Comparability and Reliability of Financial Information in the Sector of Czech SMES (ten years of IFRS as a part of Czech accounting context)

Abstract

1. Introduction Since 2005 the firms listed on the regulated capital markets in the EU are required to prepare their financial statements in accordance with the IFRS. The main intent of IFRS adoption were (1) to ensure greater comparability and transparency of financial reporting, (2) to reduce information asymmetry and (3) to improve the quality of information for users of accounting information. On the macroeconomic level there were expectations of increase of the volume of trading on capital markets, boost of foreign direct investments and intensification of the international exchange of goods and services. Mandatory IFRS adoption resulted in changes affecting broader pool of companies, not only those that have a direct obligation to use IFRS, but it influenced the entire accounting system in many countries around the world (Heil et al, 2009; Daske et al., 2008; Leuz, & Wysock(2008). The Czech economy is an open economy, dependent, to a large extent, on exports of goods and services. It belongs to a group of transitioning economies that transformed from a centrally planned to a market economy and it has created new accounting regulations fitting the new conditions. The transformation of the accounting system was performed at the same time as the transformation of the whole economy which was an important part of this process. Generally, the process of accounting harmonization resulted in the mandatory adoption of IFRS for preparation of Financial Statements on EU capital markets. IFRS became a tool, which supported the new concept of financial reporting. Despite of positive predictions, the implementation of IFRS into Czech the accounting system has been very low and slow. The causes of this delayed implementation can be seen on many levels. The aim of this article is to analyse the form and extent of IFRS implementation to the Czech accounting system and the main reasons of the lack of interest in IFRS adoption with a special attention to the segment of Czech SMEs. This analysis is based on two methods (1) qualitative assessment of present accounting legislation and (2) on the results of questionnaire survey of a set of 260 Czech companies including majority of SMEs. 2. Literature review 2.1. IFRS adoption effects in various national conditions The ten years during which the companies were obliged to compile accounting statements in accordance with the IFRS enabled researchers to assemble sufficient amount evidence and experience of the use of IFRS in national conditions to enable subsequent analysis that can become a source of improvement of IFRS rules. It can also serve as a source for improvement of accounting regulations and enable coordination of IFRS adoption in different national contexts. The accounting harmonization was aimed to decrease the differences in accounting information stemming from different national economic backgrounds. More accurately, it aimed to set the boundaries to the degree of variations in accounting rules and procedures (Zarova et al., 2014). Furthermore, in transitional economies, the harmonization in stock and capital markets was an opportunity that enabled them to reconstruct their accounting system in such a way that it could comply with conditions of market economy (Thalassinos, Maditinos & Paschalidis, 2012). The majority of extant studies relieved that the value relevance of accounting data and comparability of financial reporting is enhanced following the adoption of the IFRS. However, mixed evidence exists regarding the effects of IFRS adoption on earnings management, timely loss recognition, costs of equity and other aspects of accounting quality, e. g. (Tsalavoutas, & Dionysiou, 2014; Alsaqqa, & Sawan, 2013; Andre, Filip, & Paugam, 2015; Cordazzo, 2013, Liapis et cd. 2013). Many studies point out, that international accounting standards cannot fulfil the goal of harmonization on their own. …