In recent years, the applicable accounting standards for companies changed considerably.
Until the 1990s, the development of accounting standards was mainly a
national responsibility. In consequence, the standards were influenced by national
factors. Therefore, there was much divergence among domestic accounting standards.
Only in recent years, there is a strong trend to the convergence of domestic
accounting standards. The International Financial Reporting Standards (IFRS)
play a major role in this convergence process. The IFRS have influence on the
convergence process in two ways. On the one hand, some countries require the
use of IFRS or an adjusted version of IFRS for all domestic companies or for
segments of domestic companies, for example listed companies. On the other
hand, some countries converge their domestic accounting standards with IFRS. In
a survey of fifty-nine countries conducted by the major accounting firms in 2002,
90% of these countries confirmed that they intend to adopt or converge with
IFRS. One of the most important decisions in this convergence process was the
passing of a regulation by the commission of the European Union (EU) in 2002.
This regulation requires that all listed companies in the EU must present their
consolidated financial statements in accordance with IFRS for financial years beginning
on or after 1 January 2005.
What are the reasons for this convergence process? The main reason is that companies
and investors increasingly conduct their operations on a global scale, but
the legal and regulatory frameworks for their reporting activities remain country
based. So, the companies have to apply many different accounting standards for
the reporting of their subsidiaries in different countries. On the one hand this incurs
additional costs for multinational companies and on the other hand it is more
difficult for investors to compare investment opportunities globally.
The convergence of accounting standards reduces definitely the costs of multinational
companies. However it is not obvious, if financial reports in accordance
with IFRS of companies from different companies are really comparable. The International Accounting Standards Board (IASB) is responsible for the development
of IFRS. In order to get worldwide acceptance of IFRS, the IASB provides
many interest groups and countries the opportunity to participate in the standardsetting
process. [...]
Table of Contents
1 Introduction
2 Influences on the IASB/IASC
2.1 General influences
2.2 Adoption of IAS by emerging economies
2.2 Agreement between IASB and IOSCO
2.3 Reorganization of the IASC
2.4 EU endorsement of IAS/IFRS
2.5 Convergence project of IASB and FASB
3 Previous development of IFRS
4 Overview of current IFRS accounting and valuation options
4.1 Distinction between different types of options
4.2 Choice between alternatives
4.3 Latitudes of judgement
5 Project idea
6 Selection of the sample
6.1 Parent population
6.2 Selection method
6.3 Composition of the selected sample
7 Selected accounting and valuation options
7.1 Presentation of financial statements (IAS 1,7,30)
7.1.1 General requirements for financial statements
7.1.2 Balance sheet
7.1.2.1 Rules
7.1.2.2 Empirical results
7.1.2.3 Judgement of the results
7.1.3 Income statement
7.1.3.1 Rules
7.1.3.2 Empirical results
7.1.3.3 Judgement of the results
7.1.4 Statement of changes in equity
7.1.4.1 Rules
7.1.4.2 Empirical results
7.1.4.3 Judgement of the results
7.1.5 Cash flow statement
7.1.5.1 Rules
7.1.5.2 Empirical results
7.1.5.3 Judgement of the results
7.1.6 Notes
7.2 Inventories (IAS 2)
7.2.1 Rules
7.2.2 Empirical results
7.2.3 Judgement of the results
7.3 Property, plant and equipment (IAS 16)
7.3.1 Rules
7.3.2 Empirical results
7.3.3 Judgement of the results
7.4 Government grants (IAS 20)
7.4.1 Rules
7.4.2 Empirical results
7.4.3 Judgement of the results
7.5 Borrowing costs (IAS 23)
7.5.1 Rules
7.5.2 Empirical results
7.5.3 Judgement of the results
7.6 Investment property (IAS 40)
7.6.1 Rules
7.6.2 Empirical results
7.6.3 Judgement of the results
8 Outlook on current and future developments
8.1 General outlook
8.2 Current projects affecting analysed IFRS
8.2.1 Project “Financial statement presentation” (IAS 1)
8.2.2 Project “Government grants” (IAS 20)
8.2.3 Project “Borrowing costs” (IAS 23)
9 Summary
Objectives and Topics
This study investigates whether the application of IFRS accounting and valuation options varies significantly among listed companies from France, Germany, and Great Britain. The primary goal is to determine if these choices are influenced by national accounting traditions or industry-specific requirements, thereby assessing the limits of international comparability in financial reporting.
