We argue, based on prior studies, that there are differences in IFRS adoption, application, and enforcement across the world and that these could impair the de facto CFR of IFRS financial reports. These findings are used to suggest a global organizational dynamic change that could improve CFR of cross-border listed firms stating compliance with IFRS. Financial statements are more comparable when the same accounting policies and accounting standards are applied across multiple reporting periods, as well as across multiple entities within an industry. For example, if a number of oil and gas firms consistently apply the same industry-specific accounting standards to their financial statements, then there should be a high level of comparability within that industry.
This is a fundamental requirement of financial reporting that is needed by the users of financial statements. The companies reporting will generally need to change at least some of their systems and practices; investors and others using financial statements need to analyse how the information they are receiving has changed; and securities regulators and accounting professionals need to change their procedures. The G20 and other major international organisations, as well as very many governments, business associations, investors and members of the worldwide accountancy profession, support the goal of a single set of high-quality global accounting standards. Before Canada adopted IFRS in 2011, Canada’s standard setting body, the Accounting Standards Board (AcSB), required all publicly accountable enterprises to comply with the accounting standards in the Handbook of the Canadian Institute of Chartered Accountants (CICA). According to the CICA Handbook Section 1000, the four principal qualitative characteristics of useful accounting information included understandability, relevance, reliability, and comparability (CICA, 2005, para. 18).
Insights from our interviews further support this intuition.Footnote 12 These arguments suggest that the relation between accounting comparability between public and private firms and the value relevance of private firms’ reporting is increasing with the precision of the information from public firms. Studies, however, find that public and private firms’ reporting environments and incentive structures differ fundamentally (e.g., Ball and Shivakumar 2005; Burgstahler et al. 2006). These differences could lead to underlying disparities in the information that public and private firms report (Breuer et al. 2018; Bonacchi et al. 2019), which may prevent information spillovers from public to private markets. Thus, a priori, it isn’t clear if or to what extent accounting comparability between public and private firms impacts the value relevance of private firms’ reporting.
- We are aware that IASB is not an enforcement organization and does not have any authority to issue enforcement rules or regulations, to verify the compliance level, or to inflict sanctions.
- Our research shows that 145 jurisdictions now require the use of IFRS Accounting Standards for all or most publicly listed companies, whilst a further 13 jurisdictions permit its use.
- The differences in adjusted R2s across the three columns are −11.9%, −5.5%, and −10.3%, respectively, and are all statistically significant at the 1% level.
- They find that for public firms of 13 EU countries, managements’ reporting incentives explain earnings informativeness (especially in weaker legal enforcement countries).
- The level of IFRS adoption indirectly increases the foreign investors’ ownership through the comparability of financial statements.
The United States uses a different system, the generally accepted accounting principles (GAAP). The authors declare that they have no known competing financial interests or personal relationships that could have appeared to influence the work reported in this paper. On 17 May 2012, the International Accounting Standards Board (IASB) issued Annual Improvements 2009–2011 Cycle. The amendments have an effective date of 1 January 2013, but earlier adoption is permitted. This is a preview of subscription content, log in via an institution to check for access. We are grateful for the financial support of Columbia University, University of Illinois at Chicago, and Erasmus University Rotterdam.
Opportunities relate to comparability, quality, financial statement presentation and disclosure. XBRL-tagged data provides a new IFRS data source—more data, more coverage, more complete, more ‘as reported’, less standardised. This has the potential to revitalise research about use of IFRS Standards so I look forward to seeing many new projects. It’s now 15 years since IFRS Standards were adopted in the EU, Australia and elsewhere (13 years for New Zealand).
To test whether the value relevance of private firms’ reported financial information is greater when it is more comparable to that of public firms, we first examine the difference between the value relevance of private firms that follow IFRS and the value relevance of those that follow local GAAP. We find that the reported financial information of private firms that adopt IFRS has higher explanatory power for their valuations in M&As (i.e., it exhibits higher value relevance) than that of private firms that use local GAAP. Next, consistent with the impact of losing accounting comparability to public firms, private firms that continue providing financial reports following local GAAP after 2005 exhibit lower value relevance than private firms before 2005. Overall, these findings suggest that the value relevance of private firms’ reported financial information is greater when it is more comparable to that of public firms, which is consistent with our prediction. To examine our research question empirically, we focus on privately held companies in the European Union.
Benefits of IFRS Accounting Standards
For example, they argue that companies compute subtotals differently and investors create their own subtotal differently such that companies’ income statement subtotals, like operating income, cannot be compared for similarities and differences. Figure 4 illustrates the proposed IOSCO organization modified structure with the MB review and IOSCO enforcement of cross-border listed firms’ IFRS financial reports ifrs comparability data according to the dynamic inductive model that, we believe, better fits the processes and phenomena under investigation. Moreover, IOSCO could require cross-border listed firms to cooperate with the MB through its MMoU and EMMoU with cooperative nations. Finally, IOSCO would assess whether the financial reports are full-IFRS compliant or not and make all correspondence and its assessment public.
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Since the 2002 MMoU, the lessons of the global financial crisis, and the experience gained by the signatories to the 2002 MMoU, it became critical to enhance information sharing and cooperation between IOSCO members to meet its objectives. We propose to enhance the homogeneity of enforcement of IFRS at a global level to reduce incomparability. As suggested by previous studies (Ball 2016, 2006; Pope and McLeay 2011; Schipper 2005), we also believe that a global enforcement entity could help in reducing application issues through the comment letter approach that we present later in this paper. From this search we want to learn about whether there are any enforcement-related discussions that IOSCO has made with other regulatory bodies. NVivo is used to search within the 338 documents for the keywords “enforce,” “regulate,” “penalty,” “comply,” “sanction,” or “support” and their stemmed words.
