The impact of IFRS on the European Union

Abstract

Purpose -The 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/approach -First, 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. Findings -The 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/value -The 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.

IFRS and value relevance

“…Accounting in The EU suffers from the diversity of accounting clusters and the multitude of accounting policies and choices. This matter demands harmonization of accounting approaches and standards (Callao et al, 2009). In Germany, following the Metallgesellschaft scandal, the German parliament passed on 5 March, 1999, the law on transparency as in April 1998 (KonTraG and KapAEG).…”

The costs and benefits of IFRS implementation in the UK and Italy

“…To date, much of the existing IFRS research has been based on: simulations of what might happen to company financial statements (Kasanen et al , 1992; Teodori and Veneziani, 2005), anecdotal evidence from the experiences of a few early UK adopters (Accountancy Age, 2004; Financial Times, 2005), consultancy reports by firms advising companies on preparation for the change (PriceWaterhouseCoopers, 2004), empirical surveys of the practices or experiences of early adopters in other European countries (Larson and Street, 2004; Ortiz, 2005) and the empirical findings of studies prior to the adoption of IFRS that predict the possible changes that might take place (Fearnley et al , 2007). Callao et al (2009) provide a succinct summary of the extant literature that considers IFRS adoption from both a quantitative and qualitative point of view. This research extends the extant literature by examining the costs and benefits of IFRS adoption from the perceptions of two key stakeholder groups, first, an Anglo‐Saxon group as represented by the UK and Ireland and second, continental Europe as represented by Italy.…”

The impact of the Sarbanes–Oxley Act on the integrity of financial reporting: Was it meritorious?

“…We include the IAS/IFRS variable in the model to control for whether the quality of financial reporting has increased since these rules entry went into effect (e.g., Bradbury & Mear, 2017; Callao et al., 2009). Setting additional rules on dealing with balance‐sheet items increases the possibility of avoidance from non‐qualitative reporting, and therefore we expect a positive link between IFRS and FRI.…”