugal?
Francisco J.F. Silva and Gualter Couto, 2007, Measuring the Impact of IFRS in Firm Reporting: The
Case of Portugal, http://ssrn.com/abstract=969972
To increase efficiency of the European finance market, the European Union (EU) recently
forced all public companies to publish their financial disclosures with the support of the IFRS,
emanated by the International Accounting Standards Board (IASB), beginning January 1,
2005. In this paper, we measure the impact of the application of IFRS to financial information
of Portuguese public companies belonging to the Eurolist by Euronext Lisbon. The results
show that the Balance Sheet and Income Statement structures of the firms studied suffered
relevant accounting conversions in the process of compliance. Nevertheless, we did not find a
clear pattern for the accounting variations. IFRS implementation conditioned the measure
made to the performance and the financial position of the business companies in Portugal.
24. Adoption of IFRS: What happened in Russia?
On the Deloitte iasplus site is 2009 a Russian translation of IFRS in your
Pocket. This pocket guide includes summaries of all IFRS issued through March 2009.
http://www.iasplus.com/index.htm
Alexandra Bagaeva, 2009, The IFRS and Accounting Quality in the Transitional Economy: The Case
of Russia, http://ssrn.com/abstract=140002
Using a sample of Russian listed firms during 2000 through 2006, we examine whether IFRS
financial reports of Russian listed firms result in a better accounting quality than the financial
reports of Russian listed firms prepared in accordance with Russian accounting Standards
(RAS). Our motivation to use the Russian data is due to the following reasons: Russia offers
unique and transitional environment and represents a growing market which has a significant
impact on the world economy. By using the Russian data we contribute to the research on the
impact of IFRS on quality of accounting information internationally. For the purpose of the
study we use the methodology suggested by Barth et al. (2008) based on earnings smoothing
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metrics and managing towards small positive earnings. Furthermore, we investigate value
relevance of book value and income under IFRS and RAS. We find that firms using IFRS
exhibit higher accounting quality, as they demonstrate less earning smoothing than RAS firms.
We do not find strong evidence that the use of IFRS jointly improves value relevance of book
value of equity and net income accounting in listed Russian firms, but we find a partial
support of book value of equity value relevance improvements under IFRS.
25. Adoption of IFRS: What is happening in Singapore?
The Singapore Accounting Standards Council decided to fully converge Singapore Financial
Reporting Standards with IFRS by 2012. The fully-converged standards would apply to all Singapore-
incorporated companies listed on the Singapore Stock Exchange. This was announced in an address
by Mr Tharman Shanmugaratnam, Singapore Minister for Finance, at an IFRS conference in
Singapore on 27 May 2009. (www.iasplus.com)
Resulting from this impending convergence literature has started to appear on its potential impact. See
Tyrone, Carlin, Khairil Khairi and Nigel Finch, 2010, An Empirical Investigation of Compliance and
Disclosure Quality under FRS 36 for Singaporean Listed Firms, http://ssrn.com/abstract=1550416
Drawing on data from a sample of 168 firms listed on the Singapore Stock Exchange (SGX)
over three consecutive years (2005, 2006 and 2007), this study focuses on the issue of IFRS
compliance and disclosure quality. Using the requirements of FRS 36 in relation to goodwill
impairment testing as the particular focal point for the analysis, the results of this study
demonstrate poor levels of compliance and transparency on the part of SGX listed firms with
goodwill in relation to their goodwill impairment testing processes and assumptions. This
study adds to the literature by providing insights into this phenomenon from the standpoint of
an advanced Asia Pacific region jurisdiction not previously subjected to scrutiny on the
dimensions drawn upon for the purposes of this study and through the use of a multi-year
research design. The results complement and reinforce the significance of earlier research
conducted in relation to the focal phenomenon in Australia, Malaysia and New Zealand and
suggest the existence of persistent cross-border difficulties with the implementation of the
complex technical provisions of the IFRS goodwill impairment testing regime.
26. Adoption of IFRS: What happened in South Africa?
Jrgen Ernstberger, Christian Heinze and Oliver Vogler, 2008, The Value and Accounting Premium
for South African-Listed Shares, Journal of Economic & Financial Sciences (JEF), Vol. 2, No. 2, pp.
187-202 http://ssrn.com/abstract=132167
Notes that in the last decade, empirical research has found strong evidence that value
stocks provide higher returns than growth stocks (value premium). Firms with a high ratio of
book value of equity to market value of equity are regarded as value stocks; a low ratio
identifies growth stocks This research analyses the value premium for the South African
market and compares its magnitude to the findings for the US market. Moreover, the effects
of the introduction of IFRS for companies listed at the JSE Limited are examined. The
adoption of IFRS is used to demonstrate that investors award an accounting premium for
voluntary compliance with this new accounting standard
27. Adoption of IFRS: What happened in Spain?
Juana Aledo, Fernando Garca-Martnez and Juan M. Marn Diazaraque, 2009, Firm-Specific Factors
Influencing the Selection of Accounting Options Provided by the IFRS: Empirical Evidence from
Spanish Market, Banco de Espana Working Paper No. 0926 http://ssrn.com/abstract=152147
It is generally accepted that IFRS promote a "true and fair" presentation of financial
statements. The improvement of the quality of financial reporting helps investors, bankers and
regulators make better decisions. Spanish GAAP, on the other hand, are based on a "prudent"
approach for asset and liability recognition and valuation, with the goal of protecting
stakeholders. Adjustments introduced as a consequence of IFRS adoption may result in (i) the
recognition (or derecognition) of assets and liabilities for the first time (i.e. derivative
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financial assets and liabilities) and (ii) the application of accounting criteria that differs from
those recognised under local GAAP (i.e. cost vs. revaluation model). The main objective of
this study is to examine the financial statements of the firms listed on the Spanish Continuous
Stock Market that have been using IFRS since 2005 to determine the accounting policy
options they apply under IFRS and, most importantly, to provide evidence of the factors
driving these choices The main finding of this paper is that companies apply the most
conservative criteria to reduce the number of discrepancies between the two standards,
particularly in regards to presentation and measurement practices. Additionally, we find
that firm-specific factors such as industry, size, auditors opinion and capital structure
influence the choice of accounting policy used to prepare financial statements.
See also Jordi Perramon and Oriol Amat, 2007, IFRS Introduction and its Effect on Listed
Companies in Spain, http://ssrn.com/abstract=1002516
28. Adoption of IFRS: What is happening in Turkey?
Yuksel Koc Yalkin and Volkan Demir, 2007, IFRS and the Development of Financial Reporting
Standards in Turkey, Research in Accounting Regulations, Vol. 20, http://ssrn.com/abstract=102918,
noting
Banks and firms in Turkey registered on the Istanbul Stock Exchange have prepared their
financial statements in accordance with principles set out in IFRS. Moreover, the Turkish
Accounting Standards Board (TASB) which oversees Turkish Accounting Standards has
accepted harmonization with the principles of IFRS in order to get international acceptance.
The TASB is the sole authority charged with the development and application of accounting
standards in Turkey. Therefore, future acceptance and application of these standards by other
regulatory organizations is inevitable.
Kaymaz, nder and Karaibrahimoglu, Yasemin Zengin, Early Observations on the Quality of IFRS
Reports: Evidence from Turkey (2011). Global Journal of Business Research, Vol. 5, No. 3, pp. 27-40.
http://ssrn.com/abstract=1874257 examined wide-ranging real-life IFRS practices experienced in the
world while devoting a particular focus to Turkey. We show that although the countries seriously
considering the practice of IFRS confronted some severe obstacles, the conduct of IFRS will return
the businesses operating in those jurisdictions as significant cost savings. See also
a) Mine H. Aksu, 2008, Transparency & Disclosure in the Istanbul Stock Exchange: Did IFRS
Adoption and Corporate Governance Principles Make a Difference?,
b) Kaytmaz Balsari, Cagnur, Ozkan, Serdar and Durak, Mustafa Gurol, Earnings Conservatism
in Pre- and Post- IFRS Periods in Turkey: Panel Data Evidence on the Firm Specific Factors
(2010). Journal of Accounting and Management Information Systems, Vol. 9, No. 3, pp. 403-
421 http://ssrn.com/abstract=1714386
c) Banu Durakan, Serdar Ozkan and Faith Dalkilic, 2011, CEO Turnover and Corporate
Performance Relationship in Pre- and Post-IFRS Period: Evidence from Turkey,
d) Durukan, M. Banu, Ozkan, Serdar and Dalkilic, A. Fatih, CEO Turnover and Corporate
Performance Relationship in Pre- and Post-IFRS Period: Evidence from Turkey (2011).
Journal of Business Economics and Management, Forthcoming.
29. Adoption of IFRS: What happened in UK?
Jo Horton and George Serafeim, 2008, Market Reaction & Valuation of IFRS Reconciliation
Adjustments: First Evidence from the UK http://ssrn.com/abstract=923582
This paper investigates whether there is market reaction to and value-relevance of information
contained in the mandatory transitional documents required by IFRS 1 (2005). These
documents detail the reconciliation adjustments necessary to a firm's previously reported UK
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GAAP accounts to achieve compliance with IFRS. We find significant negative abnormal
returns and positive trading activity for firms reporting a negative reconciliation adjustment
on UK GAAP earnings. Abnormal returns around the reconciliation announcement are
associated with the magnitude of the earnings reconciliation. The informational content of the
earnings adjustment is value-relevant and its valuation coefficient is significantly higher post
disclosure. While the informational content of the positive earnings adjustments is value-
relevant before disclosure, for negative earnings adjustments it is value relevant only post
disclosure, consistent with managers delaying the communication of bad news until IFRS
compliance. A finer model reveals that adjustments attributed to impairment of goodwill,
share-based payments, employee benefits, financial instruments and deferred taxes are
incrementally value relevant, but only impairment of goodwill and deferred taxes reveal new
information. The results are consistent with mandatory IFRS adoption altering investors'
beliefs about stock prices
Mari Paananen and Nimita Parmar, 2008, The Adoption of IFRS in the UK, AAA, 2009, Mid-Year
IAS Meeting http://ssrn.com/abstract=127580
There are two approaches which investors can exercise when using accounting information,
either to use financial reporting to value or to assess the management's stewardship of the
company. Despite the fact that US GAAP, IFRS, and UK GAAP are all market oriented sets
of accounting standards, both FASB and IASB are more inclined to require fair value
accounting with regards to assets and liabilities compared to UK GAAP, which tend to
encourage a stewardship approach. We examine whether investors' shift their focus from
earnings to book value of shareholders' equity after the adoption of IFRS in the United
Kingdom. As predicted we find that indeed investors seem to rely more on the book value of
shareholders' equity and less on earnings information after the adoption of IFRS. We
predicted and found no change in the overall increase accounting information's ability to
predict future equity values.
Renata Stenka, Phil Ormrad and Ann Chan, 2008, Accounting for Business Combinations The
Consequences of IFRS Adoption for UK Listed Companies, http://ssrn.com/abstract=1276826
The study reports some evidence on the group accounting consequences of the
implementation of IFRS in the UK. It examines how the adoption of IFRS has affected
reported net profit and equity of UK listed companies. The contribution of the paper lays in
reporting the evidence of the empirical consequences of the adoption of IFRS by identifying
the underlying causes of these differences. These causes are not just identified at the level of
individual standards but individual accounting procedures what allows for more thorough
analysis. The data is derived from the IFRS 1 reconciliation requirement which provides the
unique opportunity to compare the evidence of two different measurement bases for the same
set of underlying economic events. The results show that goodwill treatment had the largest
effect on reported profit resulting in the largest difference between IFRS and UK GAAP.
There are however a variety of other group accounting effects.
A different approach was taken by
Vivien A. Beattie, Stella Fearnley and Tony Hines, 2008, An Analysis of Financial
Statement Issues Reported as Discussed and Negotiated by Key Preparer-Side Groups in UK
Listed Companies in the First and Second Years of IFRS Implementation, AAA, 2009, Mid-
Year IAS Meeting http://ssrn.com/abstract=127632 in which UK listed company Chief
Financial Officers, audit committee chairs, and audit partners are surveyed post-IFRS
implementation to elicit details of the issues that are discussed, negotiated and which result
in changes being made to the financial statements. 498 usable responses were received of
which 82% relate to Year 2 of financial statements produced under IFRS and 18% relate to
Year 1, facilitating a comparison between the two groups. Overall reported levels of
interaction are higher for respondents in their first year of IFRS. In both years the same set of
specific issues tended to dominate discussions, negotiations and cause changes to financial
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statements. Few significant differences between year 1 and year 2 IFRS were noted. It is
shown that the changed regulatory environment has caused many new issues to emerge.
30. Adoption of IFRS: What is happening in USA?
Hail and his colleagues draw on the academic literature in accounting, finance and economics, to
analyze economic and policy factors related to the potential adoption of IFRS in the U.S. We
highlight the unique institutional features of U.S. markets to assess the potential impact of IFRS
adoption on the quality and comparability of U.S. reporting practices, the ensuing capital market
effects, and the potential costs of switching from U.S. GAAP to IFRS. We discuss the compatibility
of IFRS with the current U.S. regulatory and legal environment as well as the possible effects of IFRS
adoption on the U.S. economy as a whole. We also consider how a switch to IFRS may affect
worldwide competition among accounting standards and standard setters, and discuss the political
ramifications of such a decision on the standard setting process and on the governance structure of the
International Accounting Standards Board. Our analysis shows that the decision to adopt IFRS mainly
involves a cost-benefit tradeoff between (1) recurring, albeit modest, comparability benefits for
investors, (2) recurring future cost savings that will largely accrue to multinational companies, and (3)
one-time transition costs borne by all firms and the U.S. economy as a whole, including those from
adjustments to U.S. institutions. in Hail, Luzi, Leuz, Christian and Wysocki, Peter D., Global
Accounting Convergence and the Potential Adoption of IFRS by the United States: An Analysis of
Economic and Policy Factors (2009). http://ssrn.com/abstract=1357331
See also
Hail, Luzi and Leuz, Christian, Capital Market Effects of Mandatory IFRS Reporting in the EU:
Empirical Evidence (2007). http://ssrn.com/abstract=1511671 who noted:
Recently many EU countries have changed their enforcement (and governance) regimes,
which could play an important role in our findings. THIS IS IMPORTANT IN MANY
STUDIES.
Is there a U.S. Home Bias? i.e. does mandatory IFRS adoption at the country level lowers U.S.
investors' propensity to overweight domestic stocks in their common stock portfolios (generally
referred to as home bias). We find that, on average, U.S. home bias decreases for countries that
mandate IFRS adoption, after controlling for country-fixed effects. We also find that the reduction in
the U.S. home bias after the mandatory adoption of IFRS is greater for countries with larger
differences between IFRS and their domestic accounting standards, for countries with a stricter rule of
law and a common law legal origin, and in countries with greater incentives to report high-quality
financial information. Overall, our results indicate that a common set of global accounting standards
matter for portfolio holdings of U.S. investors and that U.S investors regard the enforcement of
standards to be a key factor in making investments outside the U.S. Khurana, Inder K. and Michas,
Paul N., Mandatory IFRS Adoption and the U.S. Home Bias, 2011, http://ssrn.com/abstract=1872239
Getting to grips with IFRS is reality for students in the USA, in spite of the extremely comprehensive
US GAAP. IFRS are now used for reporting by U.S. foreign publicly held companies, including those
with U.S. subsidiaries.
These entities are permitted to file financial statements with the SEC using IFRS. Certain U.S.
companies may file their financial statements under IFRS starting for financial years ending
December 15, 2009.
See
a) Murphy Smith, 2008, Are IFRS an Unstoppable Juggernaut for US and Global Financial
Reporting? The Business Review
b) Sofie Van der Meulen, Ann Gaeremynck and Marleen Willekens, 2006, Attribute Differences
Between US GAAP and IFRS Earnings: An Exploratory Study
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c) Ann Tarca, 2004, International Convergence of Accounting Practices: Choosing between IAS
and US GAAP, Journal of International Financial Management & Accounting, Vol. 15, pp.
60-91
d) Frederick W. Lindahl and Hannu J. Schadewitz, 2009, US GAAP and IFRS: How Close is
Close Enough? http://ssrn.com/abstract=1413163
e) Elizabeth A. Gordon, Bjorn N. Jorgensen and Cheryl L . Linthicum, 2008, Could IFRS
Replace US GAAP? A Comparison of Earnings Attributes and Informativeness in the US
Market, http://ssrn.com/abstract=1132908
f) Sofie Van der Meulen, Ann Gaeremynck and Marleen Willekens, 2006, The Influence of
Specific Accounting Differences on the Choice Between IFRS or US GAAP
31. Adoption of IFRS multi country comparisons:
A study of IFRS Adoption and Financial Results of EU Companies: The Challenge of Nomenclature
- Evidence from the UK, France and Germany looked at the top 270 listed companies in these share
markets, finding a disparity in the adherence to IFRS reporting guidelines. Inconsistencies in the
application of nomenclature such as statement of financial position instead of balance sheet and
sequence of arrangement of current assets in order of liquidity remain a major challenge for most of
the companies. The compliance monitoring machinery of IFRS in the EU is seemingly weak
compared with the US GAAP regulatory body where a majority of US listed companies are found to
adhere strictly to the prescribed nomenclature and order of arrangement of current assets in their
financial statements. The study makes a case for the reinstatement of balance sheet terminology by the
IFRS. See Nnadi, Matthias, IFRS Adoption and Financial Results of EU Companies: The Challenge
of Nomenclature - Evidence from the UK, France and Germany (March 6, 2011).
For US v Germany see Jens Wstemann and Sonja Kierzek, 2007, Filling Gaps: Why Consistency of
Accounting Standards Matters - Normative Evidence5 from the U.S. and Germany as Related to IFRS
- http://ssrn.com/abstract=990887 who show that in an internally consistent regime management is
required to choose and apply consistent accounting policies to comparable accounting issues in the
absence of specific guidance. According to our analysis, the present IFRS regime fails to ensure this
because IFRS dealing with comparable issues are partly inconsistent. We also find that the complete
elimination of rules and the reliance on principles only as requested by many in accounting theory
is not an adequate solution since broad principles do not provide a sufficient structure to frame
management's judgment in the choice of accounting policies. We propose that accounting regimes
should consist of principles as well as of rules and that the rules shall be consistently derived from
high-level principles..
There is also the ICAS publication on The Implementation of IFRS in the UK, Italy and Ireland by
Theresa Dunne, et ors: (Fifield, Finningham, Fox, Hannah, Helliar, Power and Veneziani) on
www.icas.org.uk/res_helliar_ifrs_report.pdf published in 2008, which compared 175 financial
statements pre- and post-IFRS and conducted interviews with preparers, auditors, users and regulators.
Many of the findings from the study are not surprising. The content analysis showed that disclosures
required under IFRS expanded dramatically and that the implementation process was lengthy. The
study highlighted the more challenging standards to implement with IAS 39 Financial Instruments:
Recognition and Measurement receiving the most attention. The study did indicate that companies
with US listings were less affected by implementation changes because IFRSs are closer to US GAAP
than UK, Irish or Italian GAAP.
The study analyzed reconciliation statements between national GAAP and IFRS. On average,
conversion to IFRS increased reported profits, but reduced net equity in the balance sheet.
Adjustments were mainly due to a small number of standards with IFRS 3 Business Combinations
5
Normative and Positivist are two opposite approaches to studying accounting phenomena: the first examines what should be how one
would like things to be. The second, Positivist, sticks to observing what is.
Page 24 of 64
causing the largest differences in profit. The largest difference in reported equity occurred in the UK
and was driven by implementation of IAS 19 Employee Benefits.
Answers to interview questions regarding benefits of IFRS were generally mixed. Interviewees from
the UK and Ireland answered that IFRS financial statements are too long and complex and not any
more decision-useful than statements required before. In contrast, respondents from Italy felt that
IFRS statements provide improved information compared to their national GAAP and were generally
positive about the usefulness of the new reports.
Interviews revealed that there is a feeling that IFRS has not produced comparability between entities
because there are too many choices available in the standards, however there was a feeling that
comparability and usability might improve in the future. Most respondents approve of accounting
harmonization, but few want to go down this route if it meant adopting the U.S. rules based approach.
Respondents agreed that IFRS conversion is costly and virtually all respondents stated that the costs
were significant. Information system adaptation, training, consulting and employment of personnel
with IFRS knowledge were large components of the cost of converting to IFRS. Overall, when asked
if benefits of IFRS outweigh costs, respondents were either unsure or answered no. The study points
out that implementation costs were tangible and immediate but benefits were intangible and longer-
term. From a review by Paul Parks, http://www.ifrs.com/overview/General/analyzeseurope.html
Multari and Cordazzo investigated the global effect of the implementation of IFRS, as well as the
effect of each individual accounting adjustments which occur on accounting figures. The analysis of
such effects is conducted in order to highlight the most important differences and similarities between
Italian and German companies due to the transition to IFRS. The results of the analysis suggest that
the global effect on equity is not significant for both Italian and German companies, while that on net
income shows a stronger impact on Italian than on German companies. With regard to the individual
accounting adjustments, the most significant partial impacts on equity and net income are those
concerning the treatment of employee benefits, provisions, intangible assets and goodwill for both
Italian and German companies. Multari, Natascia and Cordazzo, Michela, Implications of IFRS
Transition for Firms Accounting Figures: Italy vs. Germany ( 2009)
In Dorel Mates and Veronica Grosu, 2009, Comparative Study Romania-Italy Concerning the
Implementation of IAS/IFRS, http://ssrn.com/abstract=132537 the authors noted the adoption of
international standards has as priorities:
a) setting up conditions for a integrated and efficacious capital market, returning balance sheets
(most of those comparable on the unique market), allowing concurrence rising, and promoting
capital circulation
b) necessity for adopting a regulation that can manage if the quoted companies from the EU
applied correctly the IAS until 2005 (credibility, concurrence, evaluation)
c) applying these standards has to lead to an authentically vision of the financial position of an
economical entity, and contributes to European public interest, and has to respect all the
criteria concerning the quality of expected information.
d) .. Romanian enterprises make out their own balances, in accordance to a system of laws
and regulations differentiated on economic activity sectors, on juridical nature of the
economic entity, on its dimension, on quoted and unquoted companies. The compulsory
introducing of IAS/IFRS issued by IASB for the groups of quoted companies, on elaborating
the reinforced balance and extending the obligation for all entities impose a significant change;
it wont deal just by problems of technical character, by formal changes within emphasizing
and presenting process of information on financial situations, by applying IAS/IFRS in
Romania and Europe, but assuming first after all understanding the cultural vision, of
background philosophy, which underlain all standards.
Page 25 of 64
32. Assumptions: What are two underlying assumptions used in IFRS?

