Prior accounting research studies provide empirical evidence that adoption, application, and enforcement of IFRS varies across legal jurisdictions. Extant studies provide evidence that financial reporting incomparability might be due to inconsistent adoption, application, and enforcement of IFRS (ICAEW 2018). Therefore, we review previous studies that discuss the divergence of IFRS adoption between countries, IFRS application between firms, and the extent to which these divergences affect CFR. After reviewing these divergences in country adoptions and company applications of IFRS, we study the discourses of the IASB and IOSCO with national jurisdictions to assess the volume of their enforcement-related interactions overtime.
As a consequence, investors create their own subtotals differently and this limits the comparability of income statement subtotals, like operating income. Language complexities resulting in information obfuscation can be intentional or unintentional. Bushee et al. (2018) are referring to intentional information obfuscation resulting in information asymmetry. English language https://adprun.net/ barriers can lead to unintentional obfuscated disclosures by foreign firms. Unintentional obfuscation may arise from non-English-speaking firms not speaking proficiently. Brochet et al. (2016) discuss that because non-English firms face institutional and cultural barriers in reporting in English, such may result in opaque disclosures to the financial markets.
- The following example might be helpful in understanding the potential complexities that affect comparability of companies’ financial reports relative to adoption, application, and enforcement of IFRS.
- In the background of this study, we reviewed previous studies which provided evidence that adoption of IFRS varies by legal jurisdiction, application of IFRS varies by company, and enforcement of IFRS varies from weak to strong regulated national stock exchanges.
- Finally, IOSCO would assess whether the financial reports are full-IFRS compliant or not and make all correspondence and its assessment public.
- Panel A of Table 9 shows the explanatory power of private firms’ reporting for M&A valuations separately for private firms that follow local GAAP and for those that follow IFRS using the model in Eq.
We employ six ordinary least squares regression models on pooled time-series of cross-sectional data. We follow the approach developed by De Franco et al. (2011) to measure firms’ comparability. To evaluate the relevance and representational faithfulness of earnings, we use the cash flow forecast model and earnings persistence model, respectively, as per previous studies (e.g., Dechow et al., 1998, Kim and Kross, 2005, Bandyopadhyay et al., 2010).
Then we suggest that once the comment letter review process is completed between the registrant and the IOSCO MB, IOSCO would then have up to 10 days to disclose to the public the comment letter(s) correspondence and IOSCO’s assessment of compliance with IFRS. Next, NVivo is used to search for the keyword “enforce” with its stemmed words (such as enforcing, enforceable, enforcement, enforceability) in all 9585 IASB documents. Then we include only those meetings that are participated in by regulatory securities parties in Table 3 (Appendix 1).
1 Interviews with private firm M&A experts
Hoitash et al., (2020) provide an extensive literature review and include many studies that have investigated the impact of adoption of XBRL for SEC filers.25 The authors point to mixed results in investigations of the capital market impact of XBRL in the US. They conclude this could be ‘because of limited use of XBRL data by financial statement users’. Javrin and Mascha (2014) reported doubts by financial officers that investors were using the tagged data.26 If this is the case, it makes it difficult for researchers to provide evidence about the impact of the XBRL mandate that is not affected by a range of factors, not just availability of tagged data. A compelling case for requirements for companies to provide tagged financial statements would arise if investors found tagged financial statements useful.
Criticalities Along the Path to Global Comparability of Financial Reporting
In other words, markets may face unintended obfuscation from foreign firms presenting their financial statements in a foreign language. They sample foreign private issuers’ Form 20-F filings and 10-K filing between 2000 and 2012 from EDGAR and Compustat. This resulted in a sample of 3499 foreign firm-year observation from 45 countries and 37,344 US firm-year observations.
Business can provide information to regulators, tax authorities and government agencies in an efficient way (ie greater speed and accuracy; less duplication, manual processing and consumption of resources). Financial institutions, analysts and investors can improve their access to information that enables analysis and comparison, for example, through the detailed tagging of information in financial statement notes. In this context, this book reviews research studies on the comparability of financial reporting at a global level as well as highlights empirical analyses that demonstrate the extent to ifrs comparability data which global comparability has been achieved, and how it enhances value relevance of earnings across countries. It also looks at the cross-country investors’ perspectives by shaping the empirical analysis to provide further insights on the role of the “Big Four” auditing services in enhancing the comparability of earnings. The book provides an original contribution to the current debate about the comparability of financial reporting under IFRS and will be useful for researchers in the field. First the firm would request to IOSCO for filing of its IFRS-compliant filings outside of its home country.
