Ten Years of IFRS: Practitioners’ Comments and Suggestions

for Research

Philip Brown & Ann Tarca

he adoption of international financial reporting A growing body of research is evaluating the widespread

T standards (IFRS) promulgated by the Interna-

tional Accounting Standards Board (IASB) has
been described as a ‘watershed’ (Cairns 2003) and a
adoption of IFRS. The aim of this paper is to link the
findings of academic research with feedback from
practitioners about whether the hoped-for benefits of
‘revolution’ in financial reporting (KPMG 2006). In adoption are being realised. In addition, we present
many countries, adoption has sought specific benefits comments from practitioners about IFRS research and we
and a growing body of research is evaluating the extent identify areas that may be usefully explored in future
to which these benefits are being achieved. The aim of this research. Our review complements the papers included in
paper is to link the findings of academic research with part one of this forum (Australian Accounting Review,
feedback from practitioners about whether the benefits September 2012), which describe events in the
of adoption are being realised. Our review complements development of global standards over the last 10 years.
the papers included in part one of this forum (Australian
Accounting Review, September 2012), which describe
events in the development of global standards over the
last 10 years.
The first section presents the announcements of
adoption of IFRS in the European Union (EU) and
subsequently in Australia. They give an indication
of the expected benefits of IFRS. We then discuss
regulators’ comments about whether these benefits are
being realised. The next section discusses research about
the impact of adoption of IFRS, in two parts: the first
considers the issue of transparency and comparability
of accounting information, and the second addresses
the efficiency of capital market operations. We focus
on capital market studies with Australian, European
and international samples. After citing relevant studies,
we present comments from interviewees reflecting their
experience of IFRS in relation to the issues being
explored in current research. The final section of
the paper extends the interviewees’ comments and
discusses opportunities available for researchers in
Australia and elsewhere to extend the scope of IFRS
research.

Benefits of Adopting IFRS

As discussed by McGregor (2012), adoption of IFRS Correspondence

in the EU was a dramatic event for the IASB and for
European countries more generally. In the adoption
announcement in 2002, the EU described the motivation
for adoption in the following way:1
Ann Tarca, Accounting and Finance, The University of Western
Australia (M250), 35 Stirling Highway, CRAWLEY WA 6009,
Australia. Email: Ann.tarca@uwa.edu.au
doi: 10.1111/j.1835-2561.2012.00198.x

