Beckman, J. (2016), "Introductory comments for the special edition on the effects of International Financial Reporting Standards (IFRS)", International Journal of Managerial Finance, Vol. 12 No. 2. https://doi.org/10.1108/IJMF-01-2016-0002Download as .RIS
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Introductory comments for the special edition on the effects of International Financial Reporting Standards (IFRS)
Article Type: Guest editorial From: International Journal of Managerial Finance, Volume 12, Issue 2.
In the last 15 years the use of IFRS has grown from few jurisdictions permitting the use of IFRS to those in which 140 worldwide jurisdictions at least allow IFRS reporting for some publicly-accountable entities (www.ifrs.org/Use-around-the-world). Jurisdictions addressed by research presented in this special edition of IJMF include three member states of the Association of Southeast Asian Nations (ASEAN), Canada, China, Mexico, and the USA. Except for China, the research addresses jurisdictions in which adoption is either recent (Canada), in progress (ASEAN) or only for some reporting entities (the USA) In China, the adoption has been unique in that it coincided with requirements to implement eXtensible Business Reporting Language (XBRL). These changes affect how managers use financial information either for internal purposes – e.g., in modeling to determine an acquisition price in mergers and acquisition activities – or for external comparisons such as benchmarking performance. Further, the impact of change to IFRS reporting is costly for managers and others. Is there evidence of benefit now that extensive IFRS implementation has occurred, particularly over the last ten years?
In China, Shan and Troshani (2016) show that the combination of both IFRS and XBRL adoption is beginning to provide benefits in terms of increased efficiencies in audit fees. China is unique in having required adoption of XBRL reporting in 2004 as well as implementing IFRS-based reporting by having issued a substantially converged set of domestic accounting standards in 2006. Importantly, these results are evident in a model that explains a significant portion of the variation in audit fees during the time period studied.
Okafor et al. (2016) argue that the setting of a more advanced economy, Canada’s recent adoption of IFRS for reporting in 2011, provides a particularly useful scenario in which to assess the change in value relevance of the financial information produced. These authors note that, prior to its adoption of IFRS, Canada tended to promulgate accounting standards that harmonized with US GAAP. In addition, many Canadian reporting entities had previously adopted US GAAP reporting and continue to report on this basis. This scenario is unlike the case of Europe in which the 2005 adoption followed a long period of European standards-setting being significantly influenced by IFRS and of European firms using IFRS to the extent permissible under the home country domestic reporting requirements (since at least 1998, e.g. in Germany). In contrast to mixed results in such other settings, Okafor and his co-authors find greater relevance of IFRS information than other information, again in models that explain a significant portion of the variation in firm value as measured by both stock prices and returns.
In contrast to these settings of IFRS adoption, three other papers investigate issues in settings in which IFRS adoption has been partial or has stalled. In the USA, foreign registrants have been allowed to report under IFRS without reconciliation to US GAAP while domestic registrants must follow US GAAP – not the only allowed reporting difference between US domestic and foreign registrants. The US Securities and Exchange Commission (SEC) continues to state its commitment to a single set of global standards and to the convergence process between the US Financial Accounting Standards Board (FASB) and the IASB. Nonetheless, the FASB and IASB are expecting to soon issue new standards on accounting for leases that are not converged. Beckman (2016) investigates the expected impact of this divergence on reported financial statement ratios by US firms in two industries undertaking extensive leasing of different types: construction firms which tend lease equipment and retailers with primarily real estate leasing. She demonstrates the techniques to be used for financial statement analysis in comparing reports prepared under these different methods. The results show that the impact on ratios such as return on assets and on equity under the IFRS model may not be as negative as some in practice anticipate, but the impact on measurement of interest coverage will be significant.
Mexico requires IFRS for all listed companies other than financial institutions and insurance companies. In their paper on guaranteed bailout assistance, Hazera et al. (2016) emphasize the need for a consistently objective method of reporting expected bank loan losses. Because bailouts have significant behavioral and managerial implications, these authors offer a model to measure the ex ante concern with bank management choices given expectations that a bailout will occur – a continuing concern more recently, though unfortunately not exclusively, in the USA and in Europe. As the authors point out, understanding these options also facilitates investors’ ability to value financial institutions.
Joshi et al. (2016) survey practicing accountants in three member states of the ASEAN: Singapore, Malaysia and Indonesia. In 2008, Indonesia expressed support for IFRS adoption through a two stage convergence process, but the country has not adopted IFRS beyond convergence with local standards; Singapore has adopted most but not all of IFRS; and Malaysia has adopted IFRS. Practicing accountants’ experience with and perceptions of managerial implications of IFRS adoption are similar in many respects despite these different approaches to adoption and status of the efforts. In other cases, respondents differ in their perceptions of economic benefits of the transition to IFRS in surprising ways.
In sum, the research presented in this special edition provides insights into the status and managerial implications of worldwide IFRS implementation. Focus on both the benefits and continuing challenges of IFRS provides financial managers with both knowledge of and tools to cope with the current state of worldwide financial reporting as well as future changes in that state.
Judy K. Beckman is on leave from the University of Rhode Island to serve as Academic Fellow in the Office of the Chief Accountant at the US SEC through July 31, 2016. The SEC, as a matter of policy, disclaims responsibility for any private publication or statement by any of its employees. Therefore, the views expressed in this paper are Dr Beckman’s and do not necessarily reflect the views of the Commission or the other members of the staff of the Commission.
Judy Beckman - Accounting and Management Info Systems, University of Rhode Island, Kingston, Rhode Island, USA
Beckman, J.K. (2016), "FASB and IASB diverging perspectives on the new lessee accounting: implications for international managerial decision-making", International Journal of Managerial Finance, Vol. 12 No. 2, pp. 161-176
Hazera, A., Quirvan, C. and Marin-Hernandez, S. (2016), "The impact of guaranteed bailout assistance on bank loan overstatement: the Mexican financial crisis of the late 1990s and early 2000s", International Journal of Managerial Finance, Vol. 12 No. 2, pp. 177-210
Joshi, M., Yapa, P. and Kraal, D. (2016), "IFRS adoption in ASEAN countries: perceptions of professional accountants from Singapore, Malaysia and Indonesia", International Journal of Managerial Finance, Vol. 12 No. 2, pp. 211-240
Okafor, O.N., Anderson, M. and Warsame, H. (2016), "IFRS and value relevance: evidence based on Canadian adoption", International Journal of Managerial Finance, Vol. 12 No. 2, pp. 136-160
Shan, Y.G. and Troshani, I. (2016), "The effect of mandatory XBRL and IFRS adoption on audit fees: evidence from the Shanghai Stock Exchange", International Journal of Managerial Finance, Vol. 12 No. 2, pp. 109-135