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Intended and unintended consequences of mandatory IFRS adoption: A review of extant evidence and suggestions for future research

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  • Ulf Brüggemann
  • Jörg-Markus Hitz
  • Thorsten Sellhorn

Abstract

This paper discusses empirical evidence on the economic consequences of mandatory adoption of International Financial Reporting Standards (IFRS) in the European Union (EU) and provides suggestions on how future research can add to our understanding of these effects. Based on the explicitly stated objectives of the EU‟s so-called „IAS Regulation‟, we distinguish between intended and unintended consequences of mandatory IFRS adoption. Empirical research on the intended consequences generally fails to document an increase in the comparability or transparency of financial statements. In contrast, there is rich and almost unanimous evidence of positive effects on capital markets and at the macroeconomic level. We argue that certain research design issues are likely to contribute to this apparent mismatch in findings and we suggest areas for future research to address it. The literature investigating unintended consequences of mandatory IFRS adoption is still in its infancy. However, extant empirical evidence and insights from non-IFRS settings suggest that mandatory IFRS adoption has the potential to materially affect contractual outcomes. We conclude that both the intended and the unintended consequences deserve further scrutiny to assess the costs and benefits of mandatory IFRS adoption, which may help provide a basis for evaluating the effectiveness of the IAS Regulation. We provide specific guidance for future research in this field.

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Paper provided by Sonderforschungsbereich 649, Humboldt University, Berlin, Germany in its series SFB 649 Discussion Papers with number SFB649DP2012-011.

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Length: 47 pages
Date of creation: Feb 2012
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Handle: RePEc:hum:wpaper:sfb649dp2012-011

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Keywords: International accounting; IFRS adoption; economic consequences; contracting; regulation; review;

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Citations

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Cited by:
  1. Philip Brown, 2013. "Some Observations on Research on the Benefits to Nations of Adopting IFRS," The Japanese Accounting Review, Research Institute for Economics & Business Administration, Kobe University, Research Institute for Economics & Business Administration, Kobe University, vol. 3, pages 1-19, December.
  2. Paul André & Andrei Filip & Luc Paugam, 2013. "Impact of Mandatory IFRS Adoption on Conditional Conservatism in Europe," Post-Print hal-00862683, HAL.
  3. Bozos, Konstantinos & Ratnaike, Yasanji C. & Alsharairi, Malek, 2014. "How has the international harmonization of financial reporting standards affected merger premiums within the European Union?," International Review of Financial Analysis, Elsevier, Elsevier, vol. 31(C), pages 48-60.
  4. Fitó, M. Àngels & Moya, Soledad & Orgaz, Neus, 2013. "The debate on rented assets capitalization: The economic impact on family firms," Journal of Family Business Strategy, Elsevier, Elsevier, vol. 4(4), pages 260-269.
  5. Palea, Vera, 2013. "IAS/IFRS and Financial Reporting Quality: Lessons from the European Experience," Department of Economics and Statistics Cognetti de Martiis. Working Papers, University of Turin 201330, University of Turin.
  6. Christensen, Hans B. & Hail, Luzi & Leuz, Christian, 2013. "Mandatory IFRS reporting and changes in enforcement," Journal of Accounting and Economics, Elsevier, Elsevier, vol. 56(2), pages 147-177.
  7. Julien Clavier, 2011. "Transition aux normes comptables IAS/IFRS, discipline de marché et adéquation des fonds propres aux risques dans l'industrie bancaire européenne," Post-Print hal-00646838, HAL.
  8. Fülbier, Rolf Uwe & Klein, Malte, 2013. "Financial accounting and reporting in Germany: A case study on German accounting tradition and experiences with the IFRS adoption," Bayreuth Working Papers on Finance, Accounting and Taxation (FAcT-Papers) 2013-01, University of Bayreuth, Chair of Finance and Banking.

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