international variations in ifrs practices: and how spain differs from other major countries

International variations in IFRS practices: and how Spain differs

from other major countries

Christopher Nobes

Presenter:• Dr Christopher Nobes is Professor of Accounting at the

University of London and at the University of Sydney. He is Adjunct Professor at the Norwegian Business School. He has taught in Universities in New York and San Diego, and has been a visiting professor in Amsterdam, Barcelona and Venice.

• He was a member of the Accounting Standards Committee of the UK and Ireland (1987-90) and of the Board of the International Accounting Standards Committee (1993-2001).

• He is the author of 14 books and former co-editor of Accounting and Business Research. He was the 2002 “Outstanding International Accounting Educator” of the American Accounting Association.

Tomorrow the world?

• The IASC began work in 1973, but the important adoption of IFRS only started in 1994, with a few German companies

• “The global rollout of International Financial Reporting Standards is gaining momentum, with more than 100 countries now using IFRS and all of the world’s major countries anticipated to be on board within the next few years” (BDO, 2012)

Overview of this presentation

• An antidote to these wild claims is needed

• Even where IFRS is used, Nobes (2006 in ABR) suggests motivation and scope for different national versions of IFRS practice, including lists of “overt options”

• Many researchers have used this as a starting point

• This lecture reviews the findings (see Nobes in ABR 2013)

Implementing IFRS

Standard-by-standard Adopting the process

Not fully converged

As issued by IASB

Fully converged with IFRS

As issued by IASB, but with

deletions

Israel South Africa

Canada Australia EU China Venezuela

Yes Possible Unlikely

Company compliance with IFRS as issued by the IASB

Optional

Switzerland

Methods of implementing IFRS (consolidated statements of listed companies)

IFRS implementations for domestic companies, 31 Dec 2012 year ends

1 2 3 4 5 6 7 8

Jurisdiction IASB-IFRS required

for all regulated reporting

?

IASB-IFRS required

for cons’d reports of listed co.s

(CSLC)?

Version of IFRS (intended to

ensure compliance

with IASB-IFRS) required for all

reporting?

Version of IFRS (intended to

ensure compliance

with IASB-IFRS) required for

CSLC?

Version of IFRS allowing compliance

with IASB-IFRS required for

all reporting?

Version of IFRS allowing compliance

with IASB-IFRS required for

CSLC?

Version of IFRS (allowing IASB-IFRS) required (or allowed=A)

for unconsolidated

reporting?Australia N N N Y (2005) N Y N (A)

Canada N N N N N N N (A)

China N N N N N N N

France N N N N N Y (2005) N

Germany N N N N N Y (2005) N

Hong Kong N N N N N N N

India N N N N5 N N N

Japan N N N N N N N

Russia N Y (2012) N Y N Y N

South Africa N Y (2005) N Y N Y N (A)

South Korea N N N Y (2011) N Y N (A)

Spain N N N N N Y (2005) N

Switzerland N N N N N N N

UK N N N N N Y (2005) N (A)

US N N N N N N N

Conclusion so far

• Research needs a good institutional setting

• But, for example, Francis et al. (2008 in EAR) say that most unlisted companies in most of 56 countries (e.g. Spain) had adopted IFRS in 1999/2000

How IFRS Practices Can Differ

Eight opportunities for differences in IFRS practices

1. Different versions of IFRS (see slide 5)2. Enforcement, compliance (varies

nationally) 3. Language4. Gaps in IFRS5. Measurement estimations6. First-time adoption7. Overt options8. Covert options

3: Different translations• IAS 7 (para. 7): An investment normally qualifies as

a cash equivalent only when it has a short maturity of, say, three months …(Portuguese omits the ‘say’)

• IAS 19 (para. 78): discount rate for pension obligations uses interest rate on “commercial bonds” (German says Industrieanleihen)

• IAS 41 (para. 34): account for a government grant when receivable (Norwegian, until 2012, said “received”)

4, 5, 6: Gaps, measurement, first-time adoption

• Gaps: e.g. IFRSs 4 and 6; and accounting for artworks (see Dubai law case in 2012: http://www.dfsa.ae/WhatsNew/DispForm.aspx?ID=227)

• Measurement estimations: list in Nobes 2006 paper still applies, plus IFRS 7

• First-time adoption: e.g. survival of large initial differences in starting positions on goodwill