Australian Accounting Review No. 63 Vol. 22 Issue 4 2012 319

Ten Years of IFRS
. . . requiring listed companies, including banks and
insurance companies, to prepare their consolidated
accounts in accordance with International Accounting
Standards.
(IAS) from 2005 onwards . . . will help eliminate barriers
to cross-border trading in securities by ensuring
that company accounts throughout the EU are more
reliable and transparent and that they can be more
easily compared. This will in turn increase market
efficiency and reduce the cost of raising capital for
companies, ultimately improving competitiveness and
helping boost growth.
An announcement that Australia would adopt IFRS
quickly followed the EU decision (FRC 2002). Adoption
had previously been considered, from 1 January 1998,
and a program to harmonise Australian GAAP with
international standards was well underway (Alfredson
2003). In 1997 the Financial Reporting Council (FRC)
had espoused a similar motivation to that of the EU
leaders, although it had a particularly Australian flavour:
The ultimate objective for the setting of accounting
standards in Australia should be the production of high
quality accounting standards that facilitate Australian
business by leading to lower costs of capital and enabling
Australian companies to compete on an equal footing
overseas, while also maintaining investor confidence.
. . . Compliance with IASC Standards . . . should . . .
make Australian standards more internationally recog-
nisable, so that Australia’s capital market is not out of
step with major overseas capital markets (FRC 1997:
1–2, as cited in Brown 2011).
A country’s decision to adopt IFRS is typically an
optimistic one, focusing on the potential benefits, and
based on a belief that those benefits outweigh the costs
of application.2 Australia’s experience suggests adoption
costs are not trivial as preparers, auditors, investors,
regulators and others did invest considerable resources
in mastering the new requirements. Another dimension
of adoption is the loss of national sovereignty over
law making. Nevertheless, many Australian constituents
have come to embrace being part of the IFRS family
(see, for example, Stevenson 2012b). As practitioners
grapple with the daily reality of working in the
IFRS world, academics have eagerly collected and
reviewed the evidence, looking for the hoped-for
benefits.
While the aims of IFRS adoption are economically
sensible, it is not obvious that all companies will
benefit from IFRS. When adoption was announced in
Australia, at least some researchers were sceptical about
the extent to which benefits would be realised (see, for
example, Howieson and Langfield-Smith 2003; Haswell
and McKinnon 2003). Whether these fears and concerns
have been realised can now be considered in the light of
the current experience of IFRS adoption.
320 Australian Accounting Review
P. Brown & A. Tarca
Evidence on the Impact of IFRS Adoption
Reviews by regulators
An early report by the European Commission on the
application of IFRS was positive about the benefits of
adoption. Based on a range of reports and reviews of
financial reporting in 2005,3 the report concluded that
while IFRS application has been a challenge, there was a
‘general perception among preparers, auditors, investors
and enforcers that application of IFRS has improved
the comparability and quality of financial reporting
and has led to greater transparency’ (EC 2008: 6). The
report also stated that stakeholders considered that the
understandability of financial statements had generally
improved (while noting that there were concerns related
to some areas including financial instruments, business
combinations and share-based payments).
Not surprisingly, the report noted the influence
of national accounting traditions on the application
of IFRS and observed that application of principles-
based standards was a change and a challenge in
some jurisdictions. On an optimistic note, the report
concluded that application issues were likely to be
resolved with the passage of time as constituents became
more experienced with IFRS.
Feedback from regulators (e.g., from the Committee of
European Securities Regulators, CESR)4 suggested that
compliance with recognition and measurement require-
ments was higher than with disclosure requirements.
Some regulators were concerned about the use of options
in IFRS and requested fewer options in future IFRS.5
The report mentioned specific areas of concern to the
regulators, including business combinations (goodwill,
as well as de facto and common control), financial
instruments (impairment), non-current assets, disclo-
sure on accounting policies, estimates and assumptions,
and disclosure about pension schemes and share-based
payments.
In 2011 the US Securities and Exchange Commission
(SEC) published a review of IFRS reporting, based
on the 2009 financial statements of 183 IFRS-applying
companies listed in the US. Consistent with the European
Commission’s report (EC 2008), the SEC staff found
general compliance with IFRS requirements, but noted
that the transparency and clarity of disclosures could
be enhanced. Further, they concluded that diversity in
application presented challenges to the comparability
of financial statements across countries and industries
(SEC 2011a: 2).6 The SEC report can be seen as critical
of the outcomes of application of IFRS as it points
to insufficient and inconsistent disclosure, potentially
leading to a lack of transparency and understandability.
The report also mentions the use of options in IFRS
and a lack of guidance in some areas as poten-
tially undermining comparability.7 In relation to its

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long-awaited decision about the use of IFRS by domestic
registrants, the SEC announced in July 2012 a decision
to defer its recommendation indefinitely (SEC 2012).
Research evidence
In the light of these regulators’ reviews on application
of IFRS, we turn now to the evidence from academic
studies of IFRS adoption. Our article does not provide a
comprehensive review of the current IFRS literature but
draws on three summary papers: Brown (2011), Pope
and McLeay (2011) and Brüggemann et al. (2012).8 We
highlight papers that shed some light on the question
of whether IFRS adoption has achieved the challenging
goals included in regulators’ adoption announcements
quoted above. The focus of our discussion is studies,
using empirical archival methods and econometric
modelling, of capital market effects found in Australia
or Europe, or in an international sample of countries.
Practitioners’ comments
To add further insight to the research, we include
comments from practitioners who have been deeply
involved in IFRS application. We report on six interviews
conducted in London in January and February 2012
with people with considerable IFRS experience and
varied backgrounds, including preparers and auditors
of public companies and security market analysts.
(The interviewees are listed in Appendix 1.)9 The
interviewees’ experience relates to IFRS and national
generally accepted accounting principles (GAAP) fi-
nancial reporting in Australia, the US, Canada, the
United Kingdom, continental Europe and some other
countries. Interviewees were provided with a summary
of academic research about IFRS adoption and a set
of questions about the impact of IFRS, based on the
EU statement 1606/2002 quoted above. (The interview
questions are listed in Appendix 2.) The interviewees’
responses were recorded and analysed by both authors
of this paper. Their comments are illustrative rather than
representative. However, they are informative because
they reflect a rich knowledge and first-hand experience
of IFRS. Moreover, they provide a useful reference point
as we consider the content and contribution of current
IFRS research.
High quality standards that promote transparency
and comparability
Has IFRS achieved the goal of improving transparency
and comparability of financial reporting? Brown (2011)
concludes that the evidence so far is mixed, reflecting
in part the variation in sample selection and research
techniques employed. Pope and McLeay (2011) point to