These are:
a) The Accrual basis - the effect of transactions and other events are recognized when they occur,
not as cash is gained or paid (see Accrual)
b) The Going concern assumption that an entity will continue for the foreseeable future. That it
is not going to close down in the foreseeable future.
Add these to the four Fundamental concepts and the four Qualitative characteristics (see further
below) and you will be getting a grasp on how GAAP is constructed.
33. Audit quality: What is it and do IFRS impact on Audit quality?
As described in the following paper, the quality of an audit is understood to relate to the joint
probability that its conduct results in the detection and reporting of material financial statement errors.
Early research suggested a positive relationship between audit firm size and audit quality. This has
resulted in a plethora of studies in which a fundamental element of the research design has been to
segment data samples into portions relating to "large" and "small" audit firms and to test for evidence
of audit quality differences apparently associated with the size of the firm conducting the audit.
(Tyrone M. Carlin, Nigel Finch and Guy Ford, 2007, When Inconvenient Observation Meets
Comfortable Myth - A Fresh Look at Audit Quality, MGSM Working Paper No. 2007-9
http://ssrn.com/abstract=965351 .This paper examined the quality of disclosures pertaining to the
high risk issue of goodwill impairment testing made by a sample of large Australian listed
corporations in the first year after their transition to A-IFRS. All firms in the sample were clients of
"Big 4" auditors. However, disclosure quality and compliance levels varied substantially, with audit
firm identity appearing to explain a substantial proportion of observed cross sectional variation.
A study of IFRS Adoption and Audit Timeliness: Evidence from Malaysia by Yaacob & Che-
Ahmad in the Journal of American Academy of Business, 2011, 17 (1) pp 112-18 addressed the
question of the extent to which IFRS adoption would affect audit timeliness is questionable. A
panel data approach over a five-year period (2004-2008) was utilized. The fixed effects regression
results revealed a significant increase on the length of time to issue audit reports after IFRS adoption
in Malaysia. This study proved the complexity of the issuance of the new and amended IFRS and thus
auditors required more hours in performing their audit engagement.
Take also Libby and Browns 2011 working paper on financial statement disaggregation and auditors'
tolerance for misstatement, where they examine whether voluntary disaggregation of income
statement numbers might increase the reliability of income statement subtotals because auditors
permit less misstatement in the disaggregated numbers with results suggesting a potential
deficiency in current audit guidance, which traditionally has been aimed at promoting consensus in
practice among auditors. If auditors react in a similar fashion to required disaggregation, it also
suggests that requiring more disaggregation through U.S. adoption of IFRS or the recommendations
of the joint FASB/IASB financial statement presentation project may have an unintended positive
consequence. Libby, Robert and Brown, Tim, Financial Statement Disaggregation and Auditors
Tolerance for Misstatement (July 26, 2011). http://ssrn.com/abstract=1907839
A study of IFRS Consequences on Accounting Conservatism within Europe: The Role of Big 4
Auditors used 5,000 IFRS adopters from 22 EU countries, finding the EU-wide mandatory IFRS
adoption has hampered accounting quality. See Piot, Charles, Dumontier, Pascal and Janin, Rmi,
IFRS Consequences on Accounting Conservatism Within Europe: The Role of Big 4 Auditors
(August 2011). http://ssrn.com/abstract=1754504
When Stokes and Webster looked the value of high quality auditing in enforcing and implementing
IFRS: The Case of Goodwill Impairment their results indicate that goodwill impairment charges
under IFRS better reflect the underlying economic value of the goodwill only in the presence of high
quality auditing and that this is most apparent in ensuring that no goodwill impairment charges are
made against income where this supported by the firm's circumstances. Stokes, Donald J. and
Webster, John, The Value of High Quality Auditing in Enforcing and Implementing IFRS: The Case
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of Goodwill Impairment (January, 14 2010). Finance and Corporate Governance Conference 2010
Paper. http://ssrn.com/abstract=1536832
See also Serdar Ozkan and Cagnur Kaytmaz Balsari, (2009), Impact of Audit Quality on Accounting
Policy Disclosures: Implications on Revenue Recognition Policy http://ssrn.com/abstract=1490105
who noted that
Results show that audit quality measured by big 4 and non-big 4 auditors, firm size, length
of disclosure and time is not related to accounting policy disclosure. Thus, it can be concluded
that the preparation of revenue recognition policy disclosure is related to companies rather
than auditors. This also shows the need for guidance and oversight for accounting policy
disclosures provided to firms and calls auditors to direct their attention on audit of accounting
policy disclosures
34. Balance Sheet (aka Statement of Financial Position). Is the balance sheet more important
than an Income Statement?
Are you asked this in an assignment? Most users of accounting would say you have to take both
together. Others are of the opinion that Cash is King and that the Cash Flow statement tells you
everything you need to know about the success of an entity. Certainly, if there had been closer
examination of cash flow statements in the somewhat magnificent collapses of the dot.com bubble, or
the corporate collapses of 2002, then the alarm bells would have rung earlier. But earnings and
earnings per share is much loved by investors, combined with their confidence that the market absorbs
all known information and reflects this in the share price with daily price movements. All the major
statements used for financial reporting have evolved as they complement each other (i.e. each gives
different type of information), and need to be used jointly to get a full and complete understanding of
how well the company has performed in the past, and what its prospects are for continuing in the
future.
35. Banks: what particular issues do they have with IFRS adoption?
Banks have long had major issues with asset and liability recognition issues, (being one of the touchy
trio: Banks, Insurance and Pensions) and this came to a head with the user reactions to the two IASs
on financial instruments, the earlier one dictating disclosure requirements (IAS 32) and the later one
(IAS 39) dictating measurement rules for financial assets and liabilities. These have now been revised
into IFRS 9 to better meet user needs, as they say! Palea has two key contributions to this issue: see
(2008, The Effects Accounting Standardization in the European Union: First Evidence from the Bank
Industry, N: http://ssrn.com/abstract=1093249 ) noting that
In this research, the effects of accounting standardization in Europe on the capital market have been
investigated by focusing on the bank industry. Contrary to expectations, empirical evidence shows
that the adoption of the IAS has led to an increase, instead of a reduction, in the cost of equity. The
explanation that can be advanced for such a result is that while, on the one hand, accounting
standardization has eliminated measurement errors in assessing firms' risk, reducing differences in
their cost of equity, on the other hand, the IAS/IFRS adoption has improved firms' level of disclosure,
allowing investors to better differentiate among firms' risk, hence increasing cost of capital
variability.
and Vera Palea, 2007, The Effects of the IAS/IFRS Adoption in the European Union on the Financial
Industry, The European Union Review, Vol. 12, No. 1-2
36. Books about IFRS: what books other than textbooks are there about IFRS?
When you are investigating or researching IFRS in your studies, dont overlook that many on-line
search engines do not reference back to books; more often they refer only to Journal articles. Now on
Amazon, if you search for IFRS you will get 3,106 results. Lots are textbooks for the university
market, and there is now an IFRS For Dummies by Steve Collings as well as a swell of USA-
originated books such as IFRS Made Easy (2011) by Steven Bragg, or IFRS Simplified by Mike
Morley (2009).
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Apart from the standard university textbooks, some specialist books about IFRS would include:
a) Ken Marshall and Steve Arnold (2011) IFRS Conversion: Issues, Implications, Insights
(Wiley)
b) KPMG International, 2010, Insights Into IFRS
c) Barry J. Epstein and Eva K. Jermakowicz 2008, IFRS Policies and Procedures John Wiley &
Sons Inc
d) Dimitris N. Chorafas, 2006, IFRS, Fair Value and Corporate Governance: The Impact on
Budgets, Balance Sheets and Management Accounts. Butterworth-Heineman
e) G. Tosen, 2006, A practical guide to IFRS for derivatives and structured finance, Euromoney
Institutional Investor, London
f) J. Ramirez, 2007, Accounting for derivatives: Advanced Hedging under IFRS, John Wiley &
Sons, West Sussex
g) N. Antill, and K. Lee, 2008, Company Valuation Under IFRS: Interpreting and Forecasting
Accounts Using International Financial Reporting Standards; Harriman House, UK
h) R. Wittsiepe, 2008, IFRS for Small and Medium-Sized Enterprises: Structuring the Transition
Process; Gabler Edition Wissenschaft
And more recent ones...
37. Can I use an old edition of the book of IFRS for my accounting studies?
i. Does your professor allow you to take copies of standards into the examination room?
ii. Is the copy un-marked? Most universities allow you to take copies into the exam room
but it has to be a clean copy with no markings.
To then determine if it is worth buying a second-hand edition, look in the Library for the most recent
edition of IFRS on short loan. It might take you half an hour, but sit down and look at the date of the
standards and which ones are newer and have been revised in the latest edition. Then go to the
professor with your list of which ones are revised in the newer edition and ask them if these standards
are being examined. Often students can use older editions than the latest, but you have to do the
checking.
38. Can I visit the IASB and IFRS.org?
Yes. It is at 30 Cannon Street in London; so maybe plan to go either before or after you visit St Pauls
in London, as it is very close. Look at www.ifrs.org for their schedule of meetings and how to visit.
The IASB hold public meetings and may be interesting for student observers.
39. Capital maintenanceWhat does that mean?
The meaning of capital maintenance depends on which concept of capital is adopted by a company.
A company most often adopts a financial concept of capital ($//) as stated by the IASB: A financial
concept of capital is adopted by most entities in preparing their financial settlements. Under a
financial concept of capital, such as invested money or invested purchasing power, capital is
synonymous with the net assets or equity of the entity. So most entities undertake to report that they
have maintained their financial capital and do not report psychical capital maintenance.
It is equally possible for a company to adopt a concept of physical capital; i.e. the cycle of operation
moves from assets/goods to dollar to goods/assets. Some public sector entities consider that their
stewardship responsibilities are best served by reporting physical capital maintenance e.g. is the
capacity of the waterworks, waste water system etc in the local town the same as, or better, than is
was last year? Some Key Performance Indicators (KPIs) will be chosen to report this. The Framework
states:
Under a physical concept of capital, such as operating capability, capital is regarded as the
productive capacity of the entity based on, for example, units of output per day.
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These are the two concepts of capital. The concept of capital maintenance is concerned with how an
entity defines the capital that it seeks to maintain.
Having decided on what concept of capital is to be adopted, the company then decides on which type
of capital maintenance is most appropriate to report. It can report on the basis of Financial Capital
Maintenance (and this can be in Nominal Monetary Units or in Constant Purchasing Power units) or it
can report in terms of Physical Capital Maintenance.
Students are referred to the debate on this topic in http://blogs.fin24.com/realvalueaccounting as there
is much to be gained from moving away from reporting on the basis Financial Capital Maintenance in
Nominal Monetary Units.
Thirdly, and this is confusing, a legal meaning in the UK arose as follows: English law developed the
doctrine of capital maintenance with the aim of ensuring that a company cannot return its share
capital back to its shareholders as dividends. The doctrine of capital maintenance underpins the legal
rules addressing
- payment of dividends to shareholders;
- reduction of a companys share capital or reserves;
- a companys purchase of its own shares
and other aspects. From October 2008 private companies in the UK will be allowed to reduce their
share capital without the need to go to court.
40. Comparability: what is it and why do people keep going on about it?
One of the qualitative characteristics underlying IFRS is comparability. It is really important that an
investor can examine the financial reports of two companies in the same sector and be confident that
the results are comparable, in order to make investment decisions. Ditto two companies in different
countries. Early studies noting down the differences in profit figures for Mercedes Benz when it was
reporting under German GAAP compared with US GAAP alerted investors world-wide to issues of
comparability. It is like the Holy Grail of accounting regulation, as every company deserves the
freedom to present its results in the most favourable light it can, within GAAP.
You might like to look at the question of: The impact of mandatory IFRS adoption on foreign mutual
fund ownership: The role of comparability by Mark DeFond, Xuesong Hu, Mingyi Hung, and Siqi Li.
Journal of Accounting & Economics. 2011. Vol. 51, Iss. 3; pg. 240-. They measure improved
comparability as a credible increase in uniformity, defined as a large increase in the number of
industry peers using the same accounting standards in countries with credible implementation.
Consistent with this assertion, we find that foreign mutual fund ownership increases when mandatory
IFRS adoption leads to improved comparability
Francois Brochet et ors examined whether mandatory adoption of IFRS leads to capital market
benefits through enhanced financial statement comparability. UK domestic standards are considered
very similar to IFRS...Therefore, we examine changes to information asymmetry for UK - domiciled
firms to isolate changes to the information environment relating to IFRS adoption that more likely
reflect changes in comparability versus information quality; getting results are consistent with
mandatory IFRS adoption improving comparability and thus leading to capital market benefits by
reducing insiders' ability to exploit private information. Brochet, Francois, Jagolinzer, Alan D. and
Riedl, Edward J., Mandatory IFRS Adoption and Financial Statement Comparability (October 20,
2011). Harvard Business School Working Paper No. 1819482. http://ssrn.com/abstract=1819482
Another study by Christof Beuselinck, Philip Joos and Sofie Van der Meulen, 2008, International
Earnings Comparability http://ssrn.com/abstract=1014086 investigated the
comparability of accounting earnings for 14 EU countries in the period 1990-2005. Although
prior studies have documented international differences in financial reporting properties, there
is hardly any large-scale international evidence on the underlying fundamentals driving these
differences. Incentives arise from the equity capital market, debt financing and labor
markets. These incentives are further intensified by the design of a country's institutional
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framework, such as stock market development, importance of bank financing and labor union
membership. In addition, our results suggest that the mandatory introduction of IFRS in 2005
did not instantly bring about the expected improvement in earnings comparability across
Europe. Our results provide important insights for the ongoing debate on standards versus
incentives.
41. Comprehensive Income: where is that in a financial report?
The IASB Discussion Paper (2008), Preliminary Views on Financial Statement Presentation proposes
to extend the fair value concept into an aggregated comprehensive income statement. This means
that the Income statement will not end with earnings for the period, but will be extended with a few
more lines to include all unrealized gains and losses, especially those from valuing financial assets
and liabilities to fair value (unrealised, meaning that a gain is only on paper not cash in the bank). The
final Earnings figure includes these unrealised gains and losses, and these total earnings are
Comprehensive income (net income with the exception of payments from owners).
Pronobis and Zlch studied the predictive power of comprehensive income and its individual
components under IFRS in German firms, finding no evidence that comprehensive income has a
superior predictive power for future firm operating performance than net income. Further, we fail to
find significant incremental predictive power of aggregated or individual components of other
comprehensive income for subsequent period's firm operating performance. The actuarial gains and
losses on defined benefit pension obligations even seem to merely add noise for the prediction of
subsequent period's net income and of subsequent period's comprehensive income. In contrast, our
analyses indicate that other comprehensive income components seem to have incremental predictive
power beyond one period. Finally, we find that the predictive power of net income and comprehensive
for future firm operating performance has deteriorated as a consequence of the IASB's recent
initiatives and actions. Pronobis, Paul and Zlch, Henning, The Predictive Power of Comprehensive
Income and its Individual Components Under IFRS (March 22, 2010).
The study by Igor Goncharov and Allan Hodgson, 2009, The Comprehensive Income Issue in Europe :
http://ssrn.com/abstract=1313134 stated their intention was to
augment the debate by providing empirical findings on information, measurement,
prediction and conservatism issues. Aggregated comprehensive income is found to be inferior
to GAAP net income as a general valuation and prediction metric, and switches the
conservative attributes of income towards a more timely recognition of good news over bad
news. .For regulators the choice about income measurement boils down to a dilemma
whether to ignore the volatile and complex price signals of unrealised gains and losses, to
service the narrower demands from the analyst community, or to reduce the conservative role
that accounting plays in agency contracting. Our research supports a disaggregated approach
without mixing the function and nature attributes of income.
42. Why is there Confusing jargon in IFRS and other places
The most confusing jargon is words which mean different things. The most widespread confusion I
have seen in my students is about:
1. Stock: in the UK, this means inventory; in the USA it means shares in a company
2. Interest: when your professor discusses an equity interest or minority interest, this refers to
shareholders investments. So a Minority Interest on a Balance Sheet has nothing to do with money
paid to anyone it means minority shareholdings.
But when interest is a line item on an income statement, it means the charge the Bank makes for
lending money, or interest received from your investments.
Naming of the parts:
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There are a number of names for the Income statement: it may be called a Statement of
Financial Performance, an Income statement, a Profit and Loss account, or an Earnings
statement.
The Balance sheet may be called the Statement of Financial Position.
There is no layout prescribed for the Balance sheet and there is a difference across the
Atlantic as to whether Assets are on the right or left if it is presented as a large-across the
page-landscape layout.
The Cash flow statement may be called Sources and Application of Funds or Funds statement.
43. Consolidations and Business Combinations: what IFRS apply to accounting for a group of
entities?
Business Combinations (or consolidations) are offered in series of IASs and IFRS. This includes IASs
27, 28 and 31, and IFRS 3. Goodwill is in IAS 38 as well as IFRS 3. These are a very important part
of IFRS, as in some jurisdictions IFRS might be adopted only for groups of companies. How and
when you can combine the assets and liabilities and measuring goodwill all need to be closely
prescribed. Joint Venturers find it hard to identify one of the companies as the controlling partners, as
they often go all the way on equal shares. A study by Stenka, Ormrod and Chan, 2008, Accounting
for Business Combinations - The Consequences of IFRS Adoption for UK Listed Companies
http://ssrn.com/abstract=1276826 reports
some evidence on the group accounting consequences of the implementation of IFRS in the UK. It
examines how the adoption of IFRS has affected reported net profit and equity of UK listed
companies. The contribution of the paper lays in reporting the evidence of the empirical consequences
of the adoption of IFRS by identifying the underlying causes of these differences. These causes are
not just identified at the level of individual standards but individual accounting procedures what
allows for more thorough analysis. The data is derived from the IFRS 1 reconciliation requirement
which provides the unique opportunity to compare the evidence of two different measurement bases
for the same set of underlying economic events. The results show that goodwill treatment had the
largest effect on reported profit resulting in the largest difference between IFRS and UK GAAP.
There are however a variety of other group accounting effects.
From Malaysia, Laili (2008) analysed the quality and technical accuracy of the goodwill disclosures
reported by these organisations together with an assessment of evidence of variation. The sample
consists of 249 listed firms listed on Bursa Malaysia that disclosed the existence of goodwill in each
of the first two years of Malaysias new financial reporting regime. This examination of the response
of firms to the new reporting regime provides significant insights for firms, auditors, financial
analysts and regulators. Laili, Nur Hidayah, IFRS Adoption and Organisational Change - Evidence
from Malaysia (December 1, 2008). Journal of Law and Financial Management, Vol. 7, No. 2, pp. 8-
25, December 2008. http://ssrn.com/abstract=1520808
A study of business combinations by Bunea-Bontas and Petre aimed to highlight few significant
changes in the accounting treatment of business combinations that have arisen from the revised IFRS
3, focusing on the accounting principles surrounding the recognition and measurement of the
identifiable net assets of the acquiree and any non-controlling interest in the acquiree and on the
implications for calculating and measuring goodwill. Bunea-Bontas, Cristina Aurora and Petre,
Mihaela Cosmina, New Approaches Regarding Business Combinations (May 9, 2009).
see also Anda Iosif, Ana Maria Hlaciuc and Marian Socoliuc, 2009, The Accounting Treatment of
Business Combination in Globalisation Process http://ssrn.com/abstract=1326014
44. Convergence, and its meanings
You might often see the word Convergence being used, meaning
Harmonisation or
Standardisation. So what do all these words mean?
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They almost mean the same. But harmonisation is seen as a process of increasing the compatibility
of accounting practices by setting bounds on their degree of variation.
Standardisation, on the other hand, is a process by which all members agree to follow the same or
very similar accounting practices. Standardisation appears to imply the imposition of a more rigid and
narrow set of rules, with the end result being a state of uniformity 6.
Within accounting, these two words have almost become technical terms, and one cannot rely upon
the normal difference in their meanings. Harmonisation is a word that tends to be associated with the
supranational legislation promulgated on the EU, while standardisation is a word often associated
with the IASB7. However, in practice, these words are often used interchangeably (as noted by
Joseph Bebbington and Esther Song, The Adoption of IFRS in the EU and New ZealandA
Preliminary Report National Centre for Research on Europe, University of Canterbury, NZ)
So if you are researching any of these try undertaking searches using the alternatives as well. There
are subtle differences between these three words (see your Dictionary) but for the purposes of writing
an essay about this, look at the references in the studies.
a) Pala Molisa, 2008, Accounting Harmony, Neogramscian Disharmony: A New Zealand
Perspective http://ssrn.com/abstract=1153702
b) Ulf M.T. Luthardt, Jochen Zimmermann, Jan Bulla and Andr R. Meier, 2008, Global
Accounting Standards - A Success Story? An Empirical Investigation of the First FASB &
IASB Convergence Project http://ssrn.com/abstract=1135270
45. Cost of equity or cost of capital what is that, and is it impacted by the adoption of IFRS?
When you begin a business, and start running out of working capital (cash you need to run the
business on a day-to-day basis) or you need to buy some assets to use in the business, then you might
have friends who lend you money if you are lucky; but you are more likely to be looking to Banks as