Eight opportunities for differences in IFRS practices

1. Different versions of IFRS2. Enforcement, compliance 3. Language4. Gaps in IFRS5. Measurement estimations6. First-time adoption7. Overt options8. Covert options

7, 8: Overt and covert options• List of overt options has been used by several

researchers

Examples of 2005/6 choices (% of companies)Australia UK France Spain Germany

1a) income statement by function 59.347.2

54.8 4.0 76.5

1b) by nature 29.613.9

45.2 96.0 23.5

1c) neither 11.138.9

0.0 0.0 0.0

3a) equity acc profit in operating 63.224.5

6.9 0.0 18.8

3b) immediately below 15.834.0

3.4 8.3 62.5

3c) below finance 21.141.5

89.7 91.7 18.8

14a) FIFO only 27.3 57.1 11.5 5.9 0.0

14b) weighted average only 59.1 30.6 57.7 88.2 71.4

15a) actuarial gains/losses to OCI 72.7 84.4 20.0 12.5 47.6

15b) to income in full 18.2 3.3 5.7 37.5 0.0

15c) corridor 9.1 12.2 74.3 50.0 52.4

7, 8: Overt and covert options• List of overt options has been used by several

researchers

• A few options have since been removed by IASB (e.g. expensing of interest, treatment of AGL, proportional consolidation)

• Covert options include such issues as recognising impairments and capitalising development costs

• Paper (ABR, 2013) presents extended lists

Why would options/estimations be done differently?

• Tax? For example, tax-driven choices flowing through from unconsolidated statements (e.g. AVCO in Germany)

• Inertia?

• Cost-saving; helping analysts?

Empirical Studies

First empirical studies

• Non-systematic samples of choices: KPMG & von Keitz, 2006; ICAEW, 2007; EC, 2008

• Morais (2008) and Fasshauer et al. (2008) look at actuarial gains/losses in the EU

• Kvaal & Nobes (ABR in 2010) study 16 options for 232 companies in 2005/6

ABR, 2010 paper

• Five largest IFRS-using stock markets: Australia, France, Germany, Spain, UK

• Index companies (e.g. ASX 50, FTSE 100)

• 2005/6 statements

• 16 policy choices (e.g. FIFO or weighted average; proportional consolidation for JVs)

Hypotheses• Null hypothesis of same practice in all countries• 19 alternative hypotheses (assuming continuation of

previous policies)• H3: French and Spanish companies are more inclined

than others to show equity-accounted profits afterfinance items

• H16: The tendency to use proportional consolidationis found in the following countries in decreasing order: France, Spain, Germany, UK, Australia

• 84 tests: 69 reject null hypothesis at 1%; 7 at 5%; 8 not rejected

Policy choices (% of companies by country) Australia UK France Spain Germany 1a) income statement by function 59.3 47.2 54.8 4.0 76.5 1b) by nature 29.6 13.9 45.2 96.0 23.5 1c) neither 11.1 38.9 0.0 0.0 0.0 2a) inclusion of a line for EBIT or op profit 51.9 97.2 100.0 96.0 100.0 3a) equity acc included in operating 63.2 24.5 6.9 0.0 18.8 3b) immediately below 15.8 32.1 3.4 8.3 62.5 3c) below finance 21.1 43.4 89.7 91.7 18.8 4b) showing net assets 100.0 84.7 0.0 0.0 0.0 5b) liquidity increasing 0.0 100.0 100.0 96.3 85.0 6b) OCI only 65.9 83.7 5.7 25.0 21.7 7b) indirect cash flows 0.6 98.0 100.0 87.5 100.0 8a) dividends received as operating 87.5 36.7 92.9 50.0 66.7 9a) interest paid as operating 90.9 68.4 88.6 38.7 61.9 10b) some PPE at fair value 13.6 12.2 0.0 0.0 0.0 11b) investment property at fair value 42.9 73.1 0.0 0.0 0.0 12a) some fair value designation 29.6 12.5 32.3 12.0 5.9 13a) interest capitalization 75.8 47.5 40.0 94.4 22.2 14a) FIFO only 27.3 50.0 11.5 5.9 0.0 14b) weighted average only 59.1 29.2 57.7 88.2 71.4 15a) actuarial gains/losses to OCI 72.7 84.4 20.0 12.5 47.6 15b) to income in full 18.2 3.3 5.7 37.5 0.0 15c) corridor 9.1 12.2 74.3 50.0 52.4 16a) proportional consolidation of JVs 0.5 22.4 81.3 84.6 31.3

Examples of Spanish choices• Why choose the ‘by function’ income

statement?• Actuarial items are large, out-of-control

and (usually) losses. Why would Spanish companies choose to include them in ‘earnings’?

