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Deviations from the Mandatory Adoption of IFRS in the European Union

Author : Grace Pownall

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Page : 62 pages

File Size : 44,11 MB

Release : 2017

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In this paper, we evaluate the common assertion that EU firms began using IFRS by 2005 when the EU formally adopted IFRS. We find that although the incidence of firms using local (or some other) GAAP has declined between 2005 and 2009, it is still nontrivial. For instance, by 2009 the incidence of non-IFRS financial statements was still in excess of 17% (42% of which were fully consolidated). We estimate a model of the non-adoption of IFRS as a function of proxies for EU-wide and country-specific implementation of the IFRS regulation, country-specific enforcement mechanisms, and firm-specific reporting incentives. We find that being traded in EU-regulated markets, preparing fully consolidated financial statements, and having a more diversified corporate structure are positively associated with the likelihood of using IFRS, and using US GAAP in the preceding year is significantly negatively associated with adopting IFRS. We find little evidence that country-specific enforcement is associated with IFRS adoption during our time period. Finally, we find that several reporting incentives proxies are associated with adopting IFRS, such as being large and closely-held with wider analyst following. We interpret our results to mean that many EU firms do not use IFRS; that firms exploited definitions, exemptions, and deferrals in the regulation to avoid adopting IFRS; and that firms responded to their reporting incentives in making the decision to adopt IFRS.



Does Mandatory Adoption of International Financial Reporting Standards in the European Union Reduce the Cost of Equity Capital?

Author : Siqi Li

Publisher :

Page : 50 pages

File Size : 50,33 MB

Release : 2011

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This study examines whether the mandatory adoption of International Financial Reporting Standards (IFRS) in the European Union (EU) in 2005 reduces the cost of equity capital. Using a sample of 6,456 firm-year observations of 1,084 EU firms during the 1995 to 2006 period, I find evidence that, on average, the IFRS mandate significantly reduces the cost of equity for mandatory adopters by 47 basis points. I also find that this reduction is present only in countries with strong legal enforcement, and that increased disclosure and enhanced information comparability are two mechanisms behind the cost of equity reduction. Taken together, these findings suggest that while mandatory IFRS adoption significantly lowers firms' cost of equity, the effects depend on the strength of the countries' legal enforcement.



IAS/ IFRS

Author : Vera Palea

Publisher : FrancoAngeli

Page : 132 pages

File Size : 42,19 MB

Release : 2006

Category : Business & Economics

ISBN : 9788846480880

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Earnings Quality

Author : Jennifer Francis

Publisher : Now Publishers Inc

Page : 97 pages

File Size : 42,89 MB

Release : 2008

Category : Business & Economics

ISBN : 1601981147

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Book Description

This review lays out a research perspective on earnings quality. We provide an overview of alternative definitions and measures of earnings quality and a discussion of research design choices encountered in earnings quality research. Throughout, we focus on a capital markets setting, as opposed, for example, to a contracting or stewardship setting. Our reason for this choice stems from the view that the capital market uses of accounting information are fundamental, in the sense of providing a basis for other uses, such as stewardship. Because resource allocations are ex ante decisions while contracting/stewardship assessments are ex post evaluations of outcomes, evidence on whether, how and to what degree earnings quality influences capital market resource allocation decisions is fundamental to understanding why and how accounting matters to investors and others, including those charged with stewardship responsibilities. Demonstrating a link between earnings quality and, for example, the costs of equity and debt capital implies a basic economic role in capital allocation decisions for accounting information; this role has only recently been documented in the accounting literature. We focus on how the precision of financial information in capturing one or more underlying valuation-relevant constructs affects the assessment and use of that information by capital market participants. We emphasize that the choice of constructs to be measured is typically contextual. Our main focus is on the precision of earnings, which we view as a summary indicator of the overall quality of financial reporting. Our intent in discussing research that evaluates the capital market effects of earnings quality is both to stimulate further research in this area and to encourage research on related topics, including, for example, the role of earnings quality in contracting and stewardship.



Three Essays on the Effects of the Simultaneous Adoption of IFRS (International Financial Reporting Standards) and MAD (Market Abuse Directive) in Europe

Author : Fatima Baalbaki Shibly

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Page : 0 pages

File Size : 46,39 MB

Release : 2014

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While prior research on mandatory IFRS adoption fails to provide evidence of improvement in the quality of financial reporting (increased transparency and/or comparability), it provides almost unanimous evidence of beneficial capital-market impacts. Within the European Union (EU), mandatory IFRS adoption coincides with the adoption of the Market Abuse Directive (MAD). While the mandatory adoption of IFRS took place in 2005, MAD was passed between 2004 and 2007 depending on the EU country under consideration. Furthermore, both IFRS and MAD aim towards increased transparency, either by improving the quality of financial reporting (IFRS) or by prohibiting selective disclosures to enhance common information available to all market participants (MAD). Our first essay aims to disentangle the respective market impacts of MAD adoption and IFRS adoption in order to determine the specific effect of each regulation. Our evidence suggests that a significant part of the capital market effects usually attributed to IFRS comes, at least to some extent, from the contemporaneous adoption of the Market Abuse Directive. Our second essay focuses on the role of information environment. Investigating how information environment affects the market impacts of both MAD adoption and IFRS adoption is crucial to determine whether all firms benefit identically from these regulations. Using firm size and analyst following as proxies capturing firms' information environment, we provide evidence showing that small firms and firms with weak analyst following are those that benefit the most from the introduction of the IFRS mandate. In contrast, large firms and firms with high analyst coverage benefit the most from MAD adoption. Our third essay analyzes the role of enforcement. We find that the effectiveness of both IFRS and MAD is hampered by different enforcement levels across firms and countries. Moreover, the observed capital-market outcomes on one regulation differ if the effects of both regulations are not clearly dissociated. Thus, we caution researchers not to attribute capital-market outcomes primarily or solely to one regulation without taking into account the concomitant adoption of the other one.



