Abstract
In this paper, we evaluate the common assumption that European Union (EU) firms began using international financial reporting standards (IFRS) in 2005 when the EU formally adopted IFRS. Although the incidence of firms using local (or some other) GAAP declined between 2005 and 2012, it is still non-trivial. By 2012 the incidence of non-IFRS financial statements was still in excess of 17 percent (87 percent of which were fully consolidated). We estimate a model of the non-adoption of IFRS as a function of implementation features of the IFRS regulation, country-specific enforcement, and firm-specific reporting incentives. As expected, being specifically required by EU-wide and country-specific rules to adopt IFRS is positively associated with IFRS adoption but does not constitute a complete explanation. Proxies for enforcement are significantly associated with non-adoption, but the marginal effects of the enforcement variables are weak. We find that larger firms, firms with foreign operations and more analyst following, and firms that issue new debt and equity were more likely to adopt IFRS, both when the regulation was initially imposed and in subsequent years. We conclude that many EU firms do not use IFRS; that some firms exploited definitions, exemptions, and deferrals to avoid adopting IFRS while some firms simply failed to comply with the regulation; and that firms responded to their incentives in deciding whether to adopt IFRS.
| Original language | English (US) |
|---|---|
| Pages (from-to) | 1029-1066 |
| Number of pages | 38 |
| Journal | Contemporary Accounting Research |
| Volume | 35 |
| Issue number | 2 |
| DOIs | |
| State | Published - Jun 1 2018 |
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ASJC Scopus subject areas
- Accounting
- Finance
- Economics and Econometrics
Cite this
Deviations from the Mandatory Adoption of IFRS in the European Union : Implementation, Enforcement, Incentives, and Compliance. / Pownall, Grace; Rykaczewski, Maria.
In: Contemporary Accounting Research, Vol. 35, No. 2, 01.06.2018, p. 1029-1066.Research output: Contribution to journal › Article
}
TY - JOUR
T1 - Deviations from the Mandatory Adoption of IFRS in the European Union
T2 - Implementation, Enforcement, Incentives, and Compliance
AU - Pownall, Grace
AU - Rykaczewski, Maria
PY - 2018/6/1
Y1 - 2018/6/1
N2 - In this paper, we evaluate the common assumption that European Union (EU) firms began using international financial reporting standards (IFRS) in 2005 when the EU formally adopted IFRS. Although the incidence of firms using local (or some other) GAAP declined between 2005 and 2012, it is still non-trivial. By 2012 the incidence of non-IFRS financial statements was still in excess of 17 percent (87 percent of which were fully consolidated). We estimate a model of the non-adoption of IFRS as a function of implementation features of the IFRS regulation, country-specific enforcement, and firm-specific reporting incentives. As expected, being specifically required by EU-wide and country-specific rules to adopt IFRS is positively associated with IFRS adoption but does not constitute a complete explanation. Proxies for enforcement are significantly associated with non-adoption, but the marginal effects of the enforcement variables are weak. We find that larger firms, firms with foreign operations and more analyst following, and firms that issue new debt and equity were more likely to adopt IFRS, both when the regulation was initially imposed and in subsequent years. We conclude that many EU firms do not use IFRS; that some firms exploited definitions, exemptions, and deferrals to avoid adopting IFRS while some firms simply failed to comply with the regulation; and that firms responded to their incentives in deciding whether to adopt IFRS.
AB - In this paper, we evaluate the common assumption that European Union (EU) firms began using international financial reporting standards (IFRS) in 2005 when the EU formally adopted IFRS. Although the incidence of firms using local (or some other) GAAP declined between 2005 and 2012, it is still non-trivial. By 2012 the incidence of non-IFRS financial statements was still in excess of 17 percent (87 percent of which were fully consolidated). We estimate a model of the non-adoption of IFRS as a function of implementation features of the IFRS regulation, country-specific enforcement, and firm-specific reporting incentives. As expected, being specifically required by EU-wide and country-specific rules to adopt IFRS is positively associated with IFRS adoption but does not constitute a complete explanation. Proxies for enforcement are significantly associated with non-adoption, but the marginal effects of the enforcement variables are weak. We find that larger firms, firms with foreign operations and more analyst following, and firms that issue new debt and equity were more likely to adopt IFRS, both when the regulation was initially imposed and in subsequent years. We conclude that many EU firms do not use IFRS; that some firms exploited definitions, exemptions, and deferrals to avoid adopting IFRS while some firms simply failed to comply with the regulation; and that firms responded to their incentives in deciding whether to adopt IFRS.
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U2 - 10.1111/1911-3846.12415
DO - 10.1111/1911-3846.12415
M3 - Article
AN - SCOPUS:85050965835
VL - 35
SP - 1029
EP - 1066
JO - Contemporary Accounting Research
JF - Contemporary Accounting Research
SN - 0823-9150
IS - 2
ER -