• Why did Spanish companies choose proportional consolidation? It makes sales and cash larger, but….?

Do policy choices change over time?• Kvaal & Nobes (EAR, 2012) look at all

changes from 2005 to 2008

• H1: more change on transition than from 2005 to 2008 (not for France/Spain)

• H2: more continental change than Anglo change (yes)

• H3: variance greater for continentals (yes)

• No effect of IASB proposed changes

Some policy changes from 2005 to 2008

Australia UK France Spain Germany2005 2008 2005 2008 2005 2008 2005 2008

2005 2008

OCI presented 65.067.5

83.590.6

2.950.0

28.664.3

43.563.3

Indirect cash flows 0.0 8.3 100.0100.0

100.0100.0

90.5100.0

100.0100.0

Some investment property at fair value

38.539.3

72.070.8

0.014.3

0.013.3

5.9 5.3

Interest capitalization 81.384.4

50.057.7

46.244.4

94.1100.0

22.241.7

AGL to OCI 73.386.7

82.986.4

20.650.0

14.363.2

45.563.3

AGL to corridor 10.0 6.7 13.49.9

76.547.1

50.010.5

54.533.3

Proportionate consolidation

3.811.5

20.023.3

80.675.8

87.091.3

31.315.8

Do small companies make different choices?

• Nobes & Perramon (AAR, 2013)• Same five countries; 2008/9; compare to

small listed companies• Small companies make different choices

(and more homogeneous within country)

AUS UK GER FRA SPA Large Small Dif. Large Small Dif. Large Small Dif. Large Small Dif. Large Small Dif. 1 (a) income statement by function 58.3 35.3 -23.0 50.8 100.0 +49.2 82.6 36.0 -46.6 60.0 20.0 -40.0 4.8 4.0 -0.8 2 (a) line for operating profit 58.3 18.9 -39.4 98.4 100.0 +1.6 91.3 96.0 +4.7 96.7 100.0 +3.3 100.0 92.0 -8.0 3 (a) equity profit in ‘operating’ 64.7 16.7 -48.0 40.8 55.6 +14.7 22.7 15.4 -7.3 10.0 0.0 -10.0 0.0 0.0 0.0 4 (b) focussing on net assets 100.0 97.5 -2.5 85.2 45.0 -40.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 5 (b) liquidity increasing 0.0 0.0 0.0 100.0 100.0 0.0 69.6 92.0 +22.4 100.0 100.0 0.0 95.2 100.0 +4.8 6 (b) OCI only 70.8 12.5 -58.3 92.1 50.0 -42.1 43.5 8.0 -35.5 13.3 0.0 -13.3 42.9 8.0 -34.9 7 (b) indirect cash flows 8.3 0.0 -8.3 100.0 100.0 0.0 100.0 100.0 0.0 100.0 100.0 0.0 100.0 96.0 -4.0 8 (a) interest paid as ‘operating’ flow 87.5 91.2 +3.7 65.1 68.6 +3.5 68.2 76.0 +7.8 80.0 56.0 -24.0 47.6 58.3 +10.7 9(b) some PPE at fair value 0.0 13.2 +13.2 3.2 7.5 +4.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 10(b) investment property at fair value 0.0 100.0 +100.0 25.0 75.0 +50.0 0.0 0.0 0.0 0.0 25.0 +25.0 0.0 0.0 0.0 11(a) some fair value designation 25.0 63.0 +38.0 11.1 12.0 +0.9 17.4 28.6 +11.2 33.3 25.0 -8.3 19.0 42.9 +23.8 12(a) interest capitalisation 87.0 61.9 -25.1 54.3 37.5 -16.8 43.5 11.1 -32.4 40.0 16.7 -23.3 100.0 76.2 -23.8 13(b) weighted average only 52.9 30.8 -22.2 32.6 30.0 -2.6 75.0 68.4 -6.6 50.0 44.4 -5.6 88.2 77.3 -11.0 14(a) actuarial gains/losses to OCI 84.2 50.0 -34.2 88.3 92.3 +4.0 73.9 25.0 -48.9 53.3 15.0 -38.3 69.2 55.6 -13.7 15(a) proportional consolidation 18.8 33.3 +14.6 20.9 41.7 +20.7 18.8 42.9 +24.1 72.4 100.0 +27.6 93.8 83.3 -10.4

