Intended and Unintended Consequences of Mandatory IFRS Adoption: A Review of Extant Evidence and Suggestions for Future Research

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in Intended and unintended consequences of mandatory IFRS adoption:A review of extant evidence and suggestions for future research Abstract: This paper discusses empirical evidence on the economic consequences of mandatory adoption of International Financial Reporting Standards (IFRS) in the European Union (EU) and provides suggestions on how future research can add to our understanding of these effects. Based on the explicitly stated objectives of the EU"s so-called "IAS Regulation", we distinguish between intended and unintended consequences of mandatory IFRS adoption. Empirical research on the intended consequences generally fails to document an increase in the comparability or transparency of financial statements. In contrast, there is rich and almost unanimous evidence of positive effects on capital markets and at the macroeconomic level. We argue that certain research design issues are likely to contribute to this apparent mismatch in findings and we suggest areas for future research to address it. The literature investigating unintended consequences of mandatory IFRS adoption is still in its infancy. However, extant empirical evidence and insights from non-IFRS settings suggest that mandatory IFRS adoption has the potential to materially affect contractual outcomes. We conclude that both the intended and the unintended consequences deserve further scrutiny to assess the costs and benefits of mandatory IFRS adoption, which may help provide a basis for evaluating the effectiveness of the IAS Regulation. We provide specific guidance for future research in this field.

Deviations from the Mandatory Adoption of IFRS in the European Union: Implementation, Enforcement, Incentives, and Compliance

“…This may be because countries that have traditionally been strong enforcers of securities regulation were both more likely to adopt specific IFRS enforcement mechanisms and expected to be stronger enforcers of rigorous application of IFRS, creating both greater likelihood of enforcement and higher costs associated with adoption (see Christensen et al 2016). Firms in these environments may have adopted strategies to avoid adopting IFRS other than disregard for the new regulation, such as delisting from EU-regulated markets, avoiding consolidation, or moving to a domicile outside the EU (see Vulcheva 2012;Br€ uggemann et al 2013;Hitz and Muller-Bloch 2016;Gutierrez et al 2016). Alternatively, they may have simply failed to comply with mandatory IFRS adoption because they assessed the benefits of IFRS adoption net of the product of the likelihood and costs of enforcement to be insufficient to merit the costs of adoption.…”

IFRS adoption, reporting incentives and financial reporting quality in private firms

“…Although there is a substantial literature examining the FRQ effects and economic consequences of voluntary IFRS adoptions, most of the extant studies focus on publicly listed firms and provide mixed evidence (see Brüggemann, Hitz, & Sellhorn, 2013 for an overview). Exploiting the German setting, Van Tendeloo and Vanstraelen (2005) compare the earnings management behaviour of voluntary IFRS adopters with that of firms reporting under German GAAP.…”

Goodwill and Mandatory Disclosure Compliance: A Critical Review of the Literature

“…From our analysis of the studies on the determinants of disclosures on goodwill and impairment tests we can conclude that the results are not identical, and some are even contradictory. This can be explained, at least in part, by the subjectivity associated with the content analysis in data gathering, as well as by the fact that the studies were conducted in different analysis periods, with samples from different jurisdictions -and thus in environments with specific features (Brüggemann et al 2013) -and the composition of the index disclosure (taken in these studies as the dependent variable) is different. In our opinion this is a line of research that needs to be pursued in future studies, particularly by testing other variables that may influence the fulfilment of goodwill disclosures, related more to the culture of the company, the training level of decision makers and corporate governance variables.…”