lenders, or to shareholders to invest on your business. The return on the investments they expect (as
interest charges or dividends) is your cost of capital. Shauna Shi and Jeong-Bon Kim V, 2007,
International Financial Reporting Standards, Institutional Infrastructures and Costs of Equity Capital
around the World, studied this: http://ssrn.com/abstract=984127
We construct a large sample of 21,608 firm-years with IFRS adopters and non-adopters from
34 countries over the 1998-2004 period, and evaluate differences in the implied cost of capital
between the IFRS adopters and the non-adopters. We also investigate whether and how the
cost-of-capital effect of IFRS adoptions is differentially influenced by the efficacy of
institutional infrastructures determining a country's corporate governance and enforcement
mechanisms. Our results reveal the following. First, we find that the cost of equity capital is
significantly lower for the full IFRS adopters than for the non-adopters, suggesting that the
IFRS adopters benefit from greater and better disclosures via IFRS by having a lower cost of
raising capital from equity markets. Moreover this result holds, irrespective of a country's
institutional infrastructure. Second, we find that the cost of capital decreases with the efficacy
of institutional infrastructure. Finally and more importantly, we find that the cost of capital-
reducing effect of IFRS adoption is greater when the IFRS adopters are from countries with
weak institutional infrastructures than when they are from countries with strong
infrastructures.
See also:
Siqi Li, 2008, Does Mandatory Adoption of International Financial Reporting Standards in
the European Union Reduce the Cost of Equity Capital?, Accounting Review, Forthcoming
6
Tay, J., & Parker, R. (1990). Measuring Harmonisation and Standardisation. Abacus, March, 71 - 88.
7
Roberts, A. (2002). Working Papers in European Union's Financial Reporting Strategy: Lessons for New Zealand? Paper presented at the
Inaugural New Zealand European Studies Conference, Accounting No. 3: The University of Canterbury.
Page 32 of 64
Holger Daske, 2006, Economic Benefits of Adopting IFRS or US GAAP - Has the Expected
Cost of Equity Capital Really Decreased?, Journal of Business Finance & Accounting, Vol.
33, No. 3-4, pp. 329-373, April, 2006,
46. Creditor Protection? Why do they need it?
Creditor protection is not often addressed in accounting research; by which we mean the extent to
which the financial reporting regulation can provide sufficient information so creditors (your suppliers)
can get a clear understanding on the companys capacity to pay its bills as and when they fall due.
Most creditor protection is addressed through business law, and restraints on paying a lot of money
back to shareholders as dividends if the company is facing a rocky future. Bernhard Pellens and
Thorsten Sellhorn, (2006, Improving Creditor Protection through IFRS Reporting and Solvency Tests
http://ssrn.com/abstract=938156) reported:
We discuss how creditor protection and accounting rules should interact in the future, proposing a
new system primarily for the benefit of corporations preparing (consolidated) financial statements
according to IFRS, i.e. for public parent companies to which the IAS Regulation applies directly, and
other firms that apply IFRS under national law. Under that system, existing capital maintenance rules
would be based on IFRS accounts. In addition, creditor protection would be enhanced by a
supplemental, liquidity-oriented, forward-looking solvency test to be conducted prior to each intended
distribution
47. Culture: How much does the culture or ethnicity of each country impact on accounting and
IFRS harmonisation?
This is a very good question and if you can lay your hands on a copy of the textbook Comparative
International Accounting by Chris Nobes and Robert Parker, you cannot do better. Give a wide berth
to any studies which use the work of Sid Gray or Geert Hofstede. These do not have sufficiently
strong theoretical foundation to offer a robust tool for inter-country studies. The problem is that each
jurisdiction which adopts IFRS to a great or lesser extent is not one culture. Most nation states are bi-
cultural or multi-cultural and so you cannot equate an IFRS jurisdiction with one culture. If you intend
to pursue this line of enquiry make sure you are talking to, or surveying, discrete homogenous ethnic
groups for useful data, to undertake any compare and contrast exercise observing financial reporting
or auditing practices.
(See R F Baskerville: A research note: the unfinished business of culture, Accounting,
Organizations and Society, Vol. 30 (4): 389-391, 2005, and Hofstede never studied culture
Accounting Organisations and Society Vol. 28 (1): 1-14, 2003).
48. Debt Contracting: are there any IFRS impacts?
Yes, but firstly, what does it mean: a debt contract? It is the contract the lender imposes on the
company to make sure the lender is not carrying too much risk. Risk of the company not being able to
pay the money back, basically. So a debt contract will stipulate conditions that have to be met if the
loan is to roll over in the future. A simple debt contract may specify e.g. that the Interest Cover (the
number of time profits would cover interest payments) do not go below three times i.e. your profit
always has to be at least three times your interest costs. Or another condition. Usually based on some
ratio or other. Debt contracts (or Debt covenants) are therefore tightly written rules so that companies
cannot squelch on them and shift too much risk onto the lender. Hans Bonde Christensen, Edward Lee
and Martin Walker, 2009, studied: Do IFRS Reconciliations Convey Information? The Effect of
Debt Contracting http://ssrn.com/abstract=997800
We examine whether UK GAAP to IFRS earnings reconciliations 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
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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.
Moscariello, Pizzo, and Skerratt compared the UK and Italy and found that in the post IFRS period,
accounting variables play a larger part in the determination of the cost of debt of Italian companies,
enhancing the importance of financial reporting data relative to privately held information about
borrowers' credit ratings. In the UK there is no impact of mandatory adoption of IFRS on the cost of
debt of listed companies See The Impact of the IFRS on the Debt Contracting Process: A
Comparison Between UK and Italy (June 22, 2011). http://ssrn.com/abstract=1870065
A study of the Effects of Mandatory IFRS Reporting on the Syndicated Loan found that syndicate
lenders are less likely to use financial covenants in debt agreements after the mandatory IFRS
adopting. Overall, these results are in line with the surface comparability argument by Schipper
(2003). Specifically, the adoption of a principles-based accounting system (e.g., IFRS), characterized
by limited interpretation and implementation guidance, will increase the difference in professional
judgment among parties to debt contracts, which in turn reduces lenders and borrowers demand for
accounting information in signing debt contracts. Chin, Chen Lung and Yao, Chun, The Effects of
Mandatory IFRS Reporting on the Syndicated Loan Market (August 1, 2011).
49. Debt Financing: were there any IFRS impacts?
Does the use of IFRS affect the source and cost of company debt? A very similar question to the last
one; and Urska Kosi and Annita Florou, 2009, The Economic Consequences of Mandatory IFRS
Adoption for Debt Financing http://ssrn.com/abstract=1508324 examined whether the mandated
introduction of IFRS affects the source and cost of company debt. Using a global sample of public
and private debt issues completed during 2000-2007 they found:
mandatory IFRS adopters are more likely to issue public bonds than to borrow privately. Moreover,
we find that mandatory IFRS adopters pay lower bond yield spreads; in contrast, we find no
significant effect on the cost of private loans. Taken together, we document that mandatory IFRS
adopters are more likely to raise debt from a larger pool of capital at a lower cost. These findings are
consistent with IFRS enhancing the quality and comparability of accounting information. Our findings
also suggest that mandatory IFRS adoption is beneficial primarily for bond investors, who rely much
more on financial statements and have much less monitoring and renegotiating privileges compared to
private lenders. Finally, we show that the positive consequences of IFRS for debt financing are
present only in countries with stricter rule enforcement, higher control of corruption and lower
financial risk. Overall, our study is the first to document that mandatory financial reporting under
IFRS has beneficial effects for debt markets and in particular the public debt market but only when
the country institutions are strong.
50. Depreciation and Impairment in IFRS what is their relationship?
Depreciation is one topic which was addressed by the earliest accounting standards, but the actual
method of depreciation and the rate to be used for different assets was not part of the standards.
Depreciation can impact on earnings of an entity as it not only affects the profit for the period, but
also affects the net asset values in the Balance Sheet. So all standards require that if you change any
of the bases for the depreciation charges, this must be disclosed. Studies of depreciation tackle core
issues of earnings quality and accounting policy choices, such as Andreas Scholze and Stefan
Wielenberg, 2007, Depreciation and Impairment: A Tradeoff in a Stewardship Setting
This paper examines the relationship between depreciation and future impairment losses. This
relationship exists, since impairment losses can only be recognized if the carrying amount of an asset
exceeds a certain recoverable amount that can be defined in different ways. Sufficiently large
depreciation charges in the beginning of the asset's useful life make it very unlikely that an
impairment actually occurs in future periods. In the context of a multi-period agency model with ex
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ante long-term investment, and ex post short-term effort incentives, we will show that this relationship
causes a trade-off during the useful life of the asset. In order to induce efficient investment decisions,
the investment cost has to be allocated over future periods according to a specific depreciation
schedule. However, those depreciation charges decrease the likelihood that impairment losses will
occur in later periods. Therefore the information content of the performance measure will be
decreased as well. We apply our result to impairment tests according to IFRS and US-GAAP, the
accounting for goodwill, and accounting rules for similar problems
51. Discounted Cash Flow Valuations: what rate should be used?
When you are undertaking an asset valuation by determining cash flows which will come in future
from the continued use of the asset, deciding on the appropriate discount rate will greatly impact on
the result after you have crunched the numbers. An example of such a valuation would be with an
intangible asset, such as a purchased brand. Rudolf Stegink, Marc Schauten and Gijs de Graaff, 2007,
The Discount Rate for Discounted Cash Flow Valuations of Intangible Assets noted:
accounting standards allow the value of intangible assets to be determined using the
discounted cash flow method, which requires the determination of the cost of capital of the
relevant intangible assets. In this paper, the required return of intangible assets for 8 different
business sectors is determined by means of an empirical study of companies from the US
Standard & Poor's 500 Index. The resulting required return is subsequently compared with
proxies for the required return on intangible assets used in practice, such as the weighted
average cost of capital. As anticipated, the average required return for intangible assets was
higher than the WACC. The cost of equity appears to best approximate the cost of capital of
intangible assets.
52. Downloading and Printing: Why can I not download and print off all parts of the IFRS
material from the IASB website
The sales of IFRS are an important revenue source for the IASB (see Funding) but if you look at the
question on Access to IFRS there are two solutions. Or buy the books. Yes, BUY the books! You do
need to get really familiar with them and by the time you have finished your professional
examinations you will find it well worth the investment.
53. Due process: What does due process mean?
(see Lobbying as well)
On the IASB website it will tell you that IFRS are developed through an international consultation
process, called due process, which involves stakeholders being allowed to give their views and
opinions on proposed standards. There are six stages when stakeholders can give input; the URL
below also provides a link to the PDF for the Due Process Handbook and the Guide to the IFRS
Foundation and IASB which has more information on how standards are developed (see Lobbying
also)
http://www.ifrs.org/How+we+develop+standards/How+we+develop+standards.htm
The six stages for input are:
1. Setting the agenda; getting the area of concern into the Work Programme
2. Planning the project
3. Developing and publishing the discussion paper (DP)
4. Developing and publishing the exposure draft (ED)
5. Developing and publishing the standard (IFRS)
6. After the standard is issued it may go back onto the Agenda again for revisions etc. if some
aspects do not get sufficient stakeholder support.
Due process and its efficacy is an interesting research area, and one paper I wrote looking at due
process in New Zealand was:
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R. F. Baskerville: The role of expectancy theory and observed constituency response levels to
exposure drafts in accounting standard-setting in New Zealand; No. 33 in the Working Paper Series,
School of Accounting and Commercial Law, Centre for Accounting Governance and Taxation
Research, www.vuw.ac.nz
And trying a different approach..
A Game Theory Approach to Research on Lobbying Activities in Accounting Regulation: Benefits
and Issues (2007). Victoria University Centre for Accounting, Governance and Taxation Research
Working Paper No. 42 . http://ssrn.com/abstract=1237738
My advice would be: Don't go there for a PhD. It is very hard for researchers studying this to make
robust (or intuitively believable) connections between lobbying and subsequent changes in
standards see Lobbying
54. Early Adoption of IFRS what happens to firms when they use IFRS early?
This was a topic which attracted much interest during the transition to IFRS, but studies have now
largely moved on. Did the market signal any particularly favourable perception of early adopters was
studies in many different countries; e.g. see the references used by Annelies Renders and Ann
Gaeremynck, 2005, The Impact of Legal and Voluntary Investor Protection on the Early Adoption of
IFRS http://ssrn.com/abstract=744531 who noted:
Previous studies (Dumontier and Raffournier, 1998, El-Gazzar et al, 1999; Cuijpers and
Buijink, 2004) typically explain the early adoption of IFRS by firm-specific benefits.
However, the adoption of IFRS also leads to costs for company insiders, namely less
managerial discretion and as a consequence smaller private benefits due to increased
disclosure requirements and less accounting method choices. This paper argues that the cost
of adopting IFRS depends on characteristics of the institutional environment, more
specifically the level of investor protection. Using a sample of European companies, we find
that IFRS is more likely adopted in countries with strong laws protecting investors and/or
extensive corporate governance recommendations where the loss of private benefits following
IFRS-adoption is lower.
Using data from 34 countries, another study found voluntary IFRS adoption facilitates the
incorporation of firm-specific information into stock prices. We also find that the synchronicity-
reducing effect of IFRS adoption is attenuated (accentuated) for firms with high (low) analyst
following, and is stronger (weaker) for firms in countries with poor (good) institutional
infrastructures. Kim, Jeong-Bon and Shi, Haina, Voluntary IFRS Adoption and Stock Price
Synchronicity: Do Analyst Following and Institutional Infrastructure Matter? (April 8, 2010).
55. Earnings quality: does the use of IFRS alter earnings quality?
Earnings quality, in accounting, refers to the overall reasonableness of reported earnings i.e. how
steady or steadily increasing a firm's earnings given the economic climate. High quality earnings are
seen as conservative, full of promise for the future, and well controlled by the Governing Body, so in
part the quality reflects the long run or sustainable profitability of the entity. Does the use of IFRS
improve earnings quality? Well, according to Nina Gnther, Bernhard Gegenfurtner, Christoph
Kaserer, and Ann-Kristin Achleitner, (International Financial Reporting Standards and Earnings
Quality: The Myth of Voluntary vs. Mandatory Adoption (June 2, 2009). CEFS Working Paper No.
2009-09) http://ssrn.com/abstract=1413145
We revisit evidence whether incentives or IFRS drive earnings quality changes, analyzing a
large sample of German firms in the period from 1998 to 2008. Consistent with previous
studies we find that voluntary and mandatory adopters differ distinctively in terms of essential
firm characteristics and that size, leverage, age, bank ownership and ownership concentration
influenced the decision to voluntarily adopt IFRS. However, regardless of the decision to
voluntarily adopt IFRS, we find that conditional conservatism increased under IFRS for both
groups of adopters, while evidence does not suggest an increase in value relevance under
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IFRS. Results on earnings management in the post-adoption period are mixed. further
analyses suggest that the capital market environment and the economic cycle during the
adoption period seem to be a more powerful explanation for this evidence than voluntary or
mandatory IFRS adoption. incentives to voluntarily adopt IFRS did not unambiguously
dominate accounting standards in determining earnings quality in the case of German firms.
Another study of differences in earnings quality of Malaysian companies after the adoption of IFRS-
based accounting standards used 4010 observations over a three-year period before and after the
adoption of the new set of accounting standards, finding adoption of FRS is relatively related to
higher reported earnings quality. Specifically, the results shows that (1) the absolute value of
abnormal accrual is significantly lower and (2) the value-relevance of firms earnings is significantly
higher, after the adoption of the new set of accounting standards. Wan Ismail, Wan Adibah, Van Zijl,
Tony and Dunstan, Keitha L., Earnings Quality and the Adoption of IFRS-Based Accounting
Standards: Evidence from an Emerging Market (March 7, 2010). http://ssrn.com/abstract=1566634
Another study of forty-six countries suggest earnings quality increases for mandatory IFRS adoption
when a country's investor protection regime provides stronger protection, at least based on the
earnings attribute considered in our study. This study extends the current literature showing that
accounting practices are influenced by country level macro settings. Houqe, Nurul, Van Zijl, Tony,
Dunstan, Keitha L. and Karim, A.K.M. Waresul, The Effect of IFRS Adoption and Investor
Protection on Earnings Quality Around the World (October 5, 2011). International Journal of
Accounting, Forthcoming. http://ssrn.com/abstract=1536460
There are many other studies; some of the most recent, as above, would provide you with ample
references to the core literature in this area. Jo Horton, George Serafeim and Ioanna Serafeim, 2009,
asked Does Mandatory IFRS Adoption Improve the Information Environment?
http://ssrn.com/abstract=1264101 who noted:
We examine the effects of mandatory IFRS reporting on analyst forecast accuracy,
disagreement and volatility of revisions. We investigate not only firms that mandatorily adopt
IFRS, but also firms that voluntarily adopt IFRS early and firms yet to adopt IFRS. Consistent
with the existence of externalities we find that, during the mandatory transition period to
IFRS, the largest improvement in the information environment is for firms that voluntarily
adopt IFRS early. Firms mandatorily adopting IFRS show an improvement, but this is limited
to non-financial firms, which is consistent with the controversy surrounding fair values.
Furthermore, we document learning effects during IFRS adoption since analysts with IFRS
experience improve their performance after IFRS adoption relative to other analysts. We also
ascertain that the change in transparency is proportional to firm-specific differences between
IFRS and local GAAP. This suggests IFRS is the causal mechanism of this improvement
although its effect depends on firms prior reporting incentives.
Others are:
a) Ann Gaeremynck, Daniel B. Thornton and Arnt Verriest, 2009, Quality of IFRS Adoption,
b) Hans Bonde Christensen, Edward Lee and Martin Walker, 2007, Incentives or Standards:
What Determines Accounting Quality Changes Around IFRS Adoption?, AAA, 2008,
Financial Accounting and Reporting Section (FARS) Paper http://ssrn.com/abstract=1013054
c) Huifa Chen, Qingliang Tang, Yihong Jiang and Zhijun Lin, 2009, International Financial
Reporting Standards and Accounting Quality: Evidence from the European Union,
d) John Goodwin, Kamran Ahmed and Richard A. Heaney, 2008, The Effects of International
Financial Reporting Standards on the Accounts and Accounting Quality of Australian Firms:
A Retrospective Study, Journal of Contemporary Accounting and Economics
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e) Philip R. Brown and Ann Tarca, 2007, Achieving High Quality, Comparable Financial
Reporting: A Review of Independent Enforcement Bodies in Australia and the United
Kingdom, Abacus, Vol. 43, No. 4, pp. 438-473
f) Holger Daske and Gnther Gebhardt, 2006, International Financial Reporting Standards and
Experts Perceptions of Disclosure Quality, Abacus, Vol. 42, No. 3-4, pp. 461-498
56. Earnings management does IFRs permit more or less of such practices?
Earnings management practices are characterized by using the discretion delegated to the
Management from the Board, and then adopting measurement or recognition choices either to enlarge
or reduce profit. If a manager postpones necessary maintenance, this will reduce expense and increase
profit, and is thought of as earnings management, but is unwise for the long-term health of the
business. If the manager decides to sell some assets which are surplus and not being used, this will
also increase profit but would not be deemed earnings management. So it all depends what the
objectives of the company are in their year-end resultsand this is widely studied.
Capkun, Vedran, Cazavan-Jeny, Anne, Jeanjean, Thomas and Weiss, Lawrence A., Setting the Bar:
Earnings Management During a Change in Accounting Standards (June 22, 2011).
http://ssrn.com/abstract=1870007 examines the impact of the accounting flexibility offered by IFRS
1 during the 2005 mandatory adoption of IFRS in the European Union. [with a ] sample of 1,635
European firms to determine the nature and extent of their use in managing earnings and earnings
changes under IFRS. while we find no evidence of stock markets reacting to earnings management
during the IFRS transition, we find strong evidence in support of CEOs managing earnings
reconciliations to increase their compensation. What a surprise.
Another by Capkun with Collins, Daniel W. and Jeanjean, Thomas, Does Adoption of IAS/IFRS
Deter Earnings Management? (May 20, 2011). http://ssrn.com/abstract=1850228
Chile and Malaysia were compared in a study by Mahenthrian, Blanco and Cademartori
investigating whether the listed firms in these two countries use deferred tax expenses to
manage their earnings also studying the factors that affect the amount of deferred tax
expenses reported. The study finds that beyond total accruals, deferred tax expenses are not
incrementally useful to detect earnings management. Further, the amount recognized as
deferred tax expenses is significantly associated with changes in operating cash flows, and in
Chile, it is also related to the level of institutional ownership in listed firms. Mahenthiran,
Sakthi, Blanco, Mara and Cademartori, David , Effects of Accruals, Cash Flows, and Taxes
on Earnings Management: Evidence from Chile and Malaysia (September 23, 2008).
Lei Cai, Asheq Razaur Rahman and Stephen M. Courtenay, 2009, The Effect of IFRS and its
Enforcement on Earnings Management: An International Comparison on
http://ssrn.com/abstract=147357 said
Widespread adoption of IFRS is expected to improve accounting quality. IFRS is issued by
the IASB, but the IASB has no power to enforce the standards. Many are concerned that
without adequate enforcement mechanisms, the benefits of IFRS adoption will be minimal.
We examine the effect of IFRS and its enforcement on earnings management in financial
reporting using over 100,000 firm-year observations from 2000 to 2006 across 32 countries.
We conduct this examination by using a modified measure of enforcement developed by
Hope (2003). We find that earnings management in IFRS adoption countries has been
decreasing in recent years. The results also show that countries with stronger enforcement
generally have less earnings management.
See also Wolfgang Aussenegg, Petra Inwinkl and Georg Thomas Schneider, 2009, Earnings
Management and Local vs. International Accounting Standards of European Public Firms,
We examine how the transition from local GAAPs to IAS/IFRS of companies that are
publicly traded on a European stock exchange affects earnings management. To measure
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earnings management we apply 15 different proxies. In analyzing 17 European countries and