Policy choices (percentages of companies by country)

Significant differences, small/largeNo. Topic 1% 5% 10%

1 Use of by-nature income statement (more in Ger/Fra; less in Aus/UK)

UK, Ger, Fra - Aus

2 Less use of line for operating profit Aus - -

4 Less focus on ‘net assets’ in balance sheet UK - -

5 Less use of ‘cash first’ in balance sheet

- Ger -

6 Less use of OCI Aus, UK, Ger, Spa

- Fra

7 Less use of indirect cash flow method

- - Aus

8 Less showing of interest paid as operating

- - Fra

9 More use of fair value for PPE

- - Aus

10 More use of fair value for investment property

Aus - UK

11 More fair value designation

Aus - Spa

12 Less interest capitalisation

- Ger, Spa Aus

14 Less use of OCI for actuarial gains/losses

Ger, Fra - -

Do other factors affect policy choice?

• Jaafar & McLeay (Abacus, 2007) find an influence of sector, but pre-IFRS

• Cole et al. (2011): influence of auditor on disclosures/formats

• Nobes & Stadler (2012): country influence survives the inclusion of variables for sector, firm and topic; extractive industry has idiosyncratic policies

Classification

Pre-IFRS classifications• Hatfield (1911), Seidler (1967), AAA (1977), da

Costa et al. (1978), Frank (1979), Nair & Frank (1980) all find three groups: US, UK, other

• Mueller (1967) has four groups with the US/UK in the same group. Why?

• Nobes (1983) and Doupnik & Salter (1993) agree with Mueller

• Shoenthal (1989), Cairns (1997), Alexander & Archer (2000), d’Arcy (2001) all reject ‘Anglo-American accounting’

Figure 1. A suggested classification of accounting ‘systems’ in some developed western countries in 1980

Accounting systems

Micro-fair-judgementalCommercially-driven

Macro-uniformGovernment-driven

Tax dominated

Business economicsExtreme judgemental

Business practiceProfessional rules

British origin

UK influenceProfessional regulation

US influenceSEC enforcement

Code-basedinternationalinfluences

Plan-based Statute-based Economic control

Netherlands Australia NZ UK Ireland Canada USA Italy France Belgium Spain Germany Japan Sweden

Classification of IFRS practices

• Nobes (Abacus, 2011)

• Uses 2008/9 data from Kvaal & Nobes, and adds 3 countries to ‘cover’ Figure 1

Policy choices (percentages of companies by country), 2008

Aus UK Ger Fra Spa NL Ita Swe

1 (b) balance sheet focus on net assets 100.0 85.2 0.0 0.0 0.0 14.3 0.0 0.0

2 (a) income statement by function 58.3 82.1 82.6 62.1 4.8 50.0 7.1 95.0

3 (a) equity profit in ‘operating’ 68.8 42.6 22.7 10.0 0.0 0.0 0.0 93.3

4 (b) OCI only 67.5 90.6 36.7 14.7 32.1 41.1 18.8 23.1

5 (b) indirect cash flows 8.3 100.0 100.0 100.0 87.5 100.0 100.0 100.0

6 (a) interest paid as ‘operating’ flow 81.5 65.1 68.2 80.0 47.6 78.5 92.9 90.0

7 (b) some PPE at fair value 15.0 11.1 0.0 0.0 0.0 11.8 0.0 3.8

8 (b) investment property at fair value 39.3 70.8 5.3 14.3 13.3 75.0 5.6 100.0

9 (a) some fair value designation 25.0 11.1 17.4 33.3 19.0 75.0 12.5 52.6

10 (a) interest capitalisation 84.4 57.7 41.7 44.4 100.0 66.6 27.8 33.3

11 (b) weighted average only 52.9 30.0 75.0 50.0 88.2 41.7 78.6 10.0

12 (a) actuarial gains/losses to OCI 86.7 86.4 63.3 50.0 63.2 31.3 20.8 20.0

13 (a) proportional consolidation 11.5 23.3 15.8 75.8 91.3 46.0 39.1 33.3

Swe

Aus

UKGer

Fra

Spa

NL

Ita

-100

-50

050

100

150

Dim

ensi

on 2

-100 -50 0 50 100 150Dimension 1

Modern MDS (loss=stress; transform=monotonic)

