Study analyzes implementation experiences in Europe

The Institute of Chartered Accountants of Scotland sponsored a research study titled The Implementation of IFRS in the UK, Italy and Ireland.  The study, released earlier this year, compared 175 financial statements pre- and post-IFRS and conducted interviews with preparers, auditors, users and regulators.  Goals of the study included quantification of the nature and extent of changes in financial reporting, identification of standards that caused the greatest challenges to preparers and examination of the usefulness of IFRS information from the perspective of preparers and users of financial statements.

Many of the findings from the study are not surprising.  The content analysis showed that disclosures required under IFRS expanded dramatically and that the implementation process was lengthy.  The study highlighted the more challenging standards to implement with IAS 39 Financial Instruments: Recognition and Measurement receiving the most attention.  The study did indicate that companies with US listings were less affected by implementation changes because IFRSs are closer to US GAAP than UK, Irish or Italian GAAP.

The study analyzed reconciliation statements between national GAAP and IFRS.  On average, conversion to IFRS increased reported profits, but reduced net equity in the balance sheet.  Adjustments were mainly due to a small number of standards with IFRS 3 Business Combinations causing the largest differences in profit.  The largest difference in reported equity occurred in the UK and was driven by implementation of IAS 19 Employee Benefits.

Answers to interview questions regarding benefits of IFRS were generally mixed.  Interviewees from the UK and Ireland answered that IFRS financial statements are too long and complex and not any more decision-useful than statements required before.  In contrast, respondents from Italy felt that IFRS statements provide improved information compared to their national GAAP and were generally positive about the usefulness of the new reports. 

Interviews revealed that there is a feeling that IFRS has not produced comparability between entities because there are too many choices available in the standards, however there was a feeling that comparability and usability might improve in the future.  Most respondents approve of accounting harmonization, but few want to go down this route if it meant adopting the U.S. rules based approach. 

Respondents agreed that IFRS conversion is costly and virtually all respondents stated that the costs were significant.  Information system adaptation, training, consulting and employment of personnel with IFRS knowledge were large components of the cost of converting to IFRS.  Overall, when asked if benefits of IFRS outweigh costs, respondents were either unsure or answered no.  The study points out that implementation costs were tangible and immediate but benefits were intangible and longer-term. 

The ICAS research study is informative and provides useful information to a reader contemplating a move to IFRS.  An executive summary and the full research report are available at the ICAS website.

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