more than 18,000 firm-year observations we observe that companies applying IAS/IFRS
experience less earnings management than firms applying domestic standards.
However, while this is true for Central European countries, UK and Ireland (English legal origin) as
well as Northern European Countries (Scandinavian legal origin) show a different behaviour. They
already have lower earnings management levels prior to IAS/IFRS adoption compared to the rest of
Europe. For these countries the transition from local GAAPs to IAS/IFRS does not change their
earnings management behaviour.
Apart from this, we show that firm size and time have no significant effect on earnings management
and that growth firms exhibit higher levels of earnings management. In comparing the results for all
15 earnings management measures we conclude that different measures seem to capture different
dimensions of earnings management
anod Brenda Van Tangelo and Ann Vanstraelen, 2005, Earnings Management under German GAAP
versus IFRS, European Accounting Review, Vol. 14, No. 1
57. Economic consequences of IFRS - What would they be?
This is closely related to the two previous questions. My colleagues Noor and Tony examined the
association between IFRS adoption and economic consequences (proxied by ex ante cost of equity
capital) in New Zealand listed companies. Using a sample of 392 firm year observation over the
period 1998-2009, we document a significant negative association between IFRS adoption and ex ante
cost of capital. This metric will help for the decision making of professional investors and corporate
financial managers equally. Houqe, Nurul and Van Zijl, Tony, The Economic Consequences of IFRS
Adoption in New Zealand (September 9, 2011). http://ssrn.com/abstract=1924667
see also: Kosi, Urska and Florou, Annita, The Economic Consequences of Mandatory IFRS Adoption
for Debt Financing (November 18, 2009). INTACCT Working Paper No. MRTN-CT-2006-035850
INTACCT. http://ssrn.com/abstract=1508324 finding that mandatory IFRS adoption is beneficial
primarily for bond investors, who rely much more on financial statements and have much less
monitoring and renegotiating privileges compared to private lenders. Finally, we show that the
positive consequences of IFRS for debt financing are present only in countries with stricter rule
enforcement, higher control of corruption and lower financial risk
The study by Jrgen Ernstberger, Michael Stich and Oliver Vogler, 2009, Economic Consequences of
Accounting Enforcement Reforms: The Case of Germany http://ssrn.com/abstract=1321674
This paper investigates recent reforms to the enforcement of financial reporting in Germany. The
objective of these reforms was to promote a more consistent and faithful application of accounting
standards by (1) establishing a two-tier external enforcement mechanism, (2) restructuring the scope
of the auditors oversight, and (3) enacting new independence rules for auditorsthe enforcement
reforms in Germany have levelled the playing field in the enforcement of financial reporting. They
have, therefore, enhanced the average earnings quality, stock liquidity and valuation of the affected
firms.
Holger Daske, Luzi Hail, Christian Leuz and Rodrigo S. Verdi, 2008, Mandatory IFRS Reporting
Around the World: Early Evidence on the Economic Consequences, Journal of Accounting Research,
Vol. 46, No. 5, pp. 1085-1142
This paper examines the economic consequences of mandatory IFRS reporting around the
world. We analyze the effects on market liquidity, cost of capital and Tobin's q in 26
countries using a large sample of firms that are mandated to adopt IFRS. We find that, on
average, market liquidity increases around the time of the introduction of IFRS. We also
document a decrease in firms' cost of capital and an increase in equity valuations, but only if
we account for the possibility that the effects occur prior to the official adoption date.
Comparing mandatory and voluntary adopters, we find that the capital market effects are most
pronounced for firms that voluntarily switch to IFRS, both in the year when they switch and
again later, when IFRS become mandatory
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And specific to the financial instruments standard.Abe de Jong, Miguel Angel Roselln Cifuentes
and Patrick Verwijmeren, 2006, The Economic Consequences of IFRS: The Impact of IAS 32 on
Preference Shares in the Netherlands, ERIM Report Series Reference No. ERS, 2006-021-F A
58. Elements and Entities - what do these mean?
The elements of financial reporting is one word to include assets, liabilities, equity, income and
expenses. When discussing elements we focus on both the recognition criteria and the different
measurement basis (check out the IASB Framework).
59: What is the Emerging Economies Group (EEG)?
Set up to understand the difficulties emerging economies have when implementing IFRSs.The
membership of the group is the members of the G20 who are emerging economies = eleven or twelve
nations, and MalaysiaWhat the group does not include is the next group of emerging economies,
which have less experience of working with the IASB, such as Cambodia, the Philippines, Thailand
and Vietnamcountries that have less experience and have yet to develop the same degree of IFRS
competence that the G20 members tend to have. Upton (from IFRS) continued by noting:
It has to move beyond just the G20. I think the EEG membership has to reflect the spectrum
of emerging markets, not just the largest and best resourced members. That is going to be
difficult because some of those countries do not have direct access to the resources that are
really necessary to participate in some of these discussions. By that I mean that their
regulatory infrastructure or standard-setting capabilities are not as well developed as other,
larger emerging markets. They dont tend to have such a well-developed accounting
profession as, say, Indonesia. We need to find a way to involve them effectively. I do not
know what that is yet but it is early days for the group.
http://www.ifrs.org/Features/WU+interview+Dec+2011.htm
60: What is an entity?
The definition of an entity may be enshrined in Business or Financial Reporting law in many
jurisdictions, but if not, it is a useful word to indicate all organisations which have to prepare financial
reports. These may be General or Special Purpose reports (see the Framework). The word entity will
include companies (not only those which are publicly listed on the Share market); local body entities
such as Town councils, Whole of Nation Government and their Departments, Charities, Clubs,
Incorporated Societies, Partnerships, Multi-National enterprises, Global entities such as the World
Bank and the IMF, or a local Co-operative or Club. All these can be called entities unless the term is
specifically restricted by legal definition.
61. ESO i.e. stock options; are these governed by any IFRS?
Ever since the 1990s, stock option compensation has grown in popularity as a key component of
executives compensation plans; particularly in the USA. The executive may be issued with the option
to buy shares in the company in one or more years time. When that time is reached, the shares may
be selling at a lot more than the price on the Executives option, so they may exercise their option to
buy at a greatly reduced price compared with current open-market values, and then sell them for a
cash gain.
However, a lot of companies have come under allegation for the abuse of these compensation
instruments. Under IFRS 2, companies are required to recognise an expense of the fair value of the
stock options at their grant date and amortise the expense over the vesting period. This has caused a
great deal of interest in disclosure and measurement principles for such options, such as Mary Lea
McAnally, Sean T. McGuire and Connie D. Weaver, 2009, Assessing the Financial Reporting
Consequences of Conversion to IFRS: The Case of Equity-Based Compensation,
The potential conversion of accounting standards from U.S. GAAP to IFRS raises the issue of
unknown financial reporting consequences. We consider one important accounting issue, namely
equity-based compensation, and study how IFRS conversion will affect financial statements and the
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quality of reported numbers. The difference between the two standards is that IFRS reports tax
benefits from equity-based compensation at their intrinsic value each period. This amounts to quasi
fair-value accounting under IFRS compared to historic-cost accounting under GAAP. We develop and
compare pro forma GAAP and IFRS accounting reports for a broad cross section of US firms. We
find that IFRS conversion will significantly increase deferred tax assets and recognized tax benefits
for about one-third of our sample firms. Moreover, reported tax items are more volatile under IFRS.
Importantly, we find that IFRS tax items are better able to predict future cash flows. One conclusion is
that IFRS improves the relevance, and thereby, the quality, of at least some reported numbers.
Other recent studies include:
Andrea Melis and Silvia Carta, 2009, Does Accounting Regulation Enhance Corporate
Governance? Evidence from the Disclosure of Share-Based Remuneration, Journal of Management
and Governance, Forthcoming
Manuel Ammann and Ralf Seiz, 2006, An IFRS 2 and FASB 123 (R) Compatible Model for
the Valuation of Employee Stock Options, Financial Markets and Portfolio Management, Vol. 19, No.
4, pp. 381-396, 2005
62. Fair Value: what is fair value?
It is the price an asset can be sold (or a liability settled) when both are willing parties to the
transaction. So if you sell your car, the net amount you get before paying for the advertisement is its
fair value. When you buy at an auction, the amount you bid (before auction room charges) is its fair
value. When you buy a coat, the amount on the ticket that you agree to pay is its fair value. So at that
moment the fair value is the same as the historic cost. But as time goes on, the value of land, or
buildings, or an asset owned by the company can diverge from the historic cost (what you paid in the
first place).
My dear reader, if you are asked about fair value at any time try to get the word volatility into your
answer. The thing so many loathe and hate about fair value is that it will introduce volatility in the
earnings and balance sheet figures. If these are volatile, it is very hard for analysts to predict future
earnings (that is how they earn their money), and for companies to make their Earnings Targets (on
which they are harshly judged by shareholders)
Other closely related methods of valuing are:
Mark to market
Realisable (sale) value
Sometime this is NRV = net realisable value (net of sale costs or after sale costs have been deducted
Current value
David Cairns and his colleagues looked at 228 listed companies in the UK and Australia around the
time of adoption of IFRS from 1 January 2005. We test whether within and between country
comparability in policy choices (as measured by T indices) has changed in relation to (a) mandatory
and (b) optional use of fair value measurement. Options to use fair value in other areas (intangible
assets, plant and equipment and investment properties) are not generally taken up, either for on-going
measurement or on IFRS adoption (under the 'deemed cost' option). The results suggest a conservative
approach and/or lack of incentives to use fair value measurement for most companies Cairns, David,
F, Dianne Renee, Taplin, Ross and Tarca, Ann, IFRS Fair Value Measurement and Accounting Policy
Choice in the United Kingdom and Australia (February 6, 2009). AAA 2009 Mid-Year International
Accounting Section (IAS) Meeting. http://ssrn.com/abstract=1274024
Peng and Bewley analysed archival data on China's practices in adopting and implementing FVA to
provide a critical perspective on whether the divergence in FVA between local standards and IFRS is
justified and whether it may be bridged in the near future. The findings show (1) a roller-coaster
trajectory going from complete ignorance, to an abortive introduction, to abrupt prohibition, and
finally to aggressive re-introduction within a short period. China's practices in adopting and
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implementing FVA in IFRS appear to be driven by political and economic conditions, not by the
readiness of the capital market or of other fundamental infrastructure. (2) China has extensively
adopted FVA derived from IFRS but substantial divergence persists, posing a challenge to IASB's
goal of uniform accounting. (3) China's implementation of FVA has improved only slightly since the
first failed attempt at fair value reform, calling into question the effectiveness of future
implementation efforts. Peng, Songlan (Stella) and Bewley, Kathryn, Adaptability of Fair Value
Accounting in China: Assessment of an Emerging Economy Converging with IFRS (2009). CAAA
Annual Conference 2009 Paper. http://ssrn.com/abstract=1326004
. Other studies include:
1. Christian Laux and Christian Leuz, 2009, The Crisis of Fair Value Accounting: Making Sense
of the Recent Debate, Accounting, Organizations and Society, Vol. 34, 2009,
2. Tyrone M. Carlin and Nigel Finch, 2008, Advance Australia Fair: The Quality of AASB 136
Fair Value Disclosures Down Under, MGSM Working Paper No 2008-1
3. Adela Deaconu, Nistor Cristina Silvia and Filip Crina, 2009, Legitimacy to Develop Fair
Value Measurement Standards: The Case of the IVSC Discussion Paper Determination of
Fair Value of Intangible Assets for IFRS Reporting Purposes, Review of Business Research,
Vol. 9, No. 3, 2009, http://ssrn.com/abstract=1443986
63. FASB what is this group?
FASB is the long-established USA Financial Accounting Standards Board. Its website will tell you all
of the history, establishment and due process details. http://www.fasb.org. It has always been very
well-funded with a high-powered team of technical staff. The FASB is very strongly in favour of
private independent standard-setting processes; and works very closely with the SEC and the IASB to
promote convergence of US standards and IFRS. They issue:
Statements of Financial Accounting Standards (SFAS)
FASB Interpretations
FASB Staff Positions
FASB Technical Bulletins; and
Emerging Issues Task Force (EITF) Abstracts like IFRIC interpretations
Andreas M. Fleckner, 2008, FASB and IASB: Dependence Despite Independence, Virginia Law &
Business Review, Vol. 3, p. 275- http://ssrn.com/abstract=1310290
note that policymakers rely on private entities to establish financial accounting and
reporting standards. The two most influential standard-setters are the Financial Accounting
Standards Board (FASB) and the International Accounting Standards Board (IASB). This
paper focuses on the organizational structure of the FASB and the IASB and their
susceptibility to outside influence. In principle, both boards are organized independently from
private and governmental influence..By referring to recent examples (such as share-based
payments or IAS 39), the article illustrates that both boards have been subject to outside
influence and, when put under pressure, both boards have made concessions and thereby
jeopardized their independence.
64. Financial Instrument recognition: what has happened to IAS 39?
IAS 39 established the principles for recognising and measuring financial assets, financial liabilities
and some contracts to buy or sell non-financial items. IAS 39 included provisions about the
classification of financial instruments, their ongoing measurement (including when impairment is
required), when financial instruments should be recognised and derecognised and hedge accounting
requirements. (http://www.ifrs.org Work Plan for IFRS). However, there was a significant degree of
stakeholder resistance to its complexity.
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IAS 39 was supplemented by IFRS 9 in November 2009. The objective of developing IFRS 9 is to
simplify (ha!) the classification and measurement requirements for financial instruments. IFRS 9
Financial Instruments was published in November 2009 and contained requirements for financial
assets. Requirements for financial liabilities were added in October 2010. Most of the requirements
for financial liabilities were carried forward unchanged from IAS 39 [but] changes were made to
the fair value option for financial liabilities to address the issue of own credit risk.
(http://www.ifrs.org Work Plan for IFRS)
Some relaxation occurred: In December 2011, the Board amended IFRS 9 to require application for
