Since January first, 2005, IFRS is mandatory for the financial reporting of all listed companies within the European Union. This is in order to increase comparability, improve transparency and increase the quality of financial reporting (EC Regulation No. 1606/2002). However, although it is the objective of the European Union to become more united, there are significant differences in the backgrounds of the European countries. This research analyzes cross-country differences in disclosure in the balance sheets of companies, based on the level of enforcement, the prior accounting system and the legal system. The sample consists of 170 companies from France, Germany, the Netherlands, Spain and the United Kingdom. The variables are based on the recognition materiality concept and indicate the amount of detail in the disclosure in the balance sheets. The recognition materiality concept provides a limit below which disclosure is considered not material, based on the size and therefore is an indication for the amount of detail. The results indicate that the legal system has the strongest influence on the disclosure in balance sheets. Companies from common law countries provide significant more detailed balance sheet accounts in their annual reports, than companies from code law countries.
Inhaltsverzeichnis (Table of Contents)
- 1 Introduction
- 2 Literature review
- 2.1 Adoption of IFRS
- 2.1.1 Pros and cons of the adoption of IFRS
- 2.1.2 The balance sheet
- 2.2 Information in the balance sheet
- 2.2.1 Materiality
- 2.2.2 Recognition materiality
- 2.2.3 Determining recognition materiality
- 2.3 Countries
- 2.3.1 High enforcement versus low enforcement
- 2.3.2 Prior rules-based versus principles-based
- 2.3.3 Code law versus common law
- 3 Research design
- 3.1 Sample selection
- 3.2 Variables
- 3.3 Testing the Hypotheses
- 4 Results
- 4.1 Relation between variables
- 4.2 Data analyses
- 4.2.1 High or low enforcement
- 4.2.2 Prior rules- or principles-based
- 4.2.3 Common law or code law
- 5 Conclusion
- 6 Limitations and suggestions
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This research aims to analyze cross-country differences in balance sheet disclosures among European Union companies after the mandatory adoption of IFRS in 2005. The study investigates whether the harmonization of accounting standards under IFRS resulted in uniform disclosure practices across countries with varying legal, regulatory, and historical accounting backgrounds.
- Impact of legal systems (common law vs. code law) on balance sheet disclosure
- Influence of prior domestic Generally Accepted Accounting Principles (GAAP) (rules-based vs. principles-based) on current disclosure practices
- Relationship between enforcement levels and the detail of balance sheet disclosures
- Application of the recognition materiality concept in different national contexts
- Cross-country comparability of financial statements after IFRS adoption
Zusammenfassung der Kapitel (Chapter Summaries)
1 Introduction: This chapter introduces the research's context, highlighting the mandatory adoption of IFRS in the EU in 2005 and its aim to improve comparability and transparency in financial reporting. It emphasizes the existing diversity among EU countries' legal and accounting systems and proposes to investigate how these differences affect balance sheet disclosures using the recognition materiality concept. The research question is clearly stated, focusing on the discrepancies in balance sheet disclosures despite the uniform application of IFRS.
2 Literature review: This chapter provides a comprehensive overview of existing research on IFRS adoption, balance sheet information, and the materiality concept, particularly recognition materiality. It lays the groundwork for the current research by discussing the pros and cons of IFRS adoption, the importance of information in balance sheets, and the methods of determining recognition materiality. The chapter further explores the impact of enforcement levels, prior accounting systems (rules-based versus principles-based), and legal systems (common law versus code law) on financial reporting practices. It sets the stage for the research methodology and hypotheses by examining previous studies and identifying gaps in the existing literature.
3 Research design: This chapter outlines the methodology used in the research, including sample selection (170 companies from five EU countries: France, Germany, the Netherlands, Spain, and the UK), variable definition (based on the recognition materiality concept to measure the level of detail in balance sheet disclosures), and hypothesis testing. The chapter provides a detailed description of the empirical approach to investigate the research question by explaining how the variables are measured and how the data will be analyzed to test the hypotheses.
4 Results: This chapter presents the findings of the empirical analysis, focusing on the relationships between the defined variables. The analysis explores how enforcement levels, prior accounting systems, and legal systems influence the level of detail in balance sheet disclosures. It is anticipated that this chapter will provide a detailed account of the statistical analysis and its results, highlighting the relative importance of each factor and their combined effects on balance sheet disclosure differences across the selected countries.
Schlüsselwörter (Keywords)
IFRS, balance sheet disclosure, recognition materiality, cross-country comparison, legal system, enforcement, accounting standards, comparability, transparency, common law, code law, rules-based accounting, principles-based accounting, European Union.
Frequently Asked Questions: Cross-Country Differences in Balance Sheet Disclosures Among European Union Companies After the Mandatory Adoption of IFRS in 2005
What is the main research question of this study?
This research aims to analyze cross-country differences in balance sheet disclosures among European Union companies after the mandatory adoption of IFRS in 2005. It investigates whether the harmonization of accounting standards under IFRS resulted in uniform disclosure practices across countries with varying legal, regulatory, and historical accounting backgrounds. The study focuses on the discrepancies in balance sheet disclosures despite the uniform application of IFRS.
What are the key themes explored in this research?
The study investigates the impact of legal systems (common law vs. code law), the influence of prior domestic Generally Accepted Accounting Principles (GAAP) (rules-based vs. principles-based), the relationship between enforcement levels and the detail of balance sheet disclosures, the application of the recognition materiality concept in different national contexts, and the cross-country comparability of financial statements after IFRS adoption.
What is the structure of the research paper?
The paper is structured as follows: 1. Introduction; 2. Literature review (including sections on IFRS adoption, information in the balance sheet, materiality, and country-specific factors); 3. Research design (including sample selection, variables, and hypothesis testing); 4. Results (including data analysis on enforcement, prior accounting systems, and legal systems); 5. Conclusion; and 6. Limitations and suggestions.
Which countries and companies were included in the study's sample?
The study includes a sample of 170 companies from five EU countries: France, Germany, the Netherlands, Spain, and the UK.
What methodology was used to conduct the research?
The research employs an empirical approach. The variables are defined based on the recognition materiality concept to measure the level of detail in balance sheet disclosures. The data is analyzed to test the hypotheses regarding the influence of enforcement levels, prior accounting systems, and legal systems on balance sheet disclosure practices.
What are the key findings anticipated in the results chapter?
The results chapter will present the findings of the empirical analysis, focusing on the relationships between the defined variables. It will explore how enforcement levels, prior accounting systems, and legal systems influence the level of detail in balance sheet disclosures. The analysis will highlight the relative importance of each factor and their combined effects on balance sheet disclosure differences across the selected countries.
What are the key concepts explored in the literature review?
The literature review covers IFRS adoption, balance sheet information, materiality (especially recognition materiality), enforcement levels, prior accounting systems (rules-based vs. principles-based), and legal systems (common law vs. code law).
What are the keywords associated with this research?
IFRS, balance sheet disclosure, recognition materiality, cross-country comparison, legal system, enforcement, accounting standards, comparability, transparency, common law, code law, rules-based accounting, principles-based accounting, European Union.
- Quote paper
- alfred Mully (Author), 2008, Differences in balance sheet disclosure under IFRS, Munich, GRIN Verlag, https://www.grin.com/document/267063
