IFRS Policy Changes and the Continuation of National Patterns of IFRS Practice

Abstract

International Financial Reporting Standards (IFRS) contain several policy options. This paper examines the choices made in 2008/9 IFRS financial statements by large listed companies from five countries on all the options that are observable. We compare these choices with those that had been made by the same companies in 2005/6, which (except for the German companies) was the year of transition to IFRS. For Australian and UK companies, we find – as expected – that there were few policy changes. However, despite the constraints on policy change within IFRS, we find that French and Spanish companies not only made more changes than the other companies but that they also made more changes after transition than at transition. Further investigation reveals that these findings are largely driven by a small number of topics. One possible explanation for the pattern of these changes is a ‘learning’ process, which is supported by finding that nearly all the post-transition changes made by the French and Spanish companies were away from previous national requirements. However, we consider other possible explanations. We also present the profiles of IFRS practices for 2008/9. Despite the changes in policy from 2005/6, we find clear evidence that national patterns of IFRS practice continue through the period, so that international comparability remains in doubt.

Acknowledgements

The authors are grateful for comments on an earlier draft from Steinar Kvifte (Ernst & Young), Sigvard Heurlin (EFRAG), R.H. Parker (University of Exeter), Christian Stadler (Royal Holloway), the associate editor (Jennifer Francis) and two reviewers of this journal, and participants at the European Financial Reporting Conference, Stirling, September 2010.

Notes

David Cairns, followed by Sir Bryan Carsberg, and then Sir David Tweedie.

FRSs 12, and 20 to 26.

For Australian companies, two of the policy issues were not ‘choices’ in 2005/6 because the Australian version of IFRS had removed choice. However, the choices had been re-inserted by 2008/9.

The changes upon IFRS transition are almost identical to those reported in Table 4 in K&N, adjusted for the reduction in sample size. There is a small correction in that nine (not seven) requirements are now recognised for Spain.

Note 1 to Table 4 explains how we have identified national requirements in relation to Table 1.

Note 2 of Table 4 explains further.

An exposure draft of 2010 proposed to require the direct method.

The significant change on this topic for Germany reported in Table 5 relates to the companies that had been reporting under US GAAP in 2005.

Strictly speaking, IAS 1 requires OCI to be presented either as a separate statement or as part of comprehensive income, but no companies did the latter.

The exception is the French company, Vivendi, which reported early adoption in its 2008 statements.

There were 15 changes towards the OCI/SORIE treatment. Of the French ones, 36% were in 2006, 55% in 2007 and 9% in 2008. Of the Spanish, 75% in 2006 and 25% in 2008.

The numbers are comparable to the chi-square p-values and Cramér coefficients of Table 3 in that paper. Differences in the 2005/6 numbers are negligible and mostly due to changes in the sample or sub-sample as explained above.

In order not to complicate Table 4, we do not show these.

Statistical significance is overall weaker for this modified test than for the test based on the numbers reported in Table 4. UK vs. France (Spain) holds at the 0.01 (0.05) significance level. Australia vs. France holds at the 0.1 level, whereas the difference between Australia and Spain is insignificant.

There is no choice in US GAAP for topics 5, 8, 9, 10, 11, 13 and 16.

Additional information

Notes on contributors

Erlend Kvaal

Paper accepted by Salvador Carmona.

Christopher Nobes

Paper accepted by Salvador Carmona.