We begin by examining the baseline level of value relevance of public and private firms’ reported financial information in our sample. These descriptive results offer a benchmark for comparing the levels of value relevance we document throughout our analyses. Columns (1), (2), and (3) of Table 3 present the results using the full sample, the size-matched sample, and the full sample using deflated variables, respectively. In our baseline model in column (1), we find that the adjusted R2 for the sample of public firms is 77.1%, while it is 66.0% for private firms. For our results using the matched sample, the adjusted R2 is 76.2% for public firms and 70.7% for private firms in column (2).
Data providers can then focus more on ‘standardising’ and ‘normalising’ data and providing their various other value-adding activities for their clients. Data providers potentially can provide more timely and granular data for more companies to their customers because the data collection costs would be significantly reduced. Nevertheless, some Australian companies, notably from the healthcare sector, prepare XBRL-tagged financial statements because they are also listed in the US. Inline XBRL filings will be required by the SEC for foreign private issuers for fiscal periods ending on or after 15 June 2021. However, the solution that we propose lies its probability of success on the willingness of the corresponding governments to put resources and force behind every initiative that IOSCO tries to undertake.
Again consistent with the impact of accounting comparability, we find that private firms in the United Kingdom that follow IFRS exhibit an increase in the value relevance of their reported financial information, while those that continue following UK GAAP exhibit a decrease. Table 5 presents results from our tests that compare the value relevance of the reporting of private firms that follow local GAAP in the pre-period to their value relevance in the post-period. Row (a) shows the value relevance of private firms that follow local GAAP before 2005, and row (b) shows the value relevance of local GAAP private firms after 2005. Our first hypothesis states that the financial reporting of private firms with greater accounting comparability to that of public firms is more value relevant. To test this, we begin by comparing the adjusted R2s from our models for the sample of private firms that follow local GAAP and the sample of private firms that follow IFRS. Table 4 presents the value relevance of the reporting of private firms that follow the local GAAP standards in row (a) and the value relevance of those following IFRS in row (b).
Guides to financial statements
We thank Lakshmanan Shivakumar (editor) and an anonymous referee for their insightful suggestions and constructive feedback. Joachim Gassen acknowledges the financial support of the German research foundation (DFG) under project A7 of the collaborative research center SFB 649 at Humboldt University. Stefano Cascino thanks the SFB 649 for co-founding his research visit at Humboldt University. Revenue increased 8% at constant currency to EUR1.64 billion, led by growth in the mainstay software business, with an operating margin of 35.9%, a percentage point higher than in the same period of 2022. The French software firm’s posted a non-IFRS operating profit of 589.8 million euros ($638.1 million) between October and December, rising from EUR552.1 million in the same period a year earlier, it said Thursday. IFRS currently has complete profiles for 167 jurisdictions, including those in the European Union.
We also observe the current status of IOSCO’s membership, enforcement achievements, and organization structure and review the market authorities’ comment letter approach to establish a rigorous and global enforcement framework for the IASB’s IFRS. After having transformed the static data that we collected, observed, and analyzed based on a rigorous inductive approach, we propose an organization dynamics change for IOSCO. In the same vein of Quagli et al. (2020), we believe that a global enforcement authority could achieve the homogenous enforcement of IFRS at a global level. However, we are also aware that presently IFRS enforcement activities are legally engrained at the country level. Therefore, IOSCO currently cannot intervene in national state’s laws as it can only make recommendations, should strengthen its engagement with local enforcement authorities in promoting a homogeneous enforcement of IFRS globally. We suggest IOSCO as the institution to monitor and review the financial reports of cross-border listed firms stating compliance with some form of IFRS.
Interviews with private firm M&A experts and hypothesis development
More peers also offer more opportunities to find particularly well-fitting and highly comparable firms for their evaluations. Consistent with this, the experts indicated that when more peers are available, they emphasize multiples https://adprun.net/ and perceive the reasonable range of peer valuations as more binding (both for internal procedures and for negotiations). The president’s committee consists of 128 ordinary members from 125 countries and meets annually.
These studies find evidence of spillovers in the context of private firm debt financing (Shroff et al. 2017) or investment efficiency within private firms (Badertscher et al. 2013). We contribute to this stream of research by showing that accounting comparability between private and public firms facilitates investors’ understanding of how accounting information relates to market valuations, which impacts the value relevance of private firms’ reporting. This finding also relates our study to the broader literature on the determinants of value relevance and the importance of contextual information in facilitating the translation of book values into market prices (Yu 2013; Müller et al. 2015; Fiechter and Novotny-Farkas 2017; Ferreira et al. 2019). To date, prior studies on comparability were mostly conducted using either a cross-country or United States (US) setting (e.g., Neel, 2017, Kim et al., 2018). This is the first paper that investigates comparability in the context of the Canadian capital market, a context important to the two research questions at both the national and international levels for multiple reasons. First, the Canadian context has strong enforcement of accounting standards and a high level of investor protection (e.g., Leuz et al., 2003, Burnett et al., 2015, Khan et al., 2015).