annual periods beginning on or after 1 January 2015 and to not require the restatement of
comparative-period financial statements upon initial application.
Phase 2 will be on Impairment methodology - The supplementary document Financial Instruments:
Impairment was published in January 2011. The comment period closed on 1 April 2011 and
redeliberations are on-going.
Phase 3: The exposure draft Hedge Accounting was published in December 2010. The comment
period closed on 9 March 2011.
All this argy-bargy shows it is hotly contested because some influential stakeholders realised it was
going to undermine the creditability of the whole IFRS brand if they could not get it right. Have they
got it right yet? Tweedie was famous for saying in 2007:
I often say about IAS 39 that, if you understand it, you havent read it properlyits
incomprehensible. Many people are bemused by the standards, so we need to explain what the
accounting effects mean. (UK Journal of Accountancy July 2007)
65. Framework (the same as a Conceptual Framework): is this an accounting standard?
No. It is not a standard (see Hierarchy).It is called the Framework for the Preparation and
Presentation of Financial Statements. It is useful to get familiar with the Framework as it defines the
elements, states the underlying assumptions, the qualitative characteristics, and explains quite a few
parts of GAAP which are not covered in Standards. The Australian Accounting Standards Board has a
PDF of their version of the IASB Framework on their website (http://www.aasb.gov.au under
Pronouncements). But you can only use it for personal and non-commercial use if you are in Australia.
66. Fundamental concepts: what are these four, and how do they differ from Qualitative
characteristics?
Decisions about financial reporting are underpinned by four fundamental concepts
1. full disclosure principle
2. accrual accounting principle
3. prudence principle and
4. the reporting entity assumption
These are not qualitative characteristics of the financial reports, which are used when there are
difficult decisions about recognition and measurement. These fundamental concepts do not often
cause any problem; they are assumptions which have been part of accounting for many many years.
The prudence principle is sometimes argued about, as it does not make sense to be prudent when
this results in overturning recognition and measurement criteria. An example: if you are prudent and
do not recognise contingent assets (like the beneficial result of a law case due shortly), but do
recognise contingent liabilities (like a liability for redundancy payment to workers laid off when you
finish reorganizing your business), this is bound to result in the Balance Sheet losing a bit of
symmetry.
67. Funding: How is the IASB funded?
http://www.ifrs.org/XBRL/Resources/Annual+report.htm
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Is the best place to download the most recent annual report and have a good look at where the money
comes in from. Key issue: transparency as to sources of funds as well as independence in their
decision making on appointments in particular. The interesting thing about this is that
many commentators urged the Trustees to strengthen the independence of the IASC Foundation
further by ensuring a stable and sustainable funding base in the form of government-sponsored levy
systems. While the IASC Foundation has made progress in developing government-sponsored
funding systems, a large portion of the organizations funding still comes from voluntary
contributions from companies and accounting firms. The IASC Foundation Trustees is responsible
for fund raising activities. However, they do not have the authority to require automatic funding
mechanisms from jurisdictions that use IFRS http://blog.ifrs.com/2010/02/iasb-funding.html
68. GAAP, not a clothes shop? No.
GAAP means generally accepted accounting principles in North America, and elsewhere mean
generally accepted accounting practice. So it developed from custom, history, habits and tradition,
long before accounting standards, but is largely built into standards and business law now.
If you look up articles like Murphy Smith and Kun Wang, 2008, How Different GAAPs Affect
Performance of Valuation Models: Evidence from Asia-Based Companies Cross-Listed in the U.S.
http://ssrn.com/abstract=960870 you would see they think Use of accounting information to assess a
firm's value is a very important subject for financial analysts, investors, lenders, policy-makers, and
other market participants. This study compares the relative performance of three valuation models
based on a sample of all relevant American Depositary Shares from selected Asian countries and a
matched sample of U.S. counterparts, using accounting variables reported under U.S. generally
accepted accounting principles (GAAP), non-U.S. GAAP, and IFRS. Understanding how these
different GAAPs affect valuation is increasingly important, especially after the U.S. SEC [decisions]
69. Goodwill: what is that! Where is it in an IFRS?
This has nothing to do with warm fuzzy feelings. It being Christmas as I write this, in the brilliant
Wellington warmth and sunshine, there is a lot of goodwill around, but not the somewhat difficult
accounting kind. In the old days you would see statements like this:
"On 1 October 2007, BBC Worldwide acquired a 75% shareholding in the Lonely Planet
group of companies for a total cash consideration (including acquisition costs) of 89.9m.
Goodwill of 73.2m was recognised and is being written off over its estimated useful
economic life of 20 years. http://tims-boot.blogspot.com/2008_07_01_archive.html
In that case BBC Worldwide paid 73.2m over and above the fair value of the net assets (assets less
liabilities) to buy The Lonely Planet group of companies. Should they have? Who knows? It
represents the amount a company is willing to pay to take over another company, whether to use it to
expand their network, to strangle a competitor, or to ensure a steady constant supply of material from
a previously independent supplier, or some other reasons. There have been many possibly unwise and
probably overpriced takeovers (e.g. the history of NZ Telecoms takeover of AAPT in Australia,
paying about $NZ 2 billion and now pulled out).
Now the accounting for this has all changed and you would see a statements like:
(Note: this is fictional) On 1 October 2010, BBC Worldwide acquired a 75% shareholding in
the Lonely Planet group of companies for a total cash consideration (including acquisition
costs) of 89.9m. Goodwill of 73.2m was recognised and will be annually reviewed for any
impairment losses. This means the Goodwill stays on the Balance Sheet as an asset as long
as the Board, their accountants and auditors all believe it still has some value (see below on
Goodwill impairment)
Carlin and Finch wished to examine the manner in which firms responded to new reporting
requirements as they shift from one goodwill reporting regime to another provides an avenue through
which evidence on how organisations cope with the rigours of complex material reporting change
may be gathered. This is a question with potentially significant implications for a range of
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stakeholders including auditors, financial analysts, regulators and report users. This paper reports the
results of a study of the goodwill reporting practices adopted by a sample of 50 large Australian listed
firms which disclosed the existence of goodwill in each of the first two years in which they produced
financial statements pursuant to IFRS. The quality and technical accuracy of the goodwill disclosures
produced by these organisations together with an assessment of evidence of variation in these over
time provides an evidentiary basis for analysis. Carlin, Tyrone M. and Finch, Nigel, Financial
Reporting Reform and Organisational Change - Evidence from Australia's IFRS Adventure (2008)
You can find out all about it in IFRS 3 on Business Combinations and IAS 36 on Intangibles.
1. Wolfgang Schultze and Andreas Weiler, 2009, Goodwill Accounting and Performance
Measurement, Managerial Finance, http://ssrn.com/abstract=140525
2. Michael Nwogugu, 2009, Goodwill/Intangibles Rules, and Associated Behavioral Issues
70. Goodwill Impairment: how is this calculated?
It is calculated by an expert, who assesses the future cash flows to be derived from the purchased
goodwill. You cannot recognise Goodwill unless you have bought a company for more than the fair
value of its net assets (See above). Impairment: if the Goodwill is worth less than last time it was
assessed, then its value has been impaired. So you reduce the value of the Asset (a CR) and incur an
expense on your Income statement (a DR). A good place to start to see how these impacts in IFRS
adoption are the studies led by Tyrone Carlin.
Carlin and Finch wished to examine evidence relating to the potential for and extent of opportunistic
exercise of discretion by large Australian and New Zealand reporting entities undertaking goodwill
impairment testing pursuant to the IFRS framework, from a sample of 124 Australian and New
Zealand listed firms, and an analysis of variances between these rates and those adopted by sample
firms undertaken for the purposes of ascertaining evidence of potential opportunism in discount rate
selection. Evidence consistent with opportunism in the selection of discount rates is reported, and they
raise doubts as to the efficacy of the IFRS impairment testing process in practice and suggest the need
for greater rigour and vigilance on the part of auditors and regulators overseeing entities reporting
pursuant to IFRS.
Carlin, Tyrone M. and Finch, Nigel, Evidence on IFRS Goodwill Impairment Testing by Australian
and New Zealand Firms (February 9, 2010). http://ssrn.com/abstract=1550425 and Tyrone, Carlin, M.
and Finch, Nigel, Goodwill Impairment Testing Under IFRS - A False Impossible Shore? (July 24,
As far as Goodwill in the UK is concerned: empirical results reveal that managers are
exercising discretion in the reporting of goodwill impairments following the adoption of
IFRS-3. Specifically, goodwill impairments are more likely to be associated with recent CEO
changes, income smoothing and big bath reporting behaviours. However, the results also
indicate that goodwill impairments are strongly associated with effective governance
mechanisms suggesting that managers are more likely to be exercising their accounting
discretion to convey their private information about the underlying performance of the firm
rather than acting opportunistically. These inferences are robust to various modeling
specifications and variable definitions, suggesting that IFRS 3 has provided managers with a
framework to reliably convey their private information about future cash flows consistent
with the IASB's objectives in developing the impairment standard. See Abughazaleh, Naser,
Al-Hares, Osama Musa and Roberts, C., Accounting Discretion in Goodwill Impairments:
UK Evidence (Autumn 2011). http://ssrn.com/abstract=1927111
Liberatore and Mazzi tackled goodwill write-off and financial market behaviour by analyzing all
companies composing the S&P Europe 350 index; this revealed a possible connection between
goodwill write-offs and financial markets' behaviour which seemed not to confirm the research
hypothesis and to show that stock markets may be concerned with goodwill write-offs. See Liberatore,
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Giovanni and Mazzi, Francesco, Goodwill Write-Off and Financial Market Behaviour: An Analysis
of Possible Relationships (September 23, 2009). Advances in Accounting, Incorporating Advances in
International Accounting, Vol. 26, No. 2, 2010. http://ssrn.com/abstract=1533775
And look at
1. Cristina Aurora Bunea-Bontas and Mihaela Cosmina Petre, 2009, Issues on Recognition,
Measurement and Impairment of Goodwill, Annals - Economic Science Series, Vol. XV, pg. 238-244
2. Mari Paananen, 2009, Fair Value Accounting for Goodwill Under IFRS: An Exploratory
Study of the Comparability in France, Germany, and the United Kingdom,
Using a random sample of companies from France, Germany, and the UK (100 from each country) I
examine the comparability/diversity of fair value accounting of goodwill under IFRS . I predict and
find that large companies operating in an environment with a high level of investor protection are
more likely to provide more disclosure on how the conduct the fair value estimation of acquired
goodwill. I also predict find that investors find the accounting information from companies with high
levels of disclosure more informative. In addition, I also find that companies in the financial sector are
providing significantly less disclosure compared to other companies.
71. Governance of the IASB: How are members of the IASB appointed?
The Trustees of the IFRS Foundation appoint members of the IASB, the International Financial
Reporting Interpretations Committee, and the Standards Advisory Council. Sir David Tweedie,
Chairman of the International Accounting Standards Board (IASB) retired at the end of June 2011
having served the maximum two five-year terms as stipulated by the constitution of the IFRS
Foundation. The Trustees appointed Hans Hoogervorst to succeed Sir David Tweedie.
IFRS Foundation Chair: Michel Prada has been appointed Chair of the IFRS Foundation Trustees,
effective 1st January 2012.
See under Governance and Accountability to see how they appoint representatives on a world-wide
basis to avoid any Anglo-Saxon bias. Download their Annual Report and you will get the good oil on
this question.
72. Hierarchy of Authority - Is that important?
Yes. Very much so. In the Framework for the Preparation and Presentation of Financial Statements
which describes the principles underlying IFRS, IAS 8 Par. 11 it provides a hierarchy of authoritative
sources in descending order, being
(a) the requirements and guidance in Standards and Interpretations dealing with similar and related
issues; and
(b) the definitions, recognition criteria and measurement concepts for assets, liabilities, income and
expenses in the Framework
So that means you look at the IFRS, IASs and IFRIC interpretations for authority before you go back
to the Conceptual Framework.
73. How can I find out the differences between local GAAP in my own country and IFRS GAAP?
There is no easy answer to this question.
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Firstly, look at any practitioner magazines issued by accounting professional body in your own
country and there may be many articles describing differences between local and IFRS GAAP, and
the most important issues.
Secondly, you can also do a side by side comparison of the titles of IFRS and your own local set of
accounting standards and see which areas are covered in the two sets, then look in detail at the ones
which are only in IFRS.
Thirdly, read local newspaper articles in the business section of your newspaper and you may find
comments by Company Chairmen and CEOs about the impact of IFRS on their financial results,
which highlight areas where key differences arise.
http://media.cpa2biz.com/Publication/Dreammail/CPA2Biz/CorpFin_Inside/2010/march/map.gif
74. IAS: What are IASs?
International Accounting Standards. Issued from around 1970 to 2000. They were preceded earlier
than that by SSAPs (Statements of Standard Accounting Practice). There are 28 IASs on the books at
present (see http://www.ifrs.org/IFRSs/IFRs.htm). These will be slowly superseded by IFRS. There
are also currently 13 IFRS, 20 IFRICs and 31 SICs. The current IASs are numbered:
IAS 1, 2, 7, 8, 10, 11, 12, 16, 17, 18, 19, 20, 21, 23, 24, 26, 27, 28, 29, 31, 32, 33, 36, 37, 38, 39, 40,
and 41. You will find them in your hard copy volumes of standards after the IFRS.
75. IFRS: What do the IFRS Foundation and the IASB do?
The IASB (International Accounting Standards Board) is the independent standard-setting body of
the IFRS Foundation. Its members (currently 15 full-time members) are responsible for the
development and publication of IFRS, including the IFRS for SMEs and for approving Interpretations
of IFRS as developed by the IFRIC. All meetings of the IASB are held in public and webcast... The
IASB engages closely with stakeholders around the world, including investors, analysts, regulators,
business leaders, accounting standard-setters and the accountancy profession.
http://www.ifrs.org/The+organisation/IASCF+and+IASB.htm
The organisations public accountability is delivered through:
The Monitoring Board
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The Constitution Review