- Impact of national accounting traditions on IFRS implementation
- Comparison of accounting choices across cross-country samples
- Analysis of valuation options within different industry sectors
- Evaluation of the IASB’s progress toward global standard convergence
- Investigation of whether accounting alternatives are justified by specific business requirements
Excerpt from the Book
7.1.2.2 Empirical results
Not all companies have alternatives to present their balance sheet. Most companies have to split up their assets and liabilities in the two categories current and non-current. In contrast, banks and similar financial institutions have to present their assets and liabilities in the order of liquidity, but for some companies it is not clear what presentation format provides reliable and more relevant information. These companies have practically an option between the two presentation formats. In addition, 2005 is the first financial year, in which the revised IAS 1 is in force. The previous version of the IAS 1 provided for all companies the option between the two classifications and some German companies did not comply with IAS 1 at all. They used the classification format in according with the German Commercial Code. The classification of liabilities according to the German Commercial Code conflicts with the classification in current and non-current liabilities. Therefore, the empirical study about the presentation of the balance sheet should mainly show if the entities comply with the new version of IAS 1 completely.
Table 3 shows the application of the two presentation formats across countries. Because many companies had no option how to present their balance sheet, the different shares of the presentation formats between the three countries are not important. These differences only result from different numbers of banks in the samples of the countries. Because the large majority of the selected companies are not banks, most companies divided up their assets and liabilities in the classes current and non-current. More interesting is the fact that the balance sheets of four companies cannot be allocated to one of the two allowed presentation formats. All four companies are located in Germany.
Summary of Chapters
1 Introduction: Provides an overview of the global trend towards IFRS convergence and the research objective regarding international comparability.
2 Influences on the IASB/IASC: Discusses the historical and regulatory factors, such as globalization and EU regulations, that shaped the development of IFRS.
3 Previous development of IFRS: Traces the evolution of IFRS, highlighting the reduction of accounting alternatives over time.
4 Overview of current IFRS accounting and valuation options: Explains the types of accounting choices available to companies and the role of management judgment.
5 Project idea: Outlines the study's motivation to examine if accounting options differ based on national traditions or industry branches.
6 Selection of the sample: Describes the methodology for selecting 179 listed companies from France, Germany, and Great Britain.
7 Selected accounting and valuation options: Details the empirical analysis of specific IFRS applications, including balance sheets, income statements, and various valuation models.
8 Outlook on current and future developments: Analyzes the ongoing convergence projects with the FASB and potential future amendments to existing standards.
9 Summary: Consolidates the findings regarding the impact of accounting traditions on the application of IFRS and makes recommendations for further standard harmonization.
Keywords
IFRS, IASB, Accounting Standards, Financial Statements, Comparability, Balance Sheet, Income Statement, Valuation Options, Convergence, Accounting Traditions, Empirical Analysis, Harmonization, IAS 1, IAS 2, IAS 16
Frequently Asked Questions
What is the primary focus of this research?
The work examines the application of selected IFRS accounting and valuation options across different countries and industry sectors to assess the international comparability of financial reports.
Which countries are included in the empirical study?
The study analyzes companies from France, Germany, and Great Britain to represent different accounting traditions, specifically the Continental European and Anglo-American approaches.
What is the central research question?
The research asks whether the application of IFRS differs significantly between companies from different countries and sectors, and if such differences imply that international comparability is limited.
What methodology is employed to gather the data?
The author uses a random selection of listed companies from major stock indices in the three target countries, ultimately analyzing the 2005 financial statements of 179 companies.
What does the main part of the study cover?
It provides detailed empirical analyses of specific standards, including the presentation of financial statements, inventory valuation (IAS 2), property, plant and equipment (IAS 16), government grants (IAS 20), borrowing costs (IAS 23), and investment property (IAS 40).
Which keywords best describe the paper?
Key terms include IFRS, IASB, comparability, accounting traditions, empirical analysis, balance sheet classification, and financial reporting standards.
Do the findings suggest that accounting traditions still impact financial reporting?
Yes, the study identifies clear disparities, particularly between British companies and their French and German counterparts, suggesting that national accounting traditions continue to influence the choice of options under IFRS.
What is the author's stance on the existence of accounting alternatives?
The author argues that these alternatives limit international comparability and suggests that the IASB should move towards uniform standards to simplify cross-border comparisons.
- Arbeit zitieren
- Markus Kraus (Autor:in), 2006, Applicaton of selected IFRS accounting and valuation options, München, GRIN Verlag, https://www.grin.com/document/186337
