The Impact of IFRS on Strategic Decision-Making: Are Companies Indirectly Controlled From External?

PurposeOne of the most fundamental changes to affect financial reporting in recent years has been the introduction of International Financial Reporting Standards (IFRS). This paper aims to examine the nature of the Income Statement and Net Equity IFRS adjustments for a sample of companies from the UK, Ireland and Italy following the introduction of IFRS.Design/methodology/approachA sample of IFRS Reconciliation Statements are examined to identify the most significant IFRS adjustments. Using an index of conservatism, these amounts are further analysed to assess their impact on the accounting numbers reported under previous national GAAP.FindingsFor all three countries, the IFRS profit was greater than that reported under previous national GAAP. IFRS also had a significant effect on net worth; while UK and Italian companies experienced an increase in equity upon the adoption of IFRS, the Irish firms in the sample recorded a decrease. The analysis also indicated that the impact of IFRS on profit and net worth was primarily attributable to a few core standards including IFRS 2, IFRS 3, IFRS 5, IAS 10, IAS 12, IAS 16, IAS 17, IAS 19, IAS 38 and IAS 39.Practical implicationsA multi‐country perspective for future IFRS research is required as the impact of individual IFRS varies in importance from one country to another.Originality/valueBy analysing the IFRS that have had a significant impact on accounting numbers prepared under previous national GAAP, opportunities for future research are identified.

This thesis investigates the adoption, compliance and consequences of International Financial Reporting Standards (IFRS) in Africa, a continent which has mostly been ignored in prior studies due to the use of generic proxies. Drawing on DiMaggio and Powell (1983), this thesis examines the institutional pressures of IFRS adoption in Africa. Stakeholder salience theory, developed by Mitchell, Agle and Wood (1997), is employed to analyse the determinants of IFRS compliance outside the traditional capital market settings. As regards to the consequences of IFRS in Africa, this thesis analyses the impact of IFRS on audit fees, audit reporting lags and auditor switch. The study used panel data from 54 countries and 205 firms covering the financial years 2003-2016. Secondary data was sourced from reputable database and annual reports of sample companies. Different analytical tools such as ordinary least squares, logit and multinomial regressions were used based on their suitability to address the research questions. The study found that only 18 out of the 54 countries required all listed and large companies to report per IFRS, while 25 did not permit IFRS. The results supported the theoretical prediction that coercive, mimetic, and normative isomorphism influenced IFRS adoption in Africa. Specifically, the World Bank (WB) and International Monetary Fund’s (IMF) influence on African countries in adopting IFRS was not through foreign aid and grants; instead, their recommendations made in the Report on Observance of Standard and Codes (Accounting and Auditing) initiatives. The finding(s) also demonstrated that the presence of global audit firms and the number of years of IFAC membership had a strong association with a country’s decision to adopt IFRS. Moreover, countries with strong professional accounting organisations (PAO) were more likely to adopt IFRS. On IFRS compliance, the study found that the average compliance score among the companies over the period was 70.94%, with a minimum score of 58.59% and a maximum of 83.55%. The findings reported a significant positive association between audit committee competence (ACC) and compliance, and between chartered accountants on board (AOB) and compliance. The thesis also documented that compliance has been increasing over the years. Regarding the impact of IFRS on the audit market, the findings suggested IFRS was positively and significantly associated with an increase in audit fees regardless of early or late adoption. Also, on average, ARL increased by 26% across all samples, with late adopters experiencing 28% and earlier adopters 22% during the adoption year. Contrary to the late adopters, early adopters experienced a significant increase in audit fees during the pre-IFRS period due to the set-up and implementation at the time. In addition, IFRS adoption was likely to cause companies to switch from small audit firms to the Big 4. The findings on adoption suggest that global accounting agencies such as IFAC and IASB should focus on building vibrant national level accounting institutions such as PAOs to facilitate the adoption of IFRS in Africa. The thesis, therefore, adds to the adoption literature the finding that the isomorphic pressures in Africa are different from those suggested in prior studies. The results on compliance imply that companies that appoint more professional accountants to their boards are more likely to comply with the requirement of IFRS. Therefore, it is suggested that companies should engage more chartered accountants in their governance. Also, corporate boards must strive to strengthen their audit committees by appointing more NEDs and CAs to the committee. The findings also provide valuable information for professional accounting organisations on the role of its members (professional accountants) in the effectiveness of IFRS compliance. The findings of the consequences of IFRS on the audit market alert small and medium practitioners (SMPs) in non-IFRS countries of the possible loss of clients to the Big4 due to the adoption of IFRS. To mitigate this effect, the national PAO should build the capacity of their local accountants through training and education to handle the complexities and continuous upgrading of IFRS. Such training is seen as being crucial for SMPs in OHADA countries, Ethiopia, Djibouti and other countries which are in the process of implementing IFRS.