MDS configuration

Multidimensional scaling of two dimensions

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150

200

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mea

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Swe Ger Fra Ita NL Spa Aus UK

Dendrogram for _clus_1 cluster analysis

Dendrogram of two-cluster solution

Classification of IFRS practices

• Nobes (Abacus, 2011)

• Uses 2008/9 data from Kvaal & Nobes, and adds 3 countries to ‘cover’ Figure 1

• After 30 years of EU and IASC/B harmonisation, the UK is still with Australia and not with Spain

Experiments: Data on accounting differences under the same regulation

• Nobes and Stadler (AOS, 2013)

• IFRS practices in 2011 on 14 policy options: hand-picked data

• 12 countries (including China, HK, South Africa, South Korea for the first time)

• 515 largest listed companies

IFRS Policy Choice AU UK CA CN HK FR ES IT DE CH ZA SK

1. Income statement by nature 35 11 5 42 36 29 96 81 24 29 15 3

2. Operating profit not shown 42 1 31 29 29 3 0 0 12 0 0 0

3. Equity profits in operating 59 35 48 4 0 8 23 14 35 39 7 2

4. Balance sheet shows net assets 100 76 0 41 82 0 0 0 0 5 0 0

5. Balance sheet starts cash 100 10 100 24 14 10 22 29 26 50 9 98

6. Indirect cash flows 4 98 100 98 100 100 91 95 100 95 66 100

7. Dividends rec. as operating 87 37 85 5 30 79 39 20 71 43 86 91

8. Interest paid as operating 86 61 74 47 43 79 52 69 61 64 96 89

9. Some property at FV 10 10 2 0 5 0 0 0 0 0 0 0

10. Investment property at FV 93 68 36 20 94 20 5 0 5 80 40 3

11. Some FV designation 10 3 13 0 7 24 4 4 6 7 23 19

12. FIFO only 21 42 23 5 15 11 22 19 0 36 23 6

13. Actuarial losses to OCI 85 89 72 8 36 60 68 30 59 35 28 85

14. % consolidation of JVs 6 25 55 8 0 71 70 38 17 43 59 17

Percentages of policy choice by country and topic

Experiments: Data on accounting differences under the same regulation

• IFRS practices in 2011 on 14 policy options: hand-picked data

• 12 countries (including China, HK, South Africa, South Korea for the first time)