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the impact of preparer incentives and the effectiveness
of local enforcement as influencing the quality of
implementation and therefore the outputs measured
in IFRS studies. Brüggemann et al. (2012) cite three
studies (Ahmed et al. 2012; Atwood et al. 2011;
Callao and Jarne 2010) on earnings transparency, all
of which present evidence that is not consistent with
EU IFRS adoption objectives.10 They also cite two
studies (Cascino and Gassen 2011; Lang et al. 2010) on
earnings comparability. Only the former provides some
evidence in support of the EU IFRS objectives. Two
studies (Glaum et al. 2012; Verriest et al. 2012) about
compliance cited by Brüggemann et al. (2011) point
to substantial non-compliance. Further, other studies
(Kvaal and Nobes 2010, 2011; Nobes and Stadler 2012)
suggest that national accounting practices and patterns
in policy choices continue under IFRS. This evidence
about compliance and policy choice may in part explain
why tests of ‘accounting quality’ (e.g., using measures
of earnings smoothing, persistence and conservatism)
produce mixed results.
Practitioners interviewed on the topic of adoption
of IFRS offered many comments about the impact
of IFRS on transparency and comparability. As a
starting point, interviewees noted the large potential
for improvement, particularly considering the variety
of practices under previous national GAAP. Mary
Tokar, a US partner working in KPMG’s global IFRS
group in London, commented that comparability had
improved ‘immeasurably’ across EU countries following
adoption of IFRS. She explained that EU companies were
transitioning to IFRS from a range of national reporting
practices and that IFRS was an important step forward
in terms of comparability. Similarly, Alison Thomas, a
Director in PricewaterhouseCoopers’ global reporting
team, said IFRS had the potential to improve compara-
bility and assist analysts to make cross-border investment
comparisons. One interviewee opined that IFRS had a
‘huge impact’ on comparability and the ability of analysts
to compare companies has ‘changed beyond belief ’.
In terms of transparency, Tokar highlighted the re-
quirements of IAS 1 Presentation of Financial Statements
for disclosure of key estimates and assumptions. This
fundamental IFRS requirement, not a national level
regulatory overlay, underpins financial reporting under
IFRS. Interviewees also pointed to the nature of the prior
national GAAP. For example, the extent of improvement
in transparency will reflect the quality of standards (and
the transparency of disclosure) prior to adoption of IFRS,
a point that has been picked up by researchers in the
concept of ‘GAAP difference’ (Bae et al. 2008; Byard et al.
2011; Horton et al. 2012). Judith Downes, an Australian
company director with many years’ experience as CFO
of a listed company, pointed to the way IFRS ‘filled the
gaps’ in pre-existing Australian standards, for example
in the area of financial instruments. Although she agreed
Australian Accounting Review 321
Ten Years of IFRS
with this comment, Serene Seah-Tan, a senior manager
in Ernst & Young’s IFRS Services Global Professional
Practice with experience of IFRS in Australia and Europe,
pointed to the lack of industry guidance in IFRS. For
example, she questioned whether IFRS 6 Exploration for
and Evaluation of Mineral Resources was an improvement
on AASB 1022 Accounting for the Extractive Industries.
Karyn Brooks, Senior Vice President and Controller
at Bell Canada Enterprises, noted that some Canadian
firms experienced little change on adoption of IFRS
because prior national GAAP contained comprehensive
recognition, measurement and disclosure requirements.
These comments highlight an important issue for
researchers, namely understanding the extent of change,
and the areas of change, when IFRS are adopted.
While interviewees were positive about the potential
benefits of IFRS, they consider many aspects of IFRS
application could affect the way IFRS are used and thus
the ability of researchers to isolate and observe IFRS
effects. For example, IFRS involve managements’ use of
judgements and estimates. However, the extent to which
the financial statements are affected by these judgements
and estimates will vary according to which standards
are applicable for the firm as well as managers’ policy
choices. The quality of the inputs for various judgements
and estimates may vary between firms, industries and
countries. In a conference presentation Schipper (2012)
explained that implementations are shaped by expertise
(of preparers and auditors) and available data and
measurement systems (in the economy and within firms,
based on their information systems) and the incentives
of preparers. The consequences of lack of expertise may
be significant.11 Although judgements and estimates are
a necessary step in the implementation process, she
noted some standards may require particularly difficult
judgements and estimates and, in addition, non-neutral
judgements and estimates may be built into a standard.
Thus it is important for researchers to understand
the differences between standards and their manner of
application, as well as acknowledging the assumptions
they are making about how implementation takes place.
Tokar explained that the mixed measurement ap-
proach, which is a fundamental part of IFRS, may lead to
lack of comparability because a range of measurement
bases are used, according to the requirements of various
standards. The impact of different measurement bases
may be in part mitigated by a new standard such as
IFRS 13 Fair Value Measurement because it has brought
more structure and disclosure. Nevertheless, widespread
use of IFRS also reveals inconsistencies. For example,
several interviewees mentioned the 2011 valuation of
entities’ exposure to Greek debt and potential confusion
for users as a variety of classifications of investments
(as trading, available for sale and held to maturity) and
consequently different measurement methods were used
for identical securities.12 In addition, Tokar pointed to
322 Australian Accounting Review
P. Brown & A. Tarca
a range of practices in relation to financial statement
presentation of equity and of line items, which could
well impact on comparability. Seah-Tan mentioned the
discretion involved in standards, such as IFRS 8 Segment
Reporting. The standard aims to provide insights through
use of a management perspective but may lead to
uncertainty among analysts.13 Vincent Papa, Director
of Financial Reporting at the CFA Institute in London,
agrees that presentation may affect the accessibility and
thus the usefulness of information. While acknowledging
that IFRS has increased disclosure in some areas
(e.g., under IAS 39 Financial Instruments: Recognition
and Measurement) he considers users could benefit
from improved presentation and more reconciliation
of information. He stated ‘even if the information is
the best in the world, presentation is important for
extracting information’. One interviewee noted that
some analysts are dissatisfied with disclosure, citing
pensions and share-based payments as examples where
disclosure is not ‘user friendly’. Downes also commented
on presentation and disclosure, noting mandatory
disclosures can create ‘complexity and clutter’ if they
cause management to give prominence to an item
they would not otherwise highlight. These examples
emphasise for researchers the danger of assuming IFRS
affect all companies and users in similar ways, which is
unlikely to be the case.
In addition to national GAAP/IFRS transition
differences arising from the standards themselves,
interviewees pointed to other country-level differences
with the potential to affect the way IFRS are used and
thus the design of academic studies. Tokar explained
that, at the time of transition, IFRS training was
generally based on differences between national GAAP
and IFRS and thus training materials were unique
to each country. This suggests that the speed with
which IFRS skills are learned and disseminated will
vary by country. We do not know how fast IFRS
training is being absorbed and the extent to which
a change in approach (if applicable) to a principles-
based regime under IFRS is affecting the outputs of
the financial reporting process. Seah-Tan commented
on her firm’s commitment to encouraging meaningful
disclosure under the more subjective standards such as
IFRS 7 Financial Instruments: Disclosures and IFRS 8
Segment Reporting, recognising the key role audit firms
play in determining the quality of information under
IFRS. She also noted that promoting the quality of IFRS
reporting is a matter for each adopting country to attend
to; that the responsibility for promoting high-quality
information does not rest solely with the IASB. Thus
examination of country-level initiatives to improve the
quality of reporting is of interest to researchers. The
SEC suggests ‘very few jurisdictions’ allow IFRS adoption
without approval of the standards by a local body (SEC
2011b: 6). Researchers must consider how to interpret

