What drives the comparability effect of mandatory IFRS adoption? Review of Accounting Studies

Instead, thanks to the engagement with its members national regulatory authorities, IOSCO demonstrates to be in a potentially good position to facilitate the global improvement of CFR through rigorous and homogeneous enforcement of its standards worldwide. As Brown et al. (2014) observe, it is unlikely that the mere adoption of one set of accounting standards alone will automatically mitigate incomparable financial reporting. Tarca (2020) points out the potential large impact of various factors at a national level on the compliance of IFRS and, therefore, on the CFR. She also encourages further research that investigates how various entity and country factors interact to achieve comparability.

• For example, Prather-Kinsey et al. (2018) found that the term “control” is interpreted differently conditional upon management’s work location, and whether from a rules-based vs principle-based accounting standards background.
• Volatility in these ratios during the transition period may require clear communication with stakeholders to manage expectations.
• The IASB’s stated objective is to provide financial reporting about an entity that is useful to existing and potential investors, lenders and other creditors in making resource allocation decisions (IASB 2018, ¶1.2).
• Generally, the settlement of a supranational enforcement body may not find acceptance by sovereign countries, that is, granting IFRS regulation to another body.
• Research from the last 20 years shows how much accounting standards affect investment views.
• These results could be useful to national standard setters and the IASB in meeting its “usefulness” objective and CFR characteristic, and useful to national accounting regulators and investors in achieving a more efficient global capital market.

Each country may have adopted a different version of IFRS (Felski 2017; Zeff and Nobes 2010). Some could have adopted IFRS as published by the IASB, whereas other countries may have adopted IFRS with a lag or with differing versions of IFRS. The assessment report, which documents the outcome of the assessment, was published on Thursday, 14 November 2024.

Standards and frameworks

The results indicate a significant improvement in the comparability and quality of financial reports, although accounting efficiency varies depending on the degree of implementation and administrative modernization in the countries. It is concluded that the adoption of IFRS has an overall positive effect, but its total impact depends on the institutional capacity of countries. IFRS adoption greatly improved comparability in EU-listed companies’ reports. Studies show that investors value earnings per share more with higher accounting comparability. This shows that the market appreciates standardized and clear financial reports.

Cross-Country Empirical Analysis on IFRS-Based Financial Reports

These measures check how consistent accounting information is within and across companies. Combining quantitative measures and qualitative characteristics gives a full view. This helps understand how accounting practices make companies easier to compare. Adopting best practices, like standardized accounting policies and procedures, is crucial.

Your Ultimate Guide to Becoming a Chartered Financial Analyst

The International Financial Reporting Standards (IFRS) also emphasises comparability in accounting. It needs financial statements to be clean and comparable across different firms. It aims to boost finance management, concentrating on compliance and comparability. For reliable financial reporting, it is important to follow a set of standardised accounting rules and guidelines, as per the Generally Accepted Accounting Principles (GAAP).

Literature review about differences in IFRS application across the world

And, this is where the comparability in accounting becomes essential which helps individuals understand the financial reports easier. Today’s choices and trust in investing hinge on clear financial information. Research from the last 20 years shows how much accounting standards affect investment views. Simply put, when a company reports higher earnings per share (EPS), investors see more value in it.

• Some managers are incentivized and governed by the capital market, whereas other managers are incentivized by creditors.
• It needs financial statements to be clean and comparable across different firms.
• Detailed criteria were developed for each HLP and released for public consultation in June 2022.
• Also, management’s incentives, language, and country of operations may influence application of IFRS.
• Therefore, the demand for international institutions and international accounting standards setters has come both from preparers and users to save time and eliminate the costs of reconciliation of financial statement to a country-specific set of GAAPs.
• The IAIS agreed to collect data from interested jurisdictions to aid in the development of the AM.
• Not following these standards can lead to serious issues, such as fund holds.

However, adapting to IFRS can be costly, especially for small businesses. The objective of this study is to propose an organizational dynamic for improving global CFR through rigorous and converged global enforcement of ifrs comparability data IFRS. In the background of this study, we reviewed previous studies which provided evidence that adoption of IFRS varies by legal jurisdiction, application of IFRS varies by company, and enforcement of IFRS varies from weak to strong regulated national stock exchanges.

Literature review about differences in IFRS adoption across the world

Moreover, in countries with stronger enforcement, financial disclosures improve (Gros and Koch 2018; Glaum et al. 2013). The lack of CFR is also empirically evidenced in the IFRS-based earnings in financial reports of differing legal jurisdictions (Phan et al. 2020). Abad et al. (2018) use market microstructure proxies for information asymmetry to examine the effects of IFRS adoption on the level of information asymmetry in the Spanish stock market. They provide evidence that markets benefit from the mandatory switch from local accounting standards to IFRS as a reduction in information asymmetry, even in case of lower enforcement-level jurisdictions. Zeff and Nobes (2010) argue that only a few countries have “fully adopted” IFRS as many jurisdictions have not incorporated the full text of IFRS without any change directly and instantly into their national accounting regulations.