• 515 largest listed companies

• Notice the sector difference

AU UK CA CN HK FR ES IT DE CH ZA SK

0/1 Extractive 6 9 21 7 0 2 1 1 0 0 7 3

0/1 Other oil and gas, basic 4 3 2 5 0 2 3 0 7 3 1 4

2 Industrials 7 15 2 12 4 9 8 7 6 2 6 13

3 Consumer goods 2 10 2 3 3 7 1 5 7 3 2 5

4 Health care 2 3 0 1 0 2 1 1 2 4 2 0

5 Consumer services 8 20 8 4 3 7 3 8 6 0 6 4

6 Telecommunications 1 4 3 1 1 1 1 1 1 1 2 3

7 Utilities 1 5 1 3 3 2 4 3 2 0 0 2

8 Financials 20 22 10 13 8 6 9 12 6 6 6 10

9 Technology 0 2 0 2 0 2 1 0 2 1 0 4

∑ 51 93 49 51 22 40 32 38 39 20 32 48

Sample by country and sector

Examples of sectoral differences in policy choice

Country IFRS Policy Choice % Financials % Extractives % Others

p‑value

All 10. Investment property at fair value 62 0 9

<0.01

All 13. Actuarial gains/losses to OCI 40 58 73<0.01

All 14. Proportionate consolidation of JVs 27 56 35<0.01

Aus 10. Investment property at fair value 100 - 50<0.01

Can 13. Actuarial gains/losses to OCI 10 82 100<0.01

Can 14. Proportionate consolidation of JVs 30 82 36

0.01

UK 4. Balance sheet showing net assets 45 67 89<0.01

UK 5. Balance sheet with liquidity decreasing 32 0 3<0.01

IFRS Policy Choice AU UK CA CN HK FR ES IT DE CH ZA SK

1. Income statement by nature 35 11 5 42 36 29 96 81 24 29 15 3

2. Operating profit not shown 42 1 31 29 29 3 0 0 12 0 0 0

3. Equity profits in operating 59 35 48 4 0 8 23 14 35 39 7 2

4. Balance sheet shows net assets 100 76 0 41 82 0 0 0 0 5 0 0

5. Balance sheet starts cash 100 10 100 24 14 10 22 29 26 50 9 98

6. Indirect cash flows 4 98 100 98 100 100 91 95 100 95 66 100

7. Dividends rec. as operating 87 37 85 5 30 79 39 20 71 43 86 91

8. Interest paid as operating 86 61 74 47 43 79 52 69 61 64 96 89

9. Some property at FV 10 10 2 0 5 0 0 0 0 0 0 0

10. Investment property at FV 93 68 36 20 94 20 5 0 5 80 40 3

11. Some FV designation 10 3 13 0 7 24 4 4 6 7 23 19

12. FIFO only 21 42 23 5 15 11 22 19 0 36 23 6

13. Actuarial losses to OCI 85 89 72 8 36 60 68 30 59 35 28 85

14. % consolidation of JVs 6 25 55 8 0 71 70 38 17 43 59 17

Percentages of policy choice by country and topic

Principal component analysis using all available data

Country Component 1 Component 2 Component 3

AU 0.1785 0.1484 -0.6303

UK 0.0948 0.4722 -0.1484

CA 0.4691 -0.1076 -0.1560

CN -0.0264 0.4860 0.2531

HK -0.0851 0.6521 -0.0984

FR 0.3568 -0.0119 0.1979

ES 0.1787 0.0370 0.4532

IT 0.1507 0.1335 0.4591

DE 0.3716 0.0462 0.0762

CH 0.2569 0.2296 -0.0015

ZA 0.3699 -0.0443 0.0379

SK 0.4562 -0.0763 -0.1418

Grouping of countries based on principal component analysis

Run # Topics Sectors AU UK CA CN HK FR ES IT DE CH ZA SK

1 All All 1 (2) 2 1 2 2 1 3 3 1 1 (2) 1 1

2 All All 1 2 1 2 3 (1) 3 3 1 1

3 Not 2,5,7 All 2 2 1 2 1 1 1 1 1

4 Not 2,5,7 All 2 2 2 1 1 1 1

5 Not 2,5,7 All 2 2 2 1 1 1 1 1 (2)

6 Not 2,5,7 All 2 2 2 1 1 1 1 1 (2) 1

7 Not 2,4,5,7 All 2 2 2 (1) 2 1 1 1 1 1 [2]

8 Not 2,5,7 Not F 2 2 2 1 1 1 1

9 Not 2,5,7 Not F+E 2 2 2 1 1 1 1

10 Not 2,4,5,7 Not F 2 2 (1) 1 1 1 1 1 1 1 [2]

11 All Not F+E 3 2 1 (3) 2 2 1 1 1 1 1 1 3 (1)

Try Excluding Countries, Topics, Sectors

• Countries: - compare runs 5 and 6: no change in principal components; but affects dendrograms (Figures 1 and 2)

