Studies drive the debate over the international harmonisation of accounting and financial reporting
Our research informs the practitioners and policymakers on the benefits of countries mandating the adoption of International Financial Reporting Standards (IFRS)
The EU decided to endorse International Financial Reporting Standards (IFRS) in 2005 and China followed suit in 2007. However, while the US remains indecisive, the debate over international harmonisation of accounting remains a hot topic.
Our analyses on the benefits of IFRS and its impact for companies and countries have been cited widely in reports, policy documents and position papers which have contributed to discussions and policy decisions:
- Two reports on research commissioned by the Association of Chartered Certified Accountants (ACCA) analysed the impact of IFRS on the cost of capital in Europe, showing that IFRS benefits capital markets with high institutional quality
- Official policy document of the UK’s Accounting Standards Board (ASB) to justify continued application of IFRS among UK quoted companies
- Response to the ASB policy by global accountancy firm Grant Thornton to back up arguments for IFRS adoption for unlisted firms
- Response from the American Accounting Association to SEC consultation on IFRS convergence arguing that institutional reform is needed along with IFRS to promote corporate transparency
- Report by the IFRS Foundation using our research to argue that disclosure incentives are more important than standards in determining IFRS impact
- Report to the European Commission from The Institute of Chartered Accountants of England and Wales citing two of our studies to support its argument that financial reporting quality under IFRS is dependent on disclosure incentives
Any call for international policy harmonisation needs backing up with robust evidence on the benefits and potential impact of such action. Our studies have supplied necessary empirical evidence on the benefits and costs of IFRS adoption. This work has fuelled both academic debate and the decisions of policymakers and practitioners in their promotion of international accounting standards.
In five studies we examined the economic consequences of mandatory IFRS adoption to the capital market in the UK and Europe through stock market reaction, cost of equity capital and accounting quality.
- Mandatory UK and European IFRS adoption would not bring about a uniform set of net benefits (or costs) across all firms
- Effects of IFRS would vary across firms depending on their disclosure incentives
We therefore added a new dimension to the debate as our work urged caution against simplistic assumptions that IFRS would be universally beneficial or could unilaterally enhance corporate transparency.