The Effects of the IAS/IFRS Adoption in the European Union on the Financial Industry

Author : Vera Palea

Publisher :

Page : 48 pages

File Size : 17,95 MB

Release : 2009

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Book Description

The effect of disclosure level on the cost of equity is a matter of considerable interest and importance to the financial reporting community. In this research, the effects of the IAS/IFRS adoption in Europe on the cost of equity capital relative to the bank industry have been examined. Previous research has shown that the adoption of the IAS/IFRS reduces information asymmetry between investors and firms. Economic theory claims that a commitment to increased level of disclosure reduces the cost of capital component that arises from information asymmetries. This study shows empirically that the increase in the level of disclosure provided by the adoption of the IAS/IFRS in the European Union by Regulation 1606/2002 has led effectively to a lower cost of capital. From a practical point of view, these findings provide evidence that the Regulator's purpose of fostering a cost-efficient functioning of the capital market for firms could be considered as accomplished. Furthermore, they point out that firms which implemented the IAS/IFRS have gained a comparative advantage on the equity market over firms still adopting accounting standards based on the IV and VII European Directives.





The Political Economy of International Standard Setting in Financial Reporting

Author : Zehra G. Kavame Eroglu

Publisher :

Page : 48 pages

File Size : 22,45 MB

Release : 2019

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Historically, every country had its own accounting standards, each merging to some extent with its local corporate, labor, and tax laws. No matter how undesirable, it was natural to expect differences among nations. Globalization made these differences so impractical that from corporate leaders to accountants to government officials, many pushed for harmonized accounting standards. Pursuing this goal, a private international organization was created to set standards for the world. Currently around 120 countries require or permit International Financial Reporting Standards (IFRS), however, the United States is yet to make a decision to adopt these international standards.The adoption of IFRS in the United States would, in theory, be easier compared to the experience of the European Union. The EU mandated that all publicly traded firms use IFRS in their consolidated financial statements from 2005 onwards. Several issues are yet to be resolved, but Europe managed to achieve what was once thought to be an insuperable task in coordinating a common standard for its Member States. If the adoption of IFRS in the United States would be easier than the EU experience, why has the United States not adopted IFRS? With this paper, I argue that IFRS are a set of U.S. supported Anglo-American accounting standards. Further, that the reason for creating IFRS was not necessarily for the United States to adopt them but to convert the patchwork of accounting standards around the world into a single system that is similar to U.S. GAAP.



Consequences of Voluntary and Mandatory Fair Value Accounting

Author : Karl A. Muller

Publisher :

Page : 43 pages

File Size : 11,19 MB

Release : 2008

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We examine the causes and consequences of European real estate firms' decisions to provide investment property fair values prior to the required disclosure of this information under International Financial Reporting Standards (IFRS). We find evidence that investor demand for fair value information--reflected in more dispersed ownership--and a firm's commitment to transparency increase the likelihood of providing fair values prior to their required provision under International Accounting Standard 40 - Investment Property. We also find that firms not providing these fair values face higher information asymmetry. However, we fail to find that the relatively higher information asymmetry was reduced following mandatory adoption of IFRS. Rather, we find that differences in information asymmetry largely remain. Taken together, this evidence suggests that common adoption of fair value accounting due to the mandatory adoption of IFRS does not necessarily level the informational playing field.



The Introduction of International Financial Reporting Standards in the European Union

Author : Begoña Giner

Publisher :

Page : pages

File Size : 48,22 MB

Release : 2005

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The introduction of International Financial Reporting Standards (IFRS) in the EU is obviously an unusually important event for accounting, accountants and accounting researchers, and naturally European Accounting Review has been very keen in devoting this special issue to the topic. It will be a fascinating subject and opportunity for research in the years to come. In some ways it has been difficult for those involved in the various projects included in this issue as we are attempting to analyse something that is yet to happen. Not surprisingly the papers incorporate rather less empirical evidence than would normally be the case. However this has lead to diversity in research approaches, which we find interesting.Three papers, from the eighteen submitted, survived the review process. Van Tendeloo and Vanstraelen (2005) use the early adoption of IFRS by many German companies to investigate the impact of IFRS on earnings management. Brown and Tarca (2005) employ interviews to analyse different approaches being adopted in four EU countries to deal with enforcement of IFRS. Pirinen (2005) conducts a historical analysis to review the forces that have impacted on the move towards IFRS in Finland. In addition to these we invited papers from Katherine Schipper and Geoffrey Whittington. Whilst they are both experienced academics, and their contributions reflect their own views not those of their organisations, their positions working within the FASB and the IASB respectively allows them particularly useful insights into the process. Whittington (2005) gives an overview about the activities of the IASB, focusing on the past and present, while Schipper (2005) looks more into the future and analyses the implications of the adoption of IFRS in the EU for international convergence (in other words with US GAAP).We will take this opportunity to pick up on three themes that seem to be particularly important. The first refers to convergence, something that is crucial in the analysis by both Schipper (2005) and Whittington (2005). The second concerns enforcement, which is relevant to at least four out of the five papers we include. And the third point we would like to address is the research opportunities and difficulties presented by the move to IFRS in the EU.