Global drive to harmonise accounting practice

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A decade since International Financial Reporting Standards (IFRS) were first introduced across Europe, MBS is gaining a growing reputation for its research into the global drive to harmonise accounting practice.

The school’s status has been advanced by a number of papers that have examined aspects of IFRS adoption internationally. Two of these papers appeared in a recent issue of the European Accounting Review that contains a symposium dedicated to IFRS. MBS has two papers in the symposium that involves three current MBS staff and two former MBS PhD students.

Martin Walker, professor of finance and accounting, co-authored both of the papers. He says the experience of IFRS – a principles based set of standards which allows for considerable discretion – has been different in different countries. For instance, one of the papers in the symposium identifies Germany as a particularly interesting and important example.

“What we found was that German companies that adopted IFRS standards voluntarily before 2005, tended to adopt the standards more thoroughly and more enthusiastically. Meantime, German companies which did not voluntarily adopt IFRS tended to be more hostile towards it and implemented it less thoroughly. In other research we find that the wider scope for discretion implicit in IFRS can be both a good and bad thing. If used wisely, the standards can lead to very good practice, but if not then there is also a danger of misleading investors.”

However, Martin believes the benefits of IFRS have outweighed the negatives. “It has allowed companies across Europe to speak the same business language, while analysts can also make better earnings forecasts when they have peers in other countries to compare against. It allows them to start asking interesting questions.”

He says the standards have also helped multinationals operating across many jurisdictions. “Typically these companies might want to issue debt and equity securities in different countries, and because of IFRS they don’t have to abide by different accounting standards in different countries. This has had quite an impact.”

With China recently adopting its own standards close to IFRS, all eyes are on whether the US will follow suit. Martin has previously argued in his own research that the US can live outside the system and believes this will remain the case. “A few years ago it was thought the US was getting warmer towards adopting IFRS, but that now seems to have been put on hold.”

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1013054

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