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This study aims to identify a taxonomy of financial ratios derived from financial statements prepared using International Financial Reporting Standards (IFRS). The work first empirically establishes and then statistically validates the taxonomy of financial attributes captured in financial ratios. In 2005, the European Commission required that publicly traded companies in the European Union use IFRS as the basis for financial reporting. In the same year, Australia adopted IFRS as a basis for financial reporting. Since then, 120 countries and reporting jurisdictions have adopted IFRS as the basis for financial reporting. Given that IFRS predominate in the financial reporting world, it seems essential to establish and validate IFRS-based ratio attributes. Only then can reliance upon and comparability of these ratios be warranted (Altman and Eisenbeis, 1978). Using principle component analysis, the authors empirically identify nine stable attributes (factors) for ratios drawn from IFRS-based financial statements from 84 counties. The findings provides an empirical basis to formulate testable hypotheses regarding the predictive and descriptive utility of financial ratios draw from IFRS-based financial statements.

The paper begins with a broad category of IFRS-based financial ratios, 50, found in practice and research, including income statement, balance sheet, cash flow, profitability and liquidity measures. Then, a sample of companies from the manufacturing sector is segmented using IFRS as a basis of financial statement reporting. Next, principal component analysis, a method of factor analysis, is applied to empirically identify factors and financial attributes captured in financial ratios used in research inquiry and financial analysis.

The authors find that the financial attributes captured by IFRS-based ratios go well beyond the traditional measures of profitability, liquidity and solvency. The authors identify nine factors that are interpretable and stable over the period, 2011-2015: asset relationship, asset turnover, capital structure, expense insight, fixed asset usage, inventory turnover, liquidity, profitability margin and performance return. Interestingly, the authors did not find a separate cash flow factor. Most importantly, the results corroborate that IFRS-based ratios are consistent and comparable, despite innate country differences that have been shown to influence the application, interpretation and use of IFRS.

The efforts are limited to the manufacturing sector. The financial attributes may be different in service, distribution and retail sectors. Also, limiting the effort are the ratios selected in this study. A broader range of ratios may widen the identification of unique stable factors over time.

The findings provide a basis for research and analysis efforts regarding the validity, comparability and stability of IFRS-based financial ratios. Most importantly, the results corroborate that IFRS-based ratios are consistent and comparable, despite innate country differences that have been shown to influence the application, interpretation and use of IFRS. The findings should be of interest to international and national financial reporting standard setters, investors and analysts.

An empirically evidenced classification system for IFRS-based financial ratios has yet to be determined based on a financial statements across a wide breadth of countries and reporting jurisdictions. Identification of stable interpretable factors, financial attributes, has been limited. The first is that inquiry has been limited to domestic-based, such as US Generally Accepted Accounting Principles, financial ratios. The second is inquiry has been limited to IFRS-based financial ratios within a specific country.

In 2010, Portugal’s newly implemented Accounting Standardization System (SNC - Sistema de Normalização Contabilística) aligned Portuguese accounting standards for unlisted companies with International Financial Reporting Standards (IFRS). The purpose of this paper is to explore the influence of the local context and the role of auditors in the institutionalization of this IFRS-based model in Portugal.

Drawing from an institutional theory framework, the authors interviewed 16 Portuguese auditors in 2017 (seven years after formal implementation of the SNC) to determine their perceptions on whether barriers to the IFRS-based model persisted.

The authors reveal that the code-law institutional logic embedded in the Portuguese context is hindering full institutionalization of the new accounting model. Some persisting barriers to implementation reflected a decoupling between formal requirements and actual practices. Despite these barriers, there has been an encouraging institutionalization of SNC. The authors reveal a high level of commitment of auditors. They draw attention to the engagement of auditors in the institutional work that is intended to assist in SNC implementation, and their role as promoters of a power-knowledge discourse in propagating IFRS institutional logics at the national level, namely, through the justification and rationalization of the reported institutional contradictions.

The highlighting the authors provide of problems related to accounting change should assist international regulators, the Portuguese standard-setter and professional accounting associations to devise appropriate strategies to promote IFRS-based accounting systems implementation.