Due process; and
Public meetings
76. IASC what is that body?

It no longer exists. As the predecessor of the IASB, the International Accounting Standards
Committee (IASC) was first established in 1973. It had a membership of 143 organisations from 104
countries in its last year, January 2000. In 2001, the committee was reconstituted as the IASB after
considerable pressure from its stakeholders to become more independent of the professional
accounting bodies, this hopefully enabling it to work more closely with national standard-setters and
technical experts.
77. IFRS Foundation . Who are they?
The governance and oversight of the activities undertaken by the IFRS Foundation and its standard-
setting body rests with its Trustees, who are also responsible for safeguarding the independence of the
IASB and ensuring the financing of the organisation.
http://www.ifrs.org/NR/rdonlyres/1D35BB5F-6E59-446F-9861-A84F9288CBB4/0/WhoWeAreEnglishNovember2011.pdf
The IFRS Foundation and its independent standard-setting body, the IASB, provide public
accountability through the transparency of their work, the consultation with the full range of
interested parties in the standard-setting process, and their formal accountability links to the
public. The leaders of the major economies, through the G20, have confirmed the importance
of an independent standard-setter accountable to the public interest.
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Public accountability, ensured by the organisations constitution and governance arrangements, is

vital to the organisations success. It is the Trustees duty to ensure that appropriate governance
arrangements are in place and observed by all parts of the organisation
http://www.ifrs.org/The+organisation/Governance+and+accountability/governance+and+accountabili
ty.htm
78. What is an IFRIC?
If this refers to a document, then it is an interpretation since 2001 originating from the International
Financial Reporting Standards Interpretations Committee. All of these are issued after 2001. As they
are now called International Financial Reporting Standards Interpretations they should have the
acronym IFRSI, but they are still referred to as IFRICs. The IFRS Interpretations Committee did not
exist before 2001. An important question is: if an interpretation leads to a contradiction between the
IFRS Interpretation and the IFRS itself, which has more authority? Many believe that an
Interpretation could not amend a standard; and that Interpretations should not be used to resolve
conflicts between standards. There are currently 20 IFRICs on issue.
79. IFRS: How many IFRS are there? And how many IASs are there?
International Financial Reporting Standards comprise of IFRS, IASs, IFRICs and SICs.
IFRS - standards issued after 2001
International Accounting Standards (IAS) - standards issued before 2001
Interpretations originated from the International Financial Reporting Interpretations Committee
(IFRIC) - issued after 2001
Standing Interpretations Committee (SIC) - issued before 2001
The core documents are: www.ifrs.org.
The Preface to International Financial Reporting Standards
The Framework for the Preparation and Presentation of Financial Statements
13 International Financial Reporting Standards
25 International Accounting Standards
One Practice Statement
20 IFRIC - Final Interpretations Issued by the IFRS Interpretations Committee
31 Standing Interpretations Committee
80. Impairment: what issues are there here?
See also Goodwill Impairment. But Impairment covers more than Goodwill. The impairment test
(previously known as the Recoverable amount test) is an old test which says: if any asset has lost
value, then it is impaired and the value on the Balance sheet must be written down (reduced). This
means you have a corresponding expense in your Income statement. This has generated a lot of
academic research, and if you look at the reference lists in any of these publications you would get a
good start on how it has been researched and studied:
e.g. Nigel Finch, A Case Based Analysis of Impairment Decision Making, Journal of Law and
Financial Management, Vol. 7, No. 2, pp. 36-42, December, 2008
or Andrea Szczesny and Aljosa Valentincic, 2009, Asset Write Offs in Private Firms - The Case of
German SMEs, http://ssrn.com/abstract=133080
We find that SME firms write-off relatively more if they are: (i) more profitable; (ii) have more
financial debt; (iii) pay dividends. Findings are contrary to expectations based on accounting
standards or existing revaluation literature, but consistent with the codified, high book-tax alignment
economic setting in which sample firms operate, including agency problems. We use a comprehensive
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sample of German SMEs reporting in local GAAP, based on the German commercial code
(Handelsgesetzbuch) in 2003-2006. We view write-offs and upward asset revaluations as signed
corrections of departures of book values from their underlying economic values
Yuri Biondi, Recognition and Measurement of Assets in the International Accounting Harmonization.
Impairment Test and Intangibles in a Dynamic Perspective, Comptabilite Controle Audit, Vol. 10, No.
2, pp. 55-72, November, 2004
81. Life Insurance do these companies have any IFRS issues?
Life Insurance companies have long had major issues with asset and liability recognition issues,
(being one of the touchy trio: Banks, Insurance Cos and Pension schemes). General Insurance
companies may have similar issues with revenue recognition issues, but for a Life Insurance company
reporting to its shareholders they do have a real problem calculating the value of their liabilities i.e.
what and when they are likely to have to pay out in future when each of their policy-holders dies, and
its present value for financial reporting. Not easy. And those who calculate such sums (actuaries) used
to see their craft as so specialised to the extent of being beyond something accountants should
regulate on in accounting standards. However, they have mostly come to the party now. See
Nissim, Doron, Analysis and Valuation of Insurance Companies (November 30, 2010). Center for
Excellence in Accounting and Security Analysis Industry Study No. 2.
and
Tudini, Edmondo, Forte, Gianfranco and Mattei, Jacopo, The Value Relevance of Embedded Value
Disclosures: Evidence from European Life Insurance Companies (August 17, 2011).
As noted in:
Thomas Post, Helmut Grndl, Lisa Schmidl and Mark S. Dorfman, 2009, Implications of IFRS for the
European Insurance Industry - Insights from Capital Market Theory http://ssrn.com/abstract=906089
The European insurance industry is currently undergoing a substantial change in financial reporting
requirements. Beginning in 2005, compliance with the IFRS has been required in the European Union.
Substantial sections of the IFRS - leading to a market-oriented valuation of insurance contracts - are
still under construction and will be introduced in the next few years. To date, assessment of the
potential impact of the new IFRS accounting and reporting system is largely found in trade literature,
and in insurance industry business leader and expert commentator statements. The tenor of opinion is
that the IFRS will create a serious challenge for the European insurance industry. To evaluate the
impact of IFRS more scientifically, this paper applies where indicated capital market theory and
the concept of information efficiency. The paper suggests that concerns about the effects of IFRS are
exaggerated, and reveals that the main area of IFRS impact on the European insurance industry is
likely to be on insurance product design
or the earlier study:
Andre Dorsman, Andr E. Thibeault and Pieter Walhof, 2006, Life Insurance Securitisation in Europe:
An Overview on the Effects of Alternative Capital Resources and its Relation to Regulator and IFRS
Guidelines, NRG Working Paper No. 05-05
82. Lobbying when is a good time to do it if I have a gripe?
Lobbying activities are frequent, intense and part of due process for all IASB members and staff.
When might you lobby the IASB? Well, at any of the six stages of Due Process (see above), in person,
by letter, by email, phone callswhatever you need to do to get your message across. And will it
have an impact? Very good question! Look at the references to all the studies in
Thomas Hansen, 2009, Lobbying of the International Accounting Standards Board: An Empirical
Investigation: http://ssrn.com/abstract=1081413
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This paper provides evidence on how the International Accounting Standards Board generates
accounting standards in the presence of lobbyists with differing preferences. I use theories from the
political science and economics fields to develop hypotheses regarding the associations between
attributes of lobbyists and their lobbying activity, and their lobbying success lobbying success is
positively related to the ability of the lobbyist to provide information to the IASB [and] is
associated with the impact that the lobbyists have on the viability of the IASB, measured by their
financial contributions and the size of the capital market in their home country. However, this
association is not present when I look only at cases where lobbyists disagree with IASB proposal
drafts.
It is a bit of a truism to note that a country's political system bears on the decision to adopt
International Financial Reporting Standards. However, Johnson has based a study on the extent to
which these transacting parties can influence the political system, then, is predicted to explain how
quickly a country adopts IFRS; specifically, countries with more veto players - actors capable of
blocking change through the legislative process - and with more influential lobbying activity - as
measured by the relation between legal political contributions and policy decisions - are expected to
adopt IFRS later. Both univariate and duration analyses support this hypothesis. Derek Johnson,
Political Systems, Lobbying, and the Adoption of International Financial Reporting Standards
(February 1, 2011). http://ssrn.com/abstract=1753225
Some time ago I tried to work this question, with mixed results: R. F. Baskerville Responses to
Exposure Drafts; Comparing data from New Zealand with responses to Australian and International
Exposure Drafts on the Same Topic in Financial Accounting Abstracts Working Paper series Vol. 1
(6), March 1996.
and did an interesting study with Sonja Pont Newby in 2002 on Due Process Failure in Sector-
Neutral Accounting Standard-Setting Financial Accountability & Management Vol. 18, No. 1,
83. Mark-to-market: what does mark to market mean?
It is a particular term used to mean Fair Value when valuing financial assets or liabilities. So
Wikipedia and many others would tell you: Mark-to-market or fair value accounting refers to the
accounting standards of assigning a value to a position held in a financial instrument based on the
current fair market price for the instrument or similar instruments. (See the description of Fair value
above). Some technical accountants will make a difference between these two terms but for the rest of
us we understand them to mean the same thing. I prefer Fair value because it suggests not every asset
could be sold in an active market, but of course with E-Bay and other online trading the operations of
markets for different types of assets has greatly multiplied. Fair value needs only a willing seller and
willing buyer, which may be the case for some off-market specialised transactions e.g. surrogacy,
family controlled (protected) rights.
84. Pension Plans or Schemes: are they part of IFRS GAAP?
Yes. Pension and superannuation plans have long had major issues with asset and liability recognition
issues (being one of the touchy trio, Banks, Insurance and Pension schemes) and the IASB has
picked up the challenge for these very peculiar types of entities. Usually they are Trusts so there is the
issue about control of the plan who appoints the Trusteesand can a company with a pension plan
be deemed to control the plan?
There are three questions to get clear before you start researching these types of entities:
1. Are you studying how a company which sponsors (contributes to) a pension plan for their
employees measures its obligations (liabilities 8) and then reports this in its own company
report to shareholders?
8
One confusion often is that such company liabilities are called Benefits or Obligations. So a sum called PBO - Projected Benefit
Obligations of the Scheme is a Liability.
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2. Or are you studying how a pension plan reports to its members with its very own financial
report?
3. Regarding the pension plan.
Is it the type where the end payout to each member depends on how much money is in the
pot (a defined contribution plan) for each member/beneficiary? or
Are you dealing with the infinitely more complicated type of pension plan, one called a
defined benefit scheme, where the pay-out to the staff member (called the beneficiary)
depends on a % of what may be a very uncertain amount (e.g. it might be the average of the
last five years of their salary before they retire)?
Some plans are a mixture.
For a company reporting to its shareholders, they do have a real problem calculating the value of their
liabilities towards the pension plans, i.e. what and when they are likely to have to pay out in future for
any shortfalls in the plans when each of their staff member retires, and its present value for financial
reporting. Not easy. And, (as I mentioned under Life Insurance) those who calculate such sums
(actuaries) used to see their craft as so specialised to the extent of being beyond something
accountants should regulate on in accounting standards. This has now changed. If you can answer the
three questions above, then take a look as some of the references in the following studies: Jan D.
Fasshauer and Martin Glaum, 2009, The Value Relevance of Pension Fair Values and Pension
Disclosures http://ssrn.com/abstract=1491237
In this paper we investigate the value relevance of fair-value estimates of pension obligations
using data for German companies that have adopted IFRS or US-GAAP. German companies
traditionally do not fund pension plans externally. They therefore report large net pension
obligations on their balance sheets. This provides an interesting setting to study the effects of
uncertainty and managerial incentives on the value relevance of pension-obligation fair values.
We find that fair-value estimates for companies pension funding status are more strongly
associated with share prices than recognized net pension liabilities that are smoothed because
of the application of the corridor method. Furthermore, we find that pension-related
disclosures are value relevant themselves; investors appear to make use of them to assess
estimations and to identify possible managerial manipulation and to adjust valuations
accordingly.
There is also the study of voluntary pension funding in Germany and the effect of international
accounting, using data of German company pension plans from 1998 to 2006, it documents that
traditionally unfunded plans have been increasingly replaced, especially by funding Contractual Trust
Arrangements. International influences such as pension funding abroad are a major determinant of
this shift in corporate financial policy but financial factors such as profitability are not found to have
an important effect. We also investigate the consequences of applying IAS/IFRS or US GAAP instead
of German GAAP and find evidence that supports the hypothesis that international accounting has a
positive effect on voluntary pension funding in Germany in Stadler, Christian and Lobe, Sebastian,
Voluntary Pension Funding in Germany and the Effect of International Accounting (February 25,
2010). http://ssrn.com/abstract=1075222 and Stadlers other study:
Pension Accounting Choice in Germany: Pension Discount Rate and Actuarial Gains and
Losses Christian Stadler. SSRN Working Paper Series. Rochester: Apr 2010.
See also: Laurens A. P. Swinkels, 2006, Have Pension Plans Changed after the Introduction of IFRS?
www.ssrn.com/sol3/papers.cfm?abstract_id=917795
I looked at this in New Zealand ten years ago, but the only thing that has happened since then is that
the number of defined benefit plans has further reduced, to the extent they are a largely immaterial for
listed companies in NZ, i.e. very different from Australia, the EU and North America. Rachel F.,
Baskerville, 2007, Research on Financial Reporting by Defined Benefit Schemes (2007). Victoria
University Centre for Accounting, Governance and Taxation Research Working Paper No. 45.
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85. Qualitative characteristics what does that mean?