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this statement and to accommodate its implications in
study design. For example, are firms and countries using
identical IFRS? This issue is explored by Zeff and Nobes
(2010).
Schipper (2012) points to a set of mechanisms
that affect how IFRS are implemented. They include
auditing, oversight, enforcement and public scrutiny.
She noted that researchers vary in how they consider
these mechanisms in their studies: endeavouring to
control for them, assuming they do not vary across
treatment conditions or assuming they are second order
effects that can be disregarded. It can be argued that
auditors have a primary role in ensuring the reliability
of information under IFRS. Seah-Tan said they were the
key to promoting consistent application. As explained by
Tokar, auditors benefited from global networks existing
before IFRS adoption, which subsequently could be
used to disseminate IFRS information between national
offices. She questioned whether other groups (for
example preparers) have such networks readily available
to assist with communication.
Many interviewees raised questions about the role of
enforcement bodies (e.g., security market regulators,
with responsibility for promoting compliance with
IFRS), noting that common standards make inconsis-
tencies more visible. Continuing with the example of
Greek debt, in 2011 analysts questioned why the same
Greek bonds were written down by different percentages
in various European countries, despite the existence of
coordination mechanisms between European enforce-
ment bodies. All interviewees discussed the vital role to
be played by auditors, oversight bodies and enforcement
bodies in the successful application of IFRS. Their
interest suggests that researchers need to pay particular
attention to the environment in which IFRS application
takes place. Many studies conclude that enforcement is
a key factor affecting whether IFRS benefits are realised
(see Pope and McLeay (2011) for further discussion).
The focus of IFRS is to provide decision useful
information for a range of users (Conceptual Framework
2010: OB2). Thus, a key question in the current literature
must be the extent to which application of IFRS has
improved the information environment for users. One
approach is to consider the impact of IFRS for analysts.
Studies generally report favourable IFRS effects, but
once again they are strongly linked to certain settings
and tests. Byard et al. (2011) find an improvement in
properties of analyst forecasts in EU countries, but only
for firms from countries with large differences between
prior national GAAP and IFRS that also have strong
enforcement. Horton et al. (2012) find that forecast error
declines following mandatory adoption, also depending
on the extent of GAAP/IFRS differences. They ascribe
the improvement in the information environment to
improvements in both comparability and information
quality under IFRS. Tan et al. (2011) report benefits