The authors contribute to the skimpy literature on micro institutional analysis and encourage further exploration of the dynamics between the micro and macro levels of analysis in institutional research.

Since International Financial Reporting Standards (IFRS) are not primarily meant for the accounting needs of Islamic banks, the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) was established to develop specific accounting standards for Shari’ah compliance. The purpose of this paper is to assess the de jure harmonisation between the disclosure requirements of the IFRS-based Malaysian Accounting Standards (MAS) and those of the AAOIFI.

Using Malaysia as a case study, the paper examines the extent of the de jure congruence between the IFRS-based MAS and AAOIFI’s Financial Accounting Standard No 1 (FAS1), which is considered to be one of the key disclosure standards for Islamic banks. We employ leximetrics and content analysis to analyse these accounting standards and the additional guidelines introduced by the Malaysian Accounting Standards Board (MASB) and the Central Bank of Malaysia (Bank Negara Malaysia, BNM) to identify the gaps between different tiers of MAS and FAS1.

The study finds that de jure congruence between the IFRS-based MAS and AAOIFI standards has improved through the introduction of additional accounting guidelines by both the MASB and the banking regulator, BNM. However, some gaps remain between the two standards. These gaps may be difficult to completely eliminate due to differences in the fundamental principles underlying the development of both standards.

While some studies have explored the de facto congruence between AAOIFI accounting standards and others, this paper is the first, to the best of the authors’ knowledge, to examine the de jure congruence between those standards with the IFRS-based MAS.

The purpose of this paper is to investigate whether International Financial Reporting Standards (IFRS)-based data improve bankruptcy prediction over Australian Generally Accepted Accounting Principles (AGAAP)-based data. In doing so, this paper focuses on intangibles because conservative accounting rules for intangibles under IFRS required managers to write off substantial amounts of intangibles previously capitalized and revalued upwards under AGAAP. The focus on intangibles is also motivated by empirical evidence that financially distressed firms are more likely to voluntarily capitalize and make upward revaluations of intangibles compared with healthy firms.

This paper analyses a sample of 46 bankrupt firms and 46 non-bankrupt (healthy) firms using a matched-pair design over the period 1991 to 2004. The authors match control firms on fiscal year, size (total assets), Global Industry Classification Standard-based industry membership and principal activities. Using Altman’s (1968) model, this paper compares the bankruptcy prediction results between bankrupt and non-bankrupt firms for up to five years before bankruptcy. In the tests, the authors use financial statements as reported under AGAAP and two IFRS-based data sets. The IFRS-based datasets are created by considering the adjustments on the AGAAP data required to implement the requirements of IAS 38, IFRS 3 and IAS 36.

This paper finds that, under IFRS, Altman’s (1968) model consistently predicts bankruptcy for bankrupt firms more accurately than under AGAAP for all of the five years prior to bankruptcy. This greater prediction accuracy emanates from smaller values of the inputs to Altman’s model due to conservative accounting rules for intangibles under IFRS. However, this greater accuracy in bankruptcy prediction comes with larger Type II errors for healthy firms. Overall, the results provide evidence that the switch from AGAAP to IFRS improves the quality of information contained in the financial statements for predicting bankruptcy.

Small sample size and having data available over the required period may limit generalizability of findings.

Although bankruptcy prediction is one of the primary uses of accounting information, the burgeoning literature on the benefits of IFRS adoption has so far neglected the role of IFRS data in bankruptcy prediction. Thus, this paper documents a new benefit of IFRS adoption. In this paper, the authors demonstrate how the restrictions on the ability to capitalize and revalue intangibles enhance the quality of information used to predict bankruptcy. These results provide evidence to international standard setters of what they can expect if their efforts to remove non-restrictive accounting practices for intangibles are abandoned.

In transfer pricing (TP) methods, especially when based on margins, accounting indicators are of paramount relevance to assess the profitability of firms, and to compare such indicators to samples of similar companies. The purpose of this paper, drawing on the legal research method, is to discuss the following questions: when using the transactional net margin, quite common in TP tax reporting, does the new (IFRS-based) Portuguese financial accounting system produce profit level indicators that are closer to the underlying reality that TP aims to capture, or are these profit level indicators of a lower quality than before?