Figure 1 Dendrogram for run 5

050

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AU UK HK FR DE ES IT CH

Dendrogram

Figure 2 Dendrogram for run 6

050

100

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Dendrogram



• Topics: - compare runs 2 and 3- for Canada, compare runs 3 and 7



1 All All 1 (2) 2 1 2 2 1 3 3 1 1 (2) 1 1

2 All All 1 2 1 2 3 (1) 3 3 1 1

3 Not 2,5,7 All 2 2 1 2 1 1 1 1 1

4 Not 2,5,7 All 2 2 2 1 1 1 1

5 Not 2,5,7 All 2 2 2 1 1 1 1 1 (2)

6 Not 2,5,7 All 2 2 2 1 1 1 1 1 (2) 1

7 Not 2,4,5,7 All 2 2 2 (1) 2 1 1 1 1 1 [2]

8 Not 2,5,7 Not F 2 2 2 1 1 1 1

9 Not 2,5,7 Not F+E 2 2 2 1 1 1 1

10 Not 2,4,5,7 Not F 2 2 (1) 1 1 1 1 1 1 1 [2]

11 All Not F+E 3 2 1 (3) 2 2 1 1 1 1 1 1 3 (1)



• Topics: - compare runs 2 and 3- for Canada, compare runs 3 and 7

• Sectors: - runs 4, 8 and 9 are the same, but moving from run 7 to 10 or

from run 1 to 11 shows an effect



1 All All 1 (2) 2 1 2 2 1 3 3 1 1 (2) 1 1

2 All All 1 2 1 2 3 (1) 3 3 1 1

3 Not 2,5,7 All 2 2 1 2 1 1 1 1 1

4 Not 2,5,7 All 2 2 2 1 1 1 1

5 Not 2,5,7 All 2 2 2 1 1 1 1 1 (2)

6 Not 2,5,7 All 2 2 2 1 1 1 1 1 (2) 1

7 Not 2,4,5,7 All 2 2 2 (1) 2 1 1 1 1 1 [2]

8 Not 2,5,7 Not F 2 2 2 1 1 1 1

9 Not 2,5,7 Not F+E 2 2 2 1 1 1 1

10 Not 2,4,5,7 Not F 2 2 (1) 1 1 1 1 1 1 1 [2]

11 All Not F+E 3 2 1 (3) 2 2 1 1 1 1 1 1 3 (1)

But, Some Stable Groups

• Italy with Spain

• Germany with France

• China and Hong Kong with UK

• South Africa, South Korea and Switzerland with Germany

Common Law/ Code Law?

• Does classification fit with common/code regulation?

• When Scotland becomes a separate Roman law country, will its accounting change?

• We could ‘prove’ either:– for, run 7– against, run 1

• …and it depends on whether you decide that South Africa and Canada are ‘common law’



1 All All 1 (2) 2 1 2 2 1 3 3 1 1 (2) 1 1

2 All All 1 2 1 2 3 (1) 3 3 1 1

3 Not 2,5,7 All 2 2 1 2 1 1 1 1 1

4 Not 2,5,7 All 2 2 2 1 1 1 1

5 Not 2,5,7 All 2 2 2 1 1 1 1 1 (2)

6 Not 2,5,7 All 2 2 2 1 1 1 1 1 (2) 1

7 Not 2,4,5,7 All 2 2 2 (1) 2 1 1 1 1 1 [2]

8 Not 2,5,7 Not F 2 2 2 1 1 1 1

9 Not 2,5,7 Not F+E 2 2 2 1 1 1 1

10 Not 2,4,5,7 Not F 2 2 (1) 1 1 1 1 1 1 1 [2]

11 All Not F+E 3 2 1 (3) 2 2 1 1 1 1 1 1 3 (1)

Conclusions (I)• Versions of IFRS (which allow compliance with

IASB-IFRS) have been adopted in about 90 countries for listed/consolidated reporting

• Reasons for differences in pre-IFRS practices can affect IFRS policy choice

• There are many opportunities for different versions of IFRS practice

• Pre-IFRS practice is a strong explanation of IFRS policy choice

• The IASB should remove the choices

Conclusions (II)• Countries can be put into groups by pre-IFRS practices

• National patterns of IFRS practice existed in 2005/6 and continued into 2008/9

• On some topics, continental companies changed in the period (and changed more than at transition)

• Even after this, the two-group classification has survived 30 years of harmonisation by the EU and the IASC/B

• Analysts need to be warned that IFRS practices vary, and they could use the profiles

Conclusions (III)

• Small listed firms choose different policies from large firms

• Therefore, national profiles are even clearer for small companies

• Work has begun on other issues, e.g. whether estimations are done differently by country

Conclusions (IV)

• This is not (largely) a criticism of IASC/B:

- comparability of listed/consolidated hasimproved

- enforcement is not within IASB’s control

- alternatives to IFRS would have similarproblems (except that US GAAP

has fewer options)

Conclusions (V)• Classification is greatly affected by changing

characteristics, but little effected by changing countries or sectors

• 5 countries classified here for the first time• Does classification fit with common/code

regulation? We could ‘prove’ either.• Classifiers should disclose data, judgements, etc.• Further research: many examples in ABR 2013

paper

international variations in ifrs practices: and how spain differs from other major countries

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