PurposePrior literature investigating the adoption of International Financial Reporting Standards (IFRS) finds that managerial incentives, capital market institutions and accounting standards interact to endogenously determine accounting outcomes. In this paper, we investigate the impact of changing from local GAAP to IFRS in 2012 on earnings management by public firms in Mexico. Given the institutional environment and managerial incentives in Mexico, there is not a clear theoretical prediction for the impact of Mexico's adoption of IFRS on earnings management. Thus, it is an empirical question whether a change in accounting standards had any effect on earnings management.Design/methodology/approachWe use three measures of earnings smoothing and one measure of upwards earnings management. Logistic regression analysis along with t-tests across two time periods, pre-IFRS (2009–2011) and post-IFRS (2013–2015) are used to determine if there is a significant change in the earnings management of Mexican firms, and if this change is different for companies cross-listed in the US and companies listed only in the Bolsa.FindingsWe hypothesize and find that adopting IFRS is associated with lower earnings management via earnings smoothing in Mexico, and the reduction is greater for firms cross-listed in the United States. Our results support the contention that strong institutions and enforcement aid in the implementation of new accounting standards.Originality/valueFirst, we contribute to the literature on the adoption of IFRS around the world. The consensus in the literature is that the impact of IFRS on financial reporting is country-specific. To our knowledge, we are the first to conduct such research on Mexico. Second, our findings indicate that IFRS adoption is associated with a reduction in earnings management through income smoothing by firms in Mexico. This contributes to a small but growing body of literature documenting consequences of improvements in Mexican capital markets. Results of research in this area provide important insights to capital market participants and regulators in Mexico.

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The purpose of this study is to examine the perceived impact of International Financial Reporting Standards (IFRS) adoption and whether it relates to firms' characteristics. The study was conducted among all 62 companies listed in bank, finance and insurance sector at Colombo Stock Exchange (CSE) using questionnaires addressed to financial and accounting professionals. The study employed principal component analysis and one-sample Wilcoxon signed-rank test and found that the IFRS adoption is perceived to have significantly improved financial reporting quality and corporate governance of firms. Though IFRS caused increased cost of financial reporting, it is yet perceived to be a net gain. However, respondents tend to perceive that IFRS adoption has not assured capital market benefits to the firms in bank, finance and insurance sector in Sri Lanka. It is also found that firms' size and profitability significantly and positively associate with perceived impact of IFRS on quality of financial reporting and corporate governance of firms. This study provides evidence for IFRS impact from a developing economy.

PurposeThe purpose of the this paper is to discover the quantitative impact of International Financial Reporting Standards (IFRS) on financial reporting of European countries and evaluate if this impact is connected with the traditional accounting system in which each country is classified, either the Anglo‐Saxon or the continental‐European accounting system.Design/methodology/approachFirst, the authors quantify the IFRS impact on each country and make a comparative analysis of that impact among countries. Then, the authors apply a cluster analysis in order to group European countries on the basis of the different effects of IFRS application.FindingsThe results obtained show that the first application of IFRS has had different effects on the financial reporting among countries. The cluster analysis identifies four groups which show that the impact of IFRS on financial statements of European firms is not related to traditional accounting systems.Originality/valueThe main contribution of the paper is that it studies the impact of mandatory IFRS application for several European countries and shows a comparative analysis, grouping the countries on the basis of that impact. Previous literature mainly gathers research related to specific countries, individually considered, or to different IFRS effects that do not reflect quantitative impacts.

Relevance and Sufficiency of Pre-Reporting: Transition of Finnish Small and Medium-Sized Listed Companies to IFRS

Stock Market Reaction to Elimination of the Reconciliation from IFRS to U.S. GAAP in the USA

The introduction of International Accounting Standards is the most significant development in the field of global harmonization process in accounting. To assist users and participants in the global capital market in making financial decisions, the International Accounting Standard Committee (IASC) set out to create a single set of high-quality, understandable, and enforceable accounting standards. The IFRS Foundation developed the International Financial Reporting Standards (IFRS). The International Accounting Standards Board (IASB) and the recently established International Sustainability Standards Board (ISSB) operate under the IFRS Foundation with a major role of establishing standards. While the ISSB focuses on sustainability disclosure standards, the IASB oversees accounting standards. The IFRS Foundation, a non-profit organization, aims to create globally recognized accounting and sustainability standards that are high-quality, comprehensible, enforced, and globally accepted. These standards, known as International Financial Reporting Standards (IFRS), ensure transparent, consistent, and comparable financial statements across national borders, thereby, making it the common accounting language having global acceptance for the preparation of financial statements, allowing for easy international comparison, reading, understanding, and interpretation. These standards specify the processes and guidelines that organizations must adhere to keep and submit their books of accounts, defining various transaction kinds and other events that may affect finances, as well as rules for defining transactions and their implications on financial statements. The goal of IFRS  was to reduce the asymmetry in financial statements that were in existence before the adoption of IFRS to promote uniformity and transparency in financial reporting. Prior to the adoption of IFRS, stakeholders often lacked clarity regarding a company’s true financial status. The diverse national accounting standards led to contrasting data representations, making it challenging to assess financial health consistently across borders. IFRS aims to address this by providing a uniform framework for transparent and comparable financial reporting. Furthermore, because of the various policies adopted by the different countries, it was challenging to compare the financial statements of the businesses. IFRS facilitated investor decision-making, and high-quality financial information ensuring effective investment and economic decisions by varied users.