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from applying IFRS, but primarily for foreign (not local)
analysts. They find IFRS attracts foreign analysts and
their use is associated with higher forecast accuracy. In
addition, countries where the GAAP/IFRS difference is
larger gained relatively more analysts.
Interviewees mention that IFRS reporting is only
part of the investor’s or analyst’s information set. One
respondent advised researchers to base their empirical
investigations on preliminary case studies and other
qualitative work to improve their understanding of
how IFRS influence market participants. In addition,
researchers exploring the properties of analysts’ forecasts
must understand not only IFRS and how preparers use
the standards but also how analysts’ incentives affect
their behaviour. For example, consider the ‘consensus
forecast effect’: analysts’ remuneration structures mean
they want to be included in the consensus measure, so
they try to avoid forecasts that will place them in the
tails of any forecast distribution. Interviewees suggested
researchers be aware of such incentives and behaviour
and their impact on studies’ findings.
Papa pointed to many benefits for analysts from
IFRS, related to changes in recognition, measurement,
presentation and disclosure. He cited IFRS 13 Fair
Value Measurement as leading to improved disclosure
and IAS 39 Financial Instruments: Recognition and
Measurement as providing more robust measurement
and disclosure guidance than previous standards. He
encouraged researchers to consider how changes in
individual standards could reasonably be expected
to lead to improvements in reporting. For example,
measurement of items at fair value could provide
relevant information, but the items could be more
difficult to forecast. In addition, IFRS may not reduce
the information gap between managers, shareholders
and lenders but nevertheless they may still reduce
information asymmetry among analysts.
Another approach to assessing the quality of IFRS
information is to consider the value relevance of financial
statement information before and after application of
IFRS. Once again, the evidence from studies in this area is
mixed. Brüggemann et al. (2012) cite two value relevance
studies showing the beneficial effects of IFRS (Aharony
et al. 2010; Barth et al. 2011). In contrast, Clarkson
et al. (2011) find no improvement in the value relevance
of book value of equity or of earnings for an international
sample on adoption in 2005, but do report more
comparability between firms in code law and common
law countries. In the Australian setting, Chalmers
et al. (2011) find earnings become more value-relevant
whereas the book value of equity does not. The impact
is concentrated in sub-samples of industrial firms, both
large and small, and firms reporting an AGAAP-IFRS
accounting reconciliation upon IFRS adoption.
Tokar pointed to the usefulness of the IFRS transition
information as a source of information about the
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Ten Years of IFRS
impact of IFRS. She also noted that some firms released
transition information separately from their first IFRS
results, which may assist researchers to isolate market
reaction to IFRS. Stevenson (2012a) has challenged
researchers to understand that IAS standards existing
prior to the IFRS ‘stable platform’ developed for
adoption in 2005 were substantially different and thus we
are not comparing ‘like with like’ when considering firms
that adopted international standards before 2005 with
firms that adopted IFRS after 2005. This has implications
for the use of ‘early adopters’ of IFRS as a control group
in IFRS impact studies.
While the value relevance approach is popular among
researchers, practitioners caution against ascribing too
much importance to IFRS adoption as a driver of share
price changes. As explained by Downes, many factors
that influence share price movements do not necessarily
reflect company fundamentals and are unlikely to be
related