IASB content analysis
Next, we provide cross-sectional evidence that the impact of accounting comparability on value relevance is less pronounced for turnaround targets, that is, target firms with significant losses, which is consistent with public peer multiples being less applicable for these firms. Lastly, we address the important concern that differences in the variation of growth and risk expectations across firms that do and do not adopt IFRS might affect the results from our empirical analyses. (We defer the discussion of this to Section 5.2.) While we cannot rule out this possibility, our findings suggest that these differences are unlikely to fully explain our results. We examine whether higher accounting comparability between public and private firms impacts the value relevance of private firms’ reported financial information in M&As. Given the limited amount of research on the use of private firms’ financial reporting for valuations, we first conduct a series of semi-structured interviews with M&A experts to help develop and motivate our hypotheses and ground our predictions in practice.
In total, our empirical evidence, combined with the insights from the expert interviews, indicates that differences in the variation of growth and risk across local GAAP and IFRS samples are unlikely to explain our results. Nevertheless, we acknowledge that the potential for endogeneity calls for future research to corroborate the link between accounting comparability and the value relevance of private firms’ financial reporting. Generally, the settlement of a supranational enforcement body may not find acceptance by sovereign countries, that is, granting IFRS regulation to another body. Even in EU, with its highly integrated markets, IFRS enforcement authority lies with the single member states and ESMA has only a coordinating and recommending role. Moreover, we do not contend that having a rigorous global-level enforcer is all that is needed to obtain an efficient global capital market.
The World Bank has been a long-term supporter of work to develop a single set of high-quality global accounting standards. © 2024 KPMG in the Crown Dependencies is the business name of a group of Jersey and Isle of Man limited liability entities each of which are member firms of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. The new edition (PDF 2.2 MB) of our comparison of IFRS Standards and US GAAP highlights the key differences between the two frameworks, based on 2021 calendar year ends. If you’re a preparer, it may help you to identify areas to emphasise in your financial statements; if you’re a user, it may help you spot areas to focus on in your dialogue with preparers. The wheels have been set in motion to develop the global standards for sustainability reporting. But while enhanced reporting requirements are being developed, many companies choose to bridge the expectations gap by reporting their information using non-GAAP measures.
By fully adopted we mean required for domestic and foreign companies as published by the IASB and without carve-ins and/or carve-outs and/or lags. Third, the enforcement of IFRS is also different between legal jurisdictions (Kleinman et al. 2019; Brown et al. 2014). CFR under IFRS may be impaired when enforcement is high in one country, but not in the other. First, each company could draft its IFRS financial report according to the provisions of its home country. Each country may have adopted a different version of IFRS (Felski 2017; Zeff and Nobes 2010). Some could have adopted IFRS as published by the IASB, whereas other countries may have adopted IFRS with a lag or with differing versions of IFRS.
Relevant to creditors is the finding that the more comparable a firm’s financial reports, the better the prediction creditors can make about the firm’s future performance when making lending decisions. Following prior research, we include a separate slope coefficient for loss firms to allow for differences in the valuation of profits and losses (Core et al. 2003). Research suggests that the effect of information on investors’ decisions increases with the precision of that information (Kim and Verrecchia 1991). When information is more precise, investors are more certain of its implications and weigh it more in their decisions.
We use eight years of annual data to estimate the firm-specific comparability measure, consistent with Neel (2017). To date there is limited research in jurisdictions where entities use IFRS Standards because requirements for electronic reporting using XBRL tagging are not widespread. Three such studies are described below.All claim benefits from providing XBRL-tagged data.
At least once every three years the IOSCO MB, together with the respective national authority, would review a cross-border listed firm’s financial reporting filings and provide a comment letter(s). These comment letters represent a dialog between the cross-border listed registrant and the IOSCO MB. Each time a firm is issued a comment letter, the registrant would have 10 days to respond to the IOSCO MB or state why an alternative time frame is requested. Firms must respond with a detailed explanation to each of the queries in the IOSCO MB’s comment letter(s). If a firm does not agree with the IOSCO MB’s request, they could request a reconsideration or negotiate with the IOSCO MB.