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Financial reporting quality (FRQ) is widely recognized as essential for mitigating information asymmetry and enhancing firms’ investment decisions. Yet in emerging economies undergoing major accounting transitions, empirical evidence remains mixed and often inconclusive (Biehl et al., 2024; Alruwaili et al., 2023). This study examines whether FRQ promotes investment efficiency and assesses the role of International Financial Reporting Standards (IFRS) adoption, particularly voluntary early adoption, in shaping this relationship. Using panel data for 130 non-financial listed firms from 2017 to 2023 and estimating fixed-effects models (FEM) with extensive robustness checks, we document a strong positive association between FRQ and investment efficiency, driven by reductions in both overinvestment and underinvestment. Although early IFRS adoption does not mechanically raise FRQ, firms adopting IFRS exhibit a markedly stronger FRQ-investment efficiency relationship, indicating that IFRS enhances the decision-usefulness of credible financial information. These findings underscore that the benefits of IFRS are context-specific and conditioned by institutional transition. The study provides practical insights for regulators and investors by identifying when and how IFRS adoption can reinforce reporting quality and foster more efficient capital allocation.

Measuring Country Differences in Enforcement of Accounting Standards: An Audit and Enforcement Proxy

Synopsis The research problem This paper examined whether firms’ decision to switch from the International Financial Reporting Standards (IFRS) to the new Generally Accepted Accounting Practice in the United Kingdom (New UK GAAP) affects their audit fees. Motivation The New UK GAAP was introduced by the UK regulators to enhance the comparability of financial reports and to reduce the high financial reporting costs associated with IFRS. We aimed to provide evidence on whether the reduced frameworks of IFRS, like the New UK GAAP, are a more cost-effective option. Furthermore, only very few studies analyzed the impact of abandoning IFRS on audit fees, and these found inconsistent results using the public firm data. We aimed to extend the current literature by using the private firm data. The test hypotheses Our first set of hypotheses considered whether the switch from IFRS to the New UK GAAP is associated with audit fees. Our second hypothesis tested whether there is a difference in any such association between larger and smaller firms. Target population We focused on the UK private (i.e., nonlisted) firms that have previously voluntarily adopted the IFRS. Adopted methodology We used regression analyses, difference-in-differences (DID) analyses, various matching methods for robustness, and analyses of firms’ financial reports. Analyses Using the UK private (i.e., nonlisted) firm data for the period 2014–2019, we examined the impact of switching from IFRS to the New UK GAAP on audit fees. The data for regression and DID analyses were obtained from the FAME database. We also downloaded the financial reports of two firms from Companies House to analyze the differences in their reports before and after the switch to the New UK GAAP. Findings We found that firms’ decision to switch from IFRS to the New UK GAAP significantly reduced their audit fees, with larger firms experiencing an additional reduction in their audit fees following the switch. Through examining the real examples of firms’ financial reports, we found consistent evidence that firms turning away from IFRS did take advantage of the disclosure exemptions contained within the New UK GAAP, resulting in reduced disclosure, which may explain the reduced audit fees. Overall, our findings suggest that using full IFRS may still be burdensome for the sampled firms that previously voluntarily adopted the IFRS. The findings also imply that an accounting standard consistent with IFRS but requiring less disclosure, such as the New UK GAAP or the IFRS for Small and Medium-sized Entities, may be welcomed by practitioners and represents a useful alternative for standard setters.

IFRS 9 for Banking Industry the Case for IFRS and FINREP Taxonomies, Critical Asessment (Abstimmbarkeit von Anhangangaben nach IFRS 9 und 7 mit dem Meldewesen: Perspektive der IFRS-Taxonomie)

PurposeThe institutional framework of an African country may influence the effectiveness of the International Financial Reporting Standards (IFRS) on foreign investment inflows. The purpose of this paper is to argue that the quality of a country's institutional framework impacts the effectiveness of IFRS to an adopting country and ultimately influences the levels of Foreign Portfolio Investment (FPI).Design/methodology/approachEmploying country-level data. A sample of 15 countries from Africa is used. Data is collected over a period of 22 years (1994–2014). The authors employ the General Method of Moments (GMM) panel regression technique to examine whether the quality of a country's institutional framework has an impact on the relationship between IFRS and FPI and the Propensity Score Matching (PSM) technique to assess the level of impact.FindingsThe findings reveal that the quality of a country's institutional framework moderates the strength of the association between IFRS and FPI. Overall, the authors find that the quality of the institutional frameworks in African countries has a negative effect on the IFRS and FPI nexus.Research limitations/implicationsThe study focuses exclusively on African countries; using an exclusively African sample limits the generalisation of results to other continents like Latin America with similar environments to Africa.Practical implicationsThis study provide evidence that IFRS alone cannot ensure the intended capital market benefits but encourages the development of strong institutions in African countries to realise the most from IFRS adoption. The emphasis on institutional development is an essential contribution that this study makes.Originality/valueThis study is unique since it emphasises the importance of institutional framework quality when considering the impact of IFRS on foreign investment inflows in an African setting.