Multi-mode standardisation and comparability: Norway's failed attempt to adopt the IFRS for SMEs

Abstract

The coexistence of IFRS and non-IFRS standards has proven challenging at the national level. We utilise a multi-mode standardisation perspective that recognises the interplay of committees, market players, and the government to examine multi-standard financial reporting in Norway and focus on two parallel efforts that introduced proposals to base the national accounting standards on the IFRS for SMEs. In our case, the jurisdictional tensions stem from the broad remit of the government to regulate financial reporting and the ambiguous legal standing of the national standards and of the standard setter. Comparability is often cited as one of the central aims of standardisation in financial reporting. Consequently, how different players utilise the concept is of interest. We find that the scope of comparability that the standards aim to achieve is not given sufficient consideration. The feedback provided with regard to the proposals underscores that the scope of comparability is important for the users of the standards. They focus on the most likely comparisons that are made and want to maintain a national focus and comparability across similar types of companies and industries. They do not regard the standardisation efforts and proposed elimination of standards and options as necessarily beneficial for comparability.

Keywords:

• standardisation
• IFRS for SMEs
• comparability
• financial reporting
• regulation
• Norway

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 Three countries are part of the EEA: Iceland, Liechtenstein and Norway. EEA-relevant EU directives become binding once approved by the EEA Joint Committee.

2 Similar to Minnis and Shroff (2017), we define private firms as those whose capital (equity or debt) is not traded in a secondary market. Private companies ‘play a vital role in the world economy in terms of generating wealth, jobs and investment in innovation and growth’ (Vanstraelen and Schelleman 2017, p. 565).

3 Hybrids are professional service-oriented organisations such as hospitals and schools that deliver quasi-public goods and that typically exist under both public and private ownership. Thus, they differ as a group from typical government agencies and private firms (Lan and Rainey 1992).

4 In Norway, the executive branch proposes bills that the legislative branch (Parliament) approves and enacts into law. We refer to the whole apparatus as ‘the government’.

5 X indicates the main participants in the events.

6 Small companies must meet two out of three of the following criteria: revenue less than 70 million NOK, assets less than 35 million NOK, and fewer than 50 employees. The definition of the small category is comparable to the EU's definition when the exchange rate is 8.75 Euro to NOK. Unlike the EU Directive, the Norwegian Accounting Act does not define large enterprises by size (see Accounting Act 1998, paragraph 1–5).

7 In 2018, IFRS 15 superseded IAS 18. The Norwegian regulation for the simplified IFRS still refers to IAS 18, even after the latest 2020 update.

8 Entities using IFRS may have to comply with additional disclosure requirements in the Accounting Act or in regulations with a legal basis in the Accounting Act.

9 Consists of specific paragraphs in the Accounting Act and several accounting standards issued by the NASB.

10 The Accounting Act contains some specific exemptions for small entities such as not recognising leases on the balance sheet and deviations from some of the basic principles in the Act. These exemptions and deviations, as well as the main rules that apply to small entities, are incorporated into one accounting standard (NGAAP for small entities, NRS 8), which in practice is the primary source for accounting in small entities.

11 To accommodate not-for profits that fall under the requirements of the Accounting Act, it allows deviations from some of the basic principles and in the format of the financial statements. These are compiled as a separate accounting standard by the NASB.

12 X indicates standards available for companies to use.

13 Some additional disclosure requirements for large entities in the Accounting Act.

14 Since the debut of the IFRS for SMEs in 2009, a single revision was finalised in 2015 and became effective for 2017 reporting. More recently, a comprehensive review began in 2019 and is ongoing.

15 Numbers refer to documents in the list of empirical materials in Table 2 with sources provided in Appendix 1.

16 Auditors employed by these firms can also serve on the NASB. In contrast to the comment letters coming from the firms, we do not have a clear perspective on the views of specific firms regarding the NASB's proposal or the dissenting views of individual members.

17 Predecessor of the IASB.

18 Emphasis added by the authors.

19 Emphasis added by the authors.

20 IFRS statements were prepared because Agder Energi has publicly traded debt.

21 The leader of the AAC was Erlend Kvaal, a Professor at BI.

Additional information

Funding

This work was supported by the Norwegian Research Council under grant Internationalization of Financial Reporting and Auditing (#273243).