The qualitative characteristics underlying IFRS are understandability, relevance, reliability, and
comparability (see the Framework).
These are really useful characteristics when you are writing essays or assignments, and I offer a little
expansion on Understandability, and Comparability in this Handbook. In any assignment or essay
about IFRS, consider each of these qualitative characteristics in turn, as they hold the key to
understanding that accounting standards cannot meet the expectations of all users all of the time.
What is value? How do relevance and reliability interact? If you get a really reliable value of an asset
(e.g. what you paid for it) this may be less relevant than its fair value (market, current value). But
even to determine its fair value is not easy. Consider the following:
a) You wish to insure your house for replacement in case of a fire or earthquake, so the
replacement cost is what you wish to insure it at. Difficult to estimate.
b) You have your grandfathers old fob watch which you could sell for $100, but would
probably cost $250 to replace. Do you insure it at all? Would any replacement item have the
same value as your grandfathers watch?
c) You have a painting for which you paid $200, but it is now apparently worth five times that.
Do you value it at a somewhat hypothetical sale price in an auction - if there is high interest in
it?
d) Another painting is now worthless and you cannot even sell it on EBay. Do you value/insure
it at all? It is much liked by all your family members.
e) When you insure the car you pay on an assessment of its fair value, which may be much
higher or lower than you could sell it for.
All we can conclude is that the balance between a reliable value (what you paid for it) and its fair
value (the most relevant, but often hard to determine) depends on the use of the valuation, your
information needs and consumption requirements (utility).
86. Politics: what are the politics around the IASB and its stakeholders
This is a hot topic for research as e.g. the World Bank and IMF become more and more interested in
the extent to which capital market efficiency etc are a part of relief of poverty, and linked to the IFRS
adoption; for starters Louise Crawford, Christine Helliar and David Power (2010) published a very
intrusting study through the ICAEW Politics or accounting principles: why was IFRS 8 so
controversial?
As noted on: http://www.icaew.com/en/products/financial-reporting-publications/politics-or-
accounting-principles-why-was-ifrs-8-so-controversial
Within the EU they must still be endorsed by public authority through the EC and
Accounting Regulatory committee. This EU endorsement process came to prominence when
the IASB issued IFRS 8 Operating Segments in 2006. This process was different from that
followed by previous IFRSs. Using interviews with a sample of key stakeholders, this briefing
looks at whether this difference was due to the changes to segmental reporting which IFRS 8
proposed or simply an attempt by the EU to reclaim some of its authority over the standard-
setting process and check out the Review by Stephen Zeff in The Accounting Review 2011,
Vol. 86, Iss. 4; pg. 1484.
There are also several papers by Tim Buthe and Walter Mattli, e.g. 2005, Global Private Governance:
The Politics of Setting Standards in Accounting:
We seek to advance the timely debate about global governance and specifically about the
potential for a global system of administrative law to ensure transparency as well as access
and accountability for those affected by the new inter- and transnational rule- and decision-
makers. We focus empirically on global governance in accounting, which as of 2001 is the
task of the International Accounting Standards Board, IASB. This private agent is modelled
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after the national accounting standards setter of the United States, the Financial Accounting
Standards Board (FASB). Because FASB is the blueprint for IASB and plays a prominent role
in global governance in accounting, we provide an empirical analysis of this domestic
institution before pondering the trends and likely challenges at the global level.
And also Walter Mattli and Tim Bthe, 2005, Accountability in Accounting? The Politics of Private
Rule-Making in the Public Interest Governance: An International Journal of Policy, Administration,
and Institutions Vol. 18, No. 3, pp. 399429 and The Politics of Setting Standards for International
Product and Financial Markets http://ssrn.com/abstract=146710
Prem Sikka, 2008, The internet and potentialities of emancipatory change: The case of the institutions
and politics of accounting Critical Perspectives on International Business, Volume 4, Number 1, pp.
75-83
Alistair M. Brown, 2004, The Milieu of the IASB, The Journal of American Academy of Business,
Cambridge, Vol. 4, No. 1, Sept.
and his study The Financial Milieu of the IASB and AASB, Fourth Asia Pacific Interdisciplinary
Research in Accounting Conference
87. Principles versus Rules: what is the deal with this phrase?
Well, it was because some considered that US and the FASB standards were Rules-based whereas
IASB IFRS were principles-based. Some believed principles-based were much more robust; and
others disagreed. Much has been written on this; see for example
Katherine Schipper, 2003, Principles-Based Accounting Standards, Accounting Horizons, Vol. 17
.I take a combined standard-setting and accounting-research perspective. This
commentary is intended to raise several empirical questions that might be asked in
discussions about the attributes, desirability, and effects of "principle-based accounting
standards." I begin with an argument that U.S. GAAP is based on a recognizable set of
principles derived from the FASB's Conceptual Framework, but nonetheless contains
elements that cause some commentators to conclude that U.S. accounting is "rules-based." I
discuss these "rules-based" elements and raise questions about how they affect the
comparability, relevance, and reliability of reported numbers. I also consider the potential
attributes of "principle-based standards" and, given the specifics of the current reporting
system, some potential consequences if U.S. financial reporting standards were to shift so as
to exhibit those attributes.
An experimental approach was used in the study of Principles-Based versus Rules-Based Accounting
Standards: The Influence of Standard Precision and Audit Committee Strength on Financial Reporting
Decisions by Christopher Agoglia, Tim Doupnik, and George Tsakumis in the The Accounting
Review May 2011. Vol. 86, Iss. 3; pg. 747, 21 pgs
finding : CFOs in our experiments exhibit more agreement and are less likely to report
aggressively under a less precise (more principles-based) standard than under a more precise
(more rules-based) standard. Our results also indicate that CFOs applying a more precise
standard are less likely to report aggressively in the presence of a strong audit committee than
a weak audit committee. We find no effect of audit committee strength when the standard is
less precise. Finally, we find support for a three-path mediating model examining
mechanisms driving the effect of standard precision on aggressive reporting decisions
See also: Cohen, Jeffrey R., Krishnamoorthy, Ganesh, Peytcheva, Marietta and Wright, Arnold, Will
Regulatory Enforcement and Principles-Based Accounting Influence Auditors Ethical Judgments to
Constrain Aggressive Reporting? (September 8, 2011). http://ssrn.com/abstract=1817684
Or Salvador Carmona and Marco Trombetta, 2008, On the global acceptance of IAS/IFRS accounting
standards: The logic and implications of the principles-based system, Journal of Accounting and
Public Policy Volume 27, Issue 6, 455-461
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. we suggest that the principles-based approach to the standards and its inner flexibility
enables the application of IAS/IFRS to countries with diverse accounting traditions and
varying institutional conditions. Furthermore, the principles-based approach involves major
changes in the expertise held by accountants and, hence, in their educational background,
training programs, and in the organizational and business models of accounting firms. Finally,
we submit that the standards set by the IAS/IFRS constitute a step forward in the process of
accounting harmonization, although there is still far to go in the comparability of accounting
measures across countries and regions
See also:
George T. Tsakumis, Timothy Doupnik and Christopher P. Agoglia, 2009, Principles-Based Versus
Rules-Based Accounting Standards: The Influence of Standard Precision and Audit Committee
Strength on Financial Reporting Decisions, AAA, Mid-Year IAS Meeting
88. Ratios: how does IFRS adoption impact on ratio calculations?
Few have studied this in a manner that explains why precise it impacts; some standards may swing the
ratios in contrary manner, compared with the earlier local GAAP; which makes it more difficult than
it might appear to identify in a generalisable manner about this; but you might like to access the book
by U. Wiehle, A.G. Cometis, M. Diegelmann, H. Deter, and M. Rolf, 2005, 100 IFRS Financial
Ratios. Cometis AG. Or consider the Finnish study by Anna-Maija Lantto and Petri Sahlstrm, 2009,
Impact of International Financial Reporting Standard Adoption on Key Financial Ratios, Accounting
& Finance, Vol. 49, Issue 2, pp. 341-361
Although previous research has investigated the economic consequences of International
Financial Reporting Standard (IFRS) adoption, there is little evidence on the impact of IFRS
adoption on key financial ratios. To fill this gap, we examine this issue in a continental
European country (Finland). Our results show that the adoption of IFRS changes the
magnitude of the key accounting ratios. Moreover, we extend the literature by showing that
the adoption of fair value accounting rules and stricter requirements on certain accounting
issues are the reasons for the changes observed in accounting figures and financial ratios.
89. Revenue Recognition where has the IASB got to on this topic?
See http://www.ifrs.org/News/Press+Releases/rev+rec+reexpose+14+nov+2011.htm
And:
revenues usually represent the greatest single item reported in the financial statements.
The current guidance on revenue recognition suffers from some weaknesses and inconsistencies.
Finding the solution to these problems is a subject of joint IASBs and FASBs Revenue Recognition
Project. The main aim of Revenue Recognition Project is to remove inconsistency and to create a
comprehensive standard on revenue recognition that would apply to all possible revenue-generating
transactions as noted by David Prochazka, 2009, New Approaches to Revenue Recognition and
Common Sense, http://ssrn.com/abstract=1518378 . His paper outlines basic features of revenue
recognition practice under IFRS and US GAAP and he suggests there exist some conflicts regarding
the measurement of revenue. The advantages and disadvantages of fair value and allocated customer
consideration amount model are analysed from the point of users information need usefulness.
See also Jens Wstemann and Sonja Kierzek, 2007, Revenue Recognition under IFRS Revisited -
Conceptual Models, Current Proposals and Practical Consequences, Accounting in Europe, Vol. 2, pp.
69-106, 2005 http://ssrn.com/abstract=990888
Since 2002, the FASB and the IASB have been undertaking a joint project on the revision and
convergence of U.S. GAAP and IFRS revenue recognition. Even though the outcome of the
project is still open, the project's course as well as trends in recently published IFRS and other
current IASB projects suggest that existing earnings-based and realisation-based IFRS
revenue recognition criteria are likely to be replaced by a radically new approach. This paper
Page 55 of 64
demonstrates the inconsistencies in current IFRS revenue recognition that have triggered the
project and then presents and discusses three conceptually different revenue recognition
models that are internationally debated at present. The paper concludes that a major revision
of existing IFRS revenue recognition as proposed by the FASB and the IASB is not required.
It is argued that the perceived deficiencies should rather be solved on the basis of current
transaction-based IFRS revenue recognition criteria.
There is also: New Approaches to Revenue Recognition and Common Sense by David Prochazka
outlines basic features of revenue recognition practice under IFRS and US GAAP. The main aim
of Revenue Recognition Project is to remove inconsistency and to create a comprehensive standard on
revenue recognition that would apply to all possible revenue-generating transactions. Unfortunately,
there exist some conflicts regarding the measurement of revenue. The advantages and disadvantages
of fair value and allocated customer consideration amount model are analysed from the point of users'
information need usefulness. Background for this evaluation is derived from the empirical experiment.
Prochzka, David, New Approaches to Revenue Recognition and Common Sense (December 4, 2009).
90. SEC how is the SEC involved?
As from 2007, the USA Securities and Exchange Commission (SEC) allowed non-US companies to
file financial results according to IFRS as approved by the IASB. The change permitted non-US
companies to access US capital markets without reconciliation with US GAAP by 2009. The SEC
emphasised that this proposal applies only to those companies filing financial statements according to
full IFRS.
See also:
1. Lawrence A. Cunningham, 2008, The SEC's Global Accounting Vision: A Realistic
Appraisal of a Quixotic Quest, North Carolina Law Review, Vol. 87, 2008, GWU Legal Studies
Research Paper No. 401, GWU Law School Public Law Research Paper No. 401
2. Roberta S. Karmel, 2008, The EU Challenge to the SEC, Fordham International Law
Journal, Forthcoming, Brooklyn Law School, Legal Studies Paper No. 101
91. Sector-Neutrality, meaning?
The IASB has long focussed on setting standards for the private (i.e. non-government) business sector.
However, as noted by the IASB in the Information for Observers at the Joint IASB/FASB Meeting in
April 2005 on the Conceptual Framework
Most of the recent frameworks of other standard-setters continue to include stewardship in their
discussion of objectives, which suggests that it should continue to have a role. Indeed, some give
stewardship as much prominence as decision-usefulness. In some cases, the reason for doing so seems
to relate to sector neutrality. For example, the New Zealand framework, which applies to all sectors,
notes that financial reporting has both an accountability (stewardship) role and an informative
(decision-usefulness) role, and that the relative importance of these roles may vary for different users
and different sectors.
For example, users of the financial reports of public sector entities may be more interested in
accountability.
Similarly, the Canadian framework notes that information about the discharge of stewardship
responsibilities is especially important in the not-for-profit sector.
Some jurisdictions believe that IFRS can be adapted to be sector-neutral and apply to a range of
Entities (see Entity above)
See also
a) Michael E. Bradbury and Tony van Zijl, 2006, International Financial Reporting Standards
and New Zealand: Loss of Sector Neutrality, Research in Accounting Regulation, Vol. 19
Page 56 of 64
b) Alex Faseruk and Daphne Rixon, 2009, Valuation in Public Sector Agencies: Impact on
Financial Reporting Through the Implementation of International Financial Standards: Focus
on Canadian Workers Compensation Boards, Journal of Financial Management and Analysis,
Vol. 22, No. 1
c) Christine Merle Ryan, James Guthrie and Ron Day, 2007, Politics of Financial Reporting and
the Consequences for the Public Sector, Abacus, Vol. 43, No. 4, pp. 474-487
d) Aziz Jaafar and Stuart McLeay, 2007, Country Effects and Sector Effects on the
Harmonization of Accounting Policy Choice, Abacus, Vol. 43, No. 2, pp. 156-189
92. SMEs: Do IFRS apply to SMEs?
Here is a neat summary from
http://accounting-financial-tax.com/, 2009, /11/accounting-framework-of-the-ifrs-for-small-business-smes/
Small and Medium-sized Entities [SMEs] has different meanings in different territories.
The definition in the context of the IFRS for SMEs is entities that do not have public
accountability but that publish general purpose financial statements. Every entity has some
form of accountability, if only to its owners and the local tax authorities. Public accountability
is defined to cover entities with or seeking to have securities traded in a public market or that
hold assets in a fiduciary capacity. The definition is therefore based on the nature of an entity
rather than on its size. An IFRS for SMEs has clear benefits for investors, lenders and those
seeking to raise finance through the transparency afforded by a consistently applied, global
set of financial reporting standards
So the IFRS for SMEs, originally issued in July, 2007, and revised in 2009 was designed for use by
small and medium-sized entities, estimated to represent more than 95 per cent of all companies. See
http://www.ifrs.org/News/Press+Releases/IASB+publishes+IFRS+for+SMEs.htm
where the IASB said The IFRS for SMEs is a self-contained standard of about 230 pages
tailored for the needs and capabilities of smaller businesses. Many of the principles in full
IFRS for recognising and measuring assets, liabilities, income and expenses have been
simplified, topics not relevant to SMEs have been omitted, and the number of required
disclosures has been significantly reduced. To further reduce the reporting burden for SMEs
revisions to the IFRS will be limited to once every three years.
There are also three studies led by Adela Deaconu and her colleagues
a) Adela Deaconu, Nistor Cristina Silvia and Irimie Popa, 2009, Analysis of the Stakeholders'
Needs and Their Inference Upon Financial Reports of SMEs, Journal of International
Business and Economics, 2009
b) Adela Deaconu, Irimie Popa, Anuta Buiga and Melinda Fulop, 2009, Impact Analysis of
Future Accounting Regulation for SMEs in Europe, Journal of International Business and
Economics, Vol. 8, No. 1, 2008
c) Adela Deaconu, Irimie Popa, Anuta Buiga and Melinda Fulop, 2009, Conceptual and
Technical Study Regarding Future Accounting Regulation for SMEs in Europe, Theoretical
and Applied Economics, Vol. 1 (530)
Carolyn Cordery and I looked at Small GAAP: A Large Jump for the IASB but this was before the
SME came out from the IASB: http://ssrn.com/abstract=1179082
See also two papers by Alexander Schiebel,
To What Extent Would the Proposed IFRS for Small and Medium-Sized Entities be
Independent of the Full IFRS System? (December 6, 2006). http://ssrn.com/abstract=993006
Is There a Solid Empirical Foundation for the IASB's Draft IFRS for SMEs? (February 18,
Page 57 of 64
93. Tax what are some issues in revising the IFRS for Tax?
The issues around the measurements of a tax asset (what the local taxation authority owes to you) and
how to measure your tax liabilities (what you may need to pay in taxes in future years) are very
complex, and when tax experts and standards experts meet and discuss accounting for tax there are
few who are truly bi-lingual in each specialisation.
This project has been completed, after many delays. In December 2010 the IASB issued amendments
to IAS 12 Deferred Tax: Recovery of Underlying Assets . The original project objective was to
resolve problems in practice under IAS 12 Income Taxes, without changing the fundamental approach
under IAS 12 and preferably without increasing divergence with US GAAP. The project originally
started as a convergence project with US GAAP. However, in the light of responses to an exposure
draft published in 2009, the Board narrowed the scope of the project. The Board may consider a
fundamental review of the accounting for income taxes as part of its agenda consultation process
during 2012.
http://www.ifrs.org/Current+Projects/IASB+Projects/Income+Taxes/Income+Taxes.htm
However difficult it is to get buy-in by all stakeholders on this, apparently it might be easier in the EU,
as noted in a study by Eva Eberhartinger and Margret Klostermann, 2007, What if IFRS were a Tax
Base? New Empirical Evidence from an Austrian Perspective, Accounting in Europe, Vol. 4, pp.
141-168:
In particular in Germany and Austria, but also in other countries, extensive theoretical and
analytical research has been published on the potential tax effects in case IFRS were used as
the basis for corporate taxation. Very few quantitative papers exist. This motivated us to
conduct a study that quantifies the actual effects of a potential decisiveness of IFRS for the
national tax base - without further questioning the usefulness of an IFRS relevance. The
main preliminary finding of our empirical survey is that only in few cases we find essential
differences between IFRS and tax accounts. Our evidence suggests that no dramatic change in
the tax base has to be expected. Our study provides not only new empirical evidence but also
a basis for further research on a possible common consolidated corporate tax base from an
academic perspective
See also Christoph Spengel and Andreas Oestreicher, 2007, Tax Harmonisation in Europe - The
Determination of Corporate Taxable Income in the EU Member States, ZEW - Centre for European
Economic Research Discussion Paper No. 07-035
John R. Graham, Jana Smith Raedy and Douglas A. Shackelford, 2008, Research in Accounting for
Income Taxes, http://ssrn.com/abstract=131200
94. Translation: Are there translations of IFRS?
European-wide application of IAS/IFRS may not be sufficient to ensure equivalent quality of financial
reporting, as one problem is the translation of IFRS from the original English into other languages
(Wong, 2004; Nobes, 2006; Zeff, 2007).
The IASBs working language is English. However, as noted by the IASB it is crucial that users,
preparers, legislators, lawyers, educators, students and all other interested parties have access to the
IASBs standards in their native language (www.ifrs.org ). Until 1997 translations of IAS were
prepared by the IASCs member bodies; this however resulted at times in a number of different
translations, of differing quality, for one language (IASCF, 2001: 15). This led the IASC to put in
place its own official translation process in 1997 9.
9
International Accounting Standards Committee Foundation (2001) Translating IFRS, IASB Insight, October, 15-6.
Nobes, C. (2006) The survival of international differences under IFRS: towards a research agenda, Accounting & Business Research, 36
(3), 233 - 245
Wong, P.H.Y. (2004) Challenges and successes in implementing international standards: achieving convergence to IFRSs and ISAs. New
York: International Federation of Accountants.
Zeff, S. (2007) Some Obstacles to Global Financial Reporting Comparability and Convergence at a High Level of Quality The British
Accounting Review, 39, 290 302.
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To facilitate implementation of IFRS in the EU in 2005, timely translation of IAS and IFRS into the
EUs (then) ten official languages, which have equal legal standing, was required. The IFRS
Foundation s translation process was engaged in order to facilitate this, but representatives of the EU
Translation Services and of national governments were involved in the process, and translations were
reviewed by national representatives in the EU Accounting Regulatory Committee (IASB website).
While the IASBs translation processes are likely to be rigorous, increasing infrastructure and cost
considerations arising from the enlargement of the EU and the need to keep translations up to date
have led the IASB to reconsider translation processes and funding. These considerations are currently
ongoing. See also a research report Prof Lisa Evans and I published on the icas website:
www.icas.org.uk called The Darkening Glass
As well as: Lisa Evans, (2004), Language, translation and the
problem of international accounting communication,
Accounting, Auditing and Accountability Journal, 17 (2) 210
248 and (2010) Observations on the Changing Language of
Accounting, Accounting History, 15(4), pp. 439-62.
My Inaugural Lecture: '109 Voices: Translation Issues for

