IFRS – 10 years later

Abstract

A decade ago, the near-simultaneous adoption of International Financial Reporting Standards (IFRS) in over 100 countries could fairly have been described as a brave new world in financial reporting. Any systems innovation, and especially an innovation of such importance and magnitude, thrusts those involved (companies, users, and accountants) into the unknown. There was good reason to expect success, based largely on widespread enthusiasm for international standards and, behind that, recognition of the strong forces of globalization. Nevertheless, there were risks involved and there was limited a priori evidence to guide the decision-makers. A decade later, this is still the case. Globalization remains a potent economic and political force, and drives the demand for globalization in accounting. Nevertheless, most political and commercial activity remains local, so adoption of uniform rules does not by itself lead to uniform reporting behavior around the world. For many of the claimed benefits of IFRS adoption to be realized, uniform implementation would have to occur in a wide range of countries, which seems unlikely and requires more than simply creating regulatory enforcement mechanisms. Some evidence of actual outcomes from IFRS adoption has come to light, but, as will be argued below, by and large the evidence to date is not very useful. The IASB's (International Accounting Standards Board) valuation-centric Conceptual Framework leads it to pay little or no heed to the use of accounting information in contracting, despite the lip service recent amendments pay to even the narrower notion of stewardship. So IFRS adoption is an innovation of historical proportions whose worldwide effects remain somewhat uncertain. The essay concludes with comments on the status of China and the US.

The Improbability of Fraud in Accounting for Derivatives: A Case Study on the Boundaries of Financial Reporting Compliance

“…Even though prudence was reintroduced in the 2018 Conceptual Framework, the IASB points out that prudence should be interpreted as a caution rather than asymmetry in measurement or verifiability (IASB, 2018, BC2.42). In addition, while the IASB Conceptual Framework refers to verifiability as an element of accounting quality, verifiability is not prominently applied (see Ball, 2016). IASB (2018, BC2.62) points out that a strict interpretation of verifiability could hinder forward-looking estimates in financial statements, which would make the financial statements less useful.…”

“…Within regulatory logic, we know that conservatism is favored (Ball, 2016;Wall & Koch, 2000;Watts, 2003bWatts, , 2006 because it ensures solvency and thus has a positive relationship with market stability. While Sweden chose to link banking oversight and stock market regulation, making IFRS the regulation in both realms, other countries, like the UK and the US, have chosen to have separate systems, requiring different sets of financial statements.…”

“…While a substantial literature points to the contextual embeddedness of financial reporting in general (Ball, 2016;Ball, Kothari, & Robin, 2000;Brown, 2011), Cooper et al (2013) argue specifically that fraud needs contextualization, and call for further research on its social construction, temporality, and cultural embeddedness.…”

Auditors' Response to Different Reporting Environments: Experimental Evidence From the Quantity and Quality of Auditors' Evidence Demands in China

“…IFRS standards are strongly based on "substance over form," 2 which requires accountants and auditors to extensively exercise their professional judgments to reflect the nature and context rather than the legal form of business transactions (Agoglia et al, 2011;Bradbury & Schröder, 2012). However, some highlight that the effect of principles-based standards is dependent on the strength of the financial regulatory regime (Ball, 2006;Ball, 2016;Li, Sougiannis, & Wang, 2017;Niemeier, 2008).…”

Executive Remuneration: Achieving Accountability through Disclosure

“…The concept of accountability has become ubiquitous, especially in the context of executive remuneration disclosure where it is generally accepted that firms owe some form of accountability to shareholders (Ball, 2016). The main vehicle by which firms attempt to achieve a level of accountability for CEO remuneration is via firm disclosure.…”