The preparedness to adopt new accounting standards: a study of European companies on the pre-adoption phase of IFRS 15

Abstract

The mandatory introduction of IFRS 15—“Revenues from Contracts with Customers”—provides a relevant innovation in revenue recognition. It introduces a single comprehensive model of accounting for revenues arising from contracts with customers. This exploratory study provides evidence on the preparedness of European companies to adopt IFRS 15 by analyzing information on the expected impact disclosed in the pre-adoption phase. To this aim, the analysis groups companies according to the similarity in the content of the information disclosed in their 2017 financial statements. It then aims to identify the determinants of membership in each segment or informative group by applying an ordinal logistic regression model. Results suggest that several firm-level factors influence the disclosures on the expected impact provided in the pre-adoption phase. Results confirm that the profitability and the company size are significant determinants of the quality of disclosure on expected impact. In addition, the complexity of the business measured by the number of business segments is associated with better disclosures in the pre-adoption phase.