Accounting Standards in the EU', Victoria University of
Wellington, New Zealand (August 9, 2011).
95. True and Fair is this a problem in EU states?
Yes. True and Fair, the term long used by auditors when they sign off on financial statements, and
also described in the Framework, poses problems for IFRS, because translations of True and Fair
into official language versions of the EU member states are not, as a rule, literal translations of the
English original (see references above as well as Rutherford, 1983; Nobes, 1993; Alexander, 1993;
Aisbitt and Nobes, 2001) nor applied equivalently (e.g. Nobes, 1993, Aisbitt and Nobes, 2001). Other
phrases are increasing in usage. Kosmala-MacLullich (2003) finds that a variety of translations appear
in Polish, which reflect a lack of consensus on the concepts role. She argues that this is due to the
fact that the Polish translations are incompatible with the meanings associated with True and Fair in
English.
Many of the languages in the Eastern European transitional economies also do not have definite and
indefinite articles. Alver et al. (1997: 44) suggest that:
For languages that do not provide for both the definite article and the indefinite article in their
grammatical structures the introduction of the precept of a true and fair view may well present
formidable difficulties.
Meaningful literal translations of True and Fair are not possible (Van Hulle, 1993), and the
translation of True and Fair as well as its national implementations demonstrate that countries have
managed to impose their own culture on an alien concept (Nobes, 1993; see also Parker, 1989,
Wstemann and Kierzek, 200710.
10
Aisbitt, S. and Nobes, C. (2001) The true and fair view requirement in recent national implementations, Accounting and Business
Research, 31 (2), 83-90; Alexander, D. (1993) A European true and fair view?, European Accounting Review, 2 (1) 59-80; Alver, J., Alver,
L., Bailey, D., Mackevicius, J. and Paupa, V. (1997) Audit and audit governance as a problem in the Baltic States, paper presented at the
EIASM Workshop on Auditor Regulation in Europe, Copenhagen; Evans, L. (2004) Language, translation and the problem of international
accounting communication, Accounting, Auditing and Accountability Journal, 17 (2) 210 248; Evans, L. and Nobes, C. (1996) Some
mysteries relating to the prudence principle in the fourth directive and in German and British Law, European Accounting Review, 5 (2),
361-73; Kosmala-MacLullich, K. (2003) The true and fair view construct in the context of the Polish transition economy: some local
insights, European Accounting Review, 12 (3), 465-87; Nobes, C. (1993) The true and fair view requirement: impact on and of the fourth
directive, Accounting and Business Research, 24 (93), 35-48; Nobes, C. (2006) The survival of international differences under IFRS:
towards a research agenda, Accounting & Business Research, 36 (3), 233 245; Parker, R.H. (1989) Importing and exporting accounting:
the British experience, in Hopwood, A. (Ed.), International Pressures for Accounting Change, Prentice-Hall/ICAEW, Hemel Hempstead,
7-29; Rutherford, B. A. (1983) Spoilt beauty: the true and fair view doctrine in translation, AUTA (Association of University Teachers in
Accounting) Review, Spring, 33-6; Van Hulle, K. (1993) Truth and untruth about true and fair: a commentary on A European true and fair
view?, The European Accounting Review, 2 (1), 99-104; Wstemann, J and Kierzek, S, 2007, True and Fair View Revisited - A Reply to
Alexander and Nobes, Accounting in Europe, Vol. 3, pp. 91-116, 2006
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96. Understandability as a Qualitative characteristics: what does that mean?

The qualitative characteristics underlying IFRS are understandability, relevance, reliability, and
comparability.
It is not to ask that financial statements are understandable by everyone, but any educated user, and
this now includes you too, students. You should find the financial statements are understandable after
giving them some thought. A useful term to use if you are asked to contrast two types of financial
reporting measurement or recognition choices. For example, is fair value easier to understand than
historic cost? Certainly, the sum of assets all valued at fair value is more understandable than the sum
of a number of assets valued at historic cost. The latter values will be all over the show and do not
add up to an understandable total...
97. Value Relevance, meaning?
This is a real favourite of academics. What does Value relevance mean? If you look at a balance sheet,
and the share market price, there is a relationship between the two. Complex, but it is there. Then if
the balance sheet or profits change a bit with the adoption of IFRS, does the share price move in the
direction you would predict?
Lets look at one such study:
Platikanova and Nobes also asked: Was the Introduction of IFRS in Europe Value-Relevant? Arguing
that If the regulatory reform improves informativeness of financial reporting, there will be a
significant decrease in the bid-ask spread, and more particularly in its information asymmetry
component, finding this decreases across the four country groups. The marginal effect of the spread
size on information asymmetry is stronger for UK firms. Platikanova, Petya and Nobes, Christopher,
Was the Introduction of IFRS in Europe Value-Relevant? (December 2006).
Kadri and Zulkifli utilised the Ohlson model to investigate the relationship between market value,
book value and earnings [value relevance] of Malaysian [property] firms under two different financial
reporting environments namely MASB environment and FRS environment. The results show that
significant relationship exists between market value, book value and earnings throughout the period
under study. When the sample is separated into MASB and FRS periods, a more significant
relationship between market value, book value and earnings exists during the FRS period. Zulkifli,
Mohamed and Kadri, Mohd Halim, Relationship Between Market Value and Book Value of
Malaysian Firms under Pre and Post FRS (2008). http://ssrn.com/abstract=1440771
Alan Ricquebourg, Allan Hodgson, and Iain Clacher examined whether there has been a change in the
value relevance of operating cash flows and direct cash flow components since the adoption of IFRS
in Australia. . our findings show strong evidence of a significant post-IFRS increase in the value
relevance of operating cash flows and direct cash flow components from our sample of industrial
firms but mixed results from our sample of extractive firms. we conclude that direct cash flow
statements are both useful to and used by investors, and provide a reliable source of price relevant
information. Duboise de Ricquebourg, Alan J., Hodgson, Allan C. and Clacher, Iain, The Value
Relevance of Direct Cash Flows Under IFRS (October 5, 2011). http://ssrn.com/abstract=1939073
See also Chalmers, Keryn, Clinch, Greg and Godfrey, Jayne M., Changes in Value Relevance of
Financial Information Upon IFRS Adoption: Evidence from Australia (October 1, 2010). Australian
Journal of Management, Vol. 36, No. 2, 2011. http://ssrn.com/abstract=1326666 who studied if
earnings become more value-relevant whereas the book value of equity does not. This impact is
concentrated in the subsamples of industrial firms, both large and small, and firms reporting an
AGAAP-IFRS accounting reconciliation upon IFRS adoption. Consistent with an increase in the value
relevance of earnings, earnings also become more persistent around IFRS adoption. Our study
suggests that even for a country categorized by strong investor protection and high-quality financial
reporting and enforcement, IFRS adoption affects the associations between accounting information
and market value.
Page 60 of 64
A different method was used by Vedran Capkun, Anne Cazavan-Jeny, Thomas Jeanjean and
Lawrence A. Weiss, 2008, Earnings Management and Value Relevance During the Mandatory
Transition from Local GAAPs to IFRS in Europe http://ssrn.com/abstract=112571
This paper analyzes a sample of 1,722 European firms during their mandatory transition from local
country accounting rules (Local GAAP) to IFRS in 2004 and 2005 using the same set of firm-year
observations. The transition to IFRS appears to have a small but significant impact on firms'
reported total assets and book equity, as well as on their reported goodwill, intangible assets, property
plant and equipment, long term debt and current assets and liabilities. For the same reporting period,
Return on Assets (ROA) is significantly higher under IFRS than under Local GAAP with the greater
increase occurring in those firms with lower levels of ROA under Local GAAP. This transition
earnings management is present in all countries, but its level is highest in those countries with weaker
legal institutions and higher levels of pre-transition earnings management. These results are consistent
with managers using the transition to improve their reported earnings and ROA. Both partial and
full IFRS earnings reconciliations are associated with market value and returns.
Other papers are:
1. Edmondo Tudini, 2009, The Properties of Banks Accounting Numbers in an International
Context Before and After the Introduction of IFRS: A Value Relevance Perspective,
2. Clarkson, Peter, Hanna, J. Douglas, Richardson, Gordon D. and Thompson, Rex W., The
Impact of IFRS Adoption on the Value Relevance of Book Value and Earnings (April 14, 2011).
Journal of Contemporary Accounting and Economics, Forthcoming. http://ssrn.com/abstract=1614362
3. Chris Armstrong, Mary E. Barth, Alan D. Jagolinzer and Edward J. Riedl, 2008, Market
Reaction to the Adoption of IFRS in Europe, Accounting Review, Forthcoming
4. Isabel Costa Loureno and Jos Dias Curto, 2008, The Level of Shareholder Protection and
the Value Relevance of Accounting Numbers: Evidence from the European Union Before and After
IFRS, AAA, 2009, Mid-Year IAS http://ssrn.com/abstract=1276024
5. Alexander Schiebel, 2007, Value Relevance of German GAAP and IFRS Consolidated
Financial Reporting: An Empirical Analysis on the Frankfurt Stock Exchange
6. Oystein Gjerde, Kjell Henry Knivsfl and Frode Saettem, 2008, The Value-Relevance of
Adopting IFRS: Evidence from 145 NGAAP Restatements http://ssrn.com/abstract=966080
98. Who has to comply with IFRS?
Good question. That depends on the law of the country you are in. (See entry under Entity as well).
Sometimes it is companies which have shares on a stock exchange; sometimes it is many other types
of entities as well.
99. Why can I not find an IFRS which deals with the accounting practice I need to find out
about?
Some of the most difficult areas of accounting are constantly under revision, and others have not yet
reached their final versions. If you look at the work programme of the IASB, some projects which are
not having top priority at present are:
Under the Memorandum of Understanding projects
Financial Statement presentation
Income taxes; the Board has signalled it is unlikely that the project will proceed in its current
form.
Under Research and other projects
Issues surrounding consolidation where there is Common control has been deferred
Page 61 of 64
Credit risk in liability measurement will later be part of the Conceptual Framework
Measurement Project
Earnings per Share amendments are deferred
Financing reporting by Extractive Activities (e.g. mining) is on hold
Recognition of Government grants has been deferred
Initial Accounting for Internally Generated Intangible Assets has been deferred
Investments in debt instruments is deferred
A number of these projects have been deferred due to pressure on Staff and the IASB Board to
address issues which arose from the Financial Crisis in 2007-2008.
There are a cluster of other aspects of GAAP which are never addressed in accounting standards:
Double Entry; and, in particular, some aspects of accrual accounting such as the measurement of
warranty expenses, bad debt provisions and write offs, what layout to use for the Balance Sheet, Ratio
analysis and the basis of ratio calculations, or how to determine the appropriate discount rates to use
for net present value calculations of the value-in-use for asset recognition. Liability measurement
issues are most often addressed through the principles in the Framework rather than any standards. It
depends always on your judgment in the assessment of what is the most probable outflow of cash, or
sacrifice of resources which will need to be used, to settle the liability sometime in the future.
100. XBRL: any takers?
eXtensible Business Reporting Language (XBRL) is a language that is used for the electronic
communication of information between businesses and other users of financial information for the
purpose of business reporting. A taxonomy is a computer-readable dictionary that defines business
reporting terms and the relationships between them. The IFRS Foundation XBRL Team is responsible
for developing and maintaining the XBRL taxonomy for IFRS, including the IFRS for Small- and
Medium-sized Entities (SMEs), known as the IFRS Taxonomy. The IFRS Taxonomy is used around
the world to facilitate the electronic use, exchange and comparability of financial data prepared in
accordance with IFRSs. http://www.ifrs.org/XBRL/XBRL.htm
The factors influencing the adoption of new accounting information technologies such as
eXtensible Business Reporting Language (XBRL) are complex and context-specific. XBRL is
being promoted as the business and financial reporting language of the future, which will
deliver accurate, reliable and timely financial and non-financial information to internal and
external stakeholders (Debreceny and Gray, 2001). Organisations may adopt XBRL to reduce
their compliance costs and gain a competitive advantage with potential investors.
XBRL is derived from XML, and facilitates easily the automated production of financial data
(Debreceny, Farewell, Piechocki, Felden and Graning, 2010). It is a worldwide collaborative
project between accounting professionals, regulators and businesses. The development of
XBRL is supported by over 200 entities, including multi-national enterprises, accounting
standard setters, financial market regulators, other government agencies and software vendors.
Furthermore, more than twenty countries (mostly European) have formed XBRL working
groups and joined one of the XBRL International Jurisdiction groups 11.
Success stories from governmental regulators in larger countries such as in the US
(Premuroso and Bhattacharya, 2008), Australia (XBRL International Inc., 2008a) and the
Netherlands (Baker, 2008) demonstrate XBRLs benefits, especially when regulators and
governments can share data. Research also indicates that unless adoption is mandated by a
reporting agent or organisation, voluntary adoption rates vary. For example, in the US, under
11
According to XBRL International Inc. (2008b), there are two types of Jurisdictions. Firstly, the Established Jurisdiction group consists of
XBRL Working Groups from Australia, Belgium, Canada, Denmark, France, Germany, Ireland, Japan, Korea, the Netherlands, Spain,
Sweden, United Kingdom, United States, the European Union and the International Accounting Standards Board. Secondly, the Provisional
Jurisdiction group includes XBRL Working Groups from China, Italy, Luxembourg, Poland, South Africa, Switzerland and the Unit ed Arab
Emirates.
Page 62 of 64
the Securities Exchange Commissions (SECs) XBRL Voluntary Financial Reporting

Programme, an adoption rate of between 1.4 and 2 percent only was achieved (Kernan, 2008;
Bonsn, Cortijo and Escobar, 2009; Efendi, Smith and Wong, 2009). Company size is also
one of the key factors determining XBRL adoption, with larger firms more likely to adopt it
voluntarily (Efendi, et al., 2009). From Cordery, C.J., Fowler, C.J. and Mustafa, K.M. A
solution looking for a problem: factors associated with the non-adoption of XBRL Pacific
Accounting Review, 23(1), 69-88.
who refer to:
Baker, N. (2008), Holland takes a different tack on XBRL, Compliance Week, 26 February,
Electronic version.
Debreceny, R., Farewell, S., Piechocki, M., Felden, C. and Grning, A. (2010), Does it add up? Early
evidence on the data quality of XBRL filings to the SEC, Journal of Accounting and Public Policy,
Vol 29, pp. 296-306
Efendi, J., Smith, M. and Wong, J. (2009), Longitudinal analysis of voluntary adoption of XBRL on
financial reporting, available at http://srn.com/abstract=1440956/ (accessed 11 August 2010).
Kernan, K. (2008), XBRL Around the world, Journal of Accountancy, Vol. 206 No. 4, pp. 62-68.
Premuroso, R. F. and Bhattacharya, S. (2008), Do early and voluntary filers of financial information
in XBRL signal superior corporate governance and operating performance?, International Journal of
Accounting Information Systems, Vol. 9 No. 1: 1-20.
See also:
Roger S. Debreceny, et al 2005, Financial Reporting in XBRL on the SEC's EDGAR System: A
Critique and Evaluation, Journal of Information Systems 19 (2), 191-
And: Theresa Dunne, Christine Hellier, Andy Lymer & Rania Mousa, 2009, XBRL - The views of
stakeholders, ACCA Research Report No. 111
Suggesting: the business case for XBRL needs to be made more effectively than is
currently the case. XBRL has the potential to be extremely beneficial to numerous
stakeholders, but the full range of possibilities can be realised only when a critical mass of
businesses and stakeholders engage with the process and endeavour to move to an XBRL
reporting environment. Although the XBRL community may have the technical abilities to
develop solutions for widespread benefit, the lack of resources being targeted towards this
key step in business reporting is limiting the speed of its application in practice. This is now
particularly the case in Europe, for reasons quite apart from the technical ones. The recent
direct support by the Securities and Exchange Commission (SEC) for XBRL in the US may
leave European financial markets behind now, because they will not be able to take advantage
of the opportunities that could be provided by regulatory support for the next generation of
financial reporting technology.
Jap Efendi, Murphy Smith and Jeffrey Wong, 2009, on the Longitudinal Analysis of Voluntary
Adoption of XBRL on Financial Reporting http://ssrn.com/abstract=144095 their objectives of the
study were (1) to provide an overview of the benefits and global development of XBRL and (2) to
evaluate the extent of XBRL adoption following the implementation of the voluntary filing program.
We find the quantity of voluntary reporting to be relatively low, but reporting significantly increased
over time. Voluntary adopters are larger and more innovative firms in their industries. We find
evidence suggesting increasing efficiency in XBRL reporting, as reporting lags have significantly
decreased over time. This efficiency improvement is positive news and may accrue to other
companies after they are required to use XBRL reporting. XBRL is expected to have a positive effect
on accounting and financial reporting worldwide, particularly used in conjunction with IFRS.
Page 63 of 64
Would you like to contribute a question? Let me know by emailing me:

Rachel.baskerville@vuw.ac.nz and I will try to answer it.
Hope this is some help for you
Page 64 of 64
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100 Questions (and Answers) About IFRS

Article in SSRN Electronic Journal December 2011

100 Questions (and Answers) about IFRS

Electronic copy available at: http://ssrn.com/abstract=1526846

Links to Other Sites

Warmest thanks to Carolyn Cordery, Simon Cox,

Cite this as: Baskerville, Rachel F., 100

Electronic copy available at: http://ssrn.com/abstract=1526846

At a glance: These 100 questions are arranged in alphabetical order

1. Access to IFRS: How can I access IFRS?

32. Assumptions: What are two underlying assumptions used in IFRS?

48. Debt Contracting: are there any IFRS impacts?

1. Access to IFRS: How can I access IFRS?

multiple roles in modern economies. An IFRS monopoly is evolutionarily disadvantageous in

6: Adoption of IFRS: What happened in Australia?

15. Adoption of IFRS: What happened in Ireland?

32. Assumptions: What are two underlying assumptions used in IFRS?

earnings management we apply 15 different proxies. In analyzing 17 European countries and

The Constitution Review

76. IASC what is that body?

Public accountability, ensured by the organisations constitution and governance arrangements, is

85. Qualitative characteristics what does that mean?

My Inaugural Lecture: '109 Voices: Translation Issues for

96. Understandability as a Qualitative characteristics: what does that mean?

the Securities Exchange Commissions (SECs) XBRL Voluntary Financial Reporting

Would you like to contribute a question? Let me know by emailing me:

Hope this is some help for you

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