The methodology used in the paper draws on legal research. The hermeneutical and evaluative approaches are used to answer the research question. The legal research method is often criticized by not making the empirical sciences’ type of generalizations, since many problems are, by nature, related to national legal systems and, therefore, proposed solutions are not valid outside a specific territory. However, given the nature of the accounting and tax issues identified and discussed in the paper the topic is relevant outside Portugal, given the widespread adoption of IFRS-based accounting systems and the multinational impact of TP principles’ and legislation.

The main conclusion is that the new accounting regime has a significant potential for increasing uncertainty and compliance costs in the area of TP, given the nature of operating income adopted in the new IFRS-based system. As such, taxpayers and tax authorities (TA) and tax courts will have to allocate more resources to an already complex and uncertain fiscal area. A careful analysis of non-recurrent items is now mandatory, given the increased flexibility and the amalgamation of recurring and non-recurring accounting items that can have a pernicious influence in TP tax compliance. The answer to the research question is that the new accounting system produces operating margins that, when used as profit level indicators in TP, are of lower quality.

Taking into account the aim of this study, the discussion of a Portuguese particular feature of corporate financial information and tax system can highlight useful policy points to a broader audience. Many OECD countries face a dire situation in budgetary terms. Therefore, given the pressure to increase tax receipts, TP issues can shed some light on solutions being applied in other countries, and enhance awareness of corporate tax policy points. Directive 2013/34/EU gives Member States some accounting flexibility (e.g. in the design of the income statement). Therefore, the authors would argue for a new design of the SNC’s income statement by the Portuguese legislators. The analysis also argues for a broader level of coordination and consultation between accounting standard setters and TA, in areas where a strong link exists between book and tax income.

The link between IFRS-based account systems and TP tax issues is not, to the best of the authors knowledge, a widely researched topic Thus, the paper adds value to the discussion related to book-tax relation in the specific area of transfer price profit level indicators. It finds a divergent path between the economic reality that TP tries to capture and a concept of operating margin that is affected by non-recurring and peripheral transactions.

The purpose of this study is to examine the perception of practitioners, auditors, and academics about important issues on International Financial Reporting Standards (IFRS) convergence in Indonesia as well as the plan to fully adopt IFRS in Indonesia. Indonesia is one of the emerging countries with distinct features that could shed some lights on IFRS convergence issues. Total respondents of our study are 170 (consist of 43 practitioners, 50 auditors, and 77 academics). The authors find that the respondents are quite familiar with IFRS as well as IFRS convergence in Indonesia. There are several challenges in IFRS convergence in Indonesia, namely complexity to measure fair value, complexity of IFRS-based accounting standards, and tax and accounting standard differences. Regarding the plan to fully adopt IFRS, respondents in average agree that the most significant benefit of IFRS full adoption is IFRS create uniformity in global financial reporting. However, there are several obstacles: lack of education, understanding, and experience by preparers of financial reports with the use of IFRS based, coordination and collaboration among global regulators, and required changes in accounting standards. Majority of respondents do agree that Indonesia fully adopt IFRS, and they stated that it will take at least three to five years for Indonesia to fully adopt IFRS.

The purpose of this paper is to examine whether and how auditors’ and audit clients’ IFRS-related experience alters auditors’ pricing decisions in the initial years of IFRS adoption in China.

The authors conduct the analysis by examining audit fees from 4,129 sample observations that issued A-shares in the Shanghai and Shenzhen stock exchanges from 2005 to 2008. The authors empirically test the association between audit premiums and auditors’ and auditees’ IFRS experience.

The authors find that auditors with IFRS experience charged significantly higher audit premiums in the initial years of IFRS adoption. The authors also find that audit clients’ with IFRS experience paid significantly lower incremental fees. The authors further find that the increased fees charged by audit firms with IFRS experience are independent of the degree of changes in the financial reporting complexity of their clients. In contrast, audit clients with IFRS experience paid lower incremental fees only when they underwent a high degree of changes in financial reporting complexity.

First, it is the understanding that this study is the first to provide evidence on the effect of audit clients’ experience on audit fees. Second, the measure of auditors’ expertise is independent of audit clients’ decisions and is a less noisy measure. Third, the findings complement the existing evidence from other countries regarding the effects of IFRS convergence on audit fees. Finally, this study empirically tests the effects of changes in financial reporting complexity on audit fees.

This study aims to investigate the differences in earnings quality of Malaysian companies after the adoption of IFRS‐based accounting standards named FRS.

It is hypothesize that under the new set of accounting standards, the quality of earnings reported by these companies is relatively higher. Specifically, the study tests whether the level of earnings management is significantly lower after the adoption of IFRS, and reported earnings is more value relevant during the IFRS period. This study uses a large sample of 4,010 observations over a three‐year period before and a three‐year period after the adoption of the new set of accounting standards.

The results show that IFRS adoption is associated with higher quality of reported earnings. It is found that earnings reported during the period after the adoption of IFRS is associated with lower earnings management and higher value relevant.

The results of this study contribute additional evidence to the literature on earnings quality and the impact of IFRS adoption. As most of the existing studies on earnings quality and IFRS have been conducted on data from the U.S and European countries, this study fills a gap in the existing literature by studying the effect of adoption of IFRS on earnings quality in an emerging market.

The purpose of this study is to focus on, namely, the international financial reporting standards (IFRS) or local generally accepted accounting principles (GAAP) effects of financial reporting as a corporate governance mechanism on mergers and acquisitions (M&As) for banking institutions during the global financial crisis.

I investigate the characteristics of bank financial statements before the start of the global crisis, which helps to explain the relationships between the accounting standards and the global financial crisis. The observations, which are based on 3,178 deals in a sample period, are crucially important for corporate governance and bank performance. The results from our analysis are robust to a wide variety of modifications in our research design and are corroborated by descriptive statistics, one-way ANOVA and a two-sample t-test on a sample of banks that voluntarily adopted IFRS for M&As.

The find that IFRS-based monitoring of banks M&As in terms of higher quality financial reporting is negatively linked with bank performance, whereas local GAAP-based monitoring of banks’ M&A is positively associated with accounting performance. Finally, our main results for higher quality financial reporting under local GAAP or IFRS generally hold after controlling for various analyses and relationships between account standards and the financial crisis.

Financial reporting standards setting a corporate governance mechanism are considered since it was impacted recently during the global financial crisis and became a great matter of concern.

The value of this paper is determined by an empirical investigation of the relationships between bank performance and accounting and financial reporting standards in the context of the global economy.

This study aims to validate a direct method to measure relational capital through the estimation of corporate brands. Considering the influence of relational capital management in leading performance and brand development, we consider brand value as a proxy for relational capital. The main research goal is to extend the previous literature on intellectual capital, financial performance and brand management by elaborating and testing an original approach for valuating corporate brands using regression analysis on multiples based on firm-specific accounting data and market information.

The authors propose two econometric models, for both listed and non-listed companies, which consider brand valuations made by primary consulting entities (Interbrand, Brand Finance, BrandZ, European Brand Institute) and multiples derived from accounting and market data of firms. Models were tested on a sample of nonfinancial firms for the period from 2006 to 2019, distinguishing between IAS/IFRS-based and US GAAP-based reporting standards.

The empirical results show that the identified set of market and accounting multiples proved to be significant information for estimating the value of brands within the IAS/IFRS framework, while a lower explanatory power was assessed for US GAAP firms. Furthermore, the empirical evidence confirm that the direct, relative approach based on multiples is more accurate for valuating listed firms than non-listed firms. Robustness analysis demonstrates that findings do not change significantly when the reference datasets and the main assumptions of the models are altered.

The statistical significance of the analysis is limited by the non-objective nature of brand value estimates. The use of additional sources for brand valuations might allow for the further assessment of the robustness of the relationships identified.

Due to their efficacy and ease of use, the proposed models represent valid practical tools for managers, investors, analysts and professional evaluators.

This work contributes to the existing literature through the identification of significant, stable relationships between brand values and the main economic, financial and asset characteristics of firms; the identification of those relationships would allow for the extension of the multiples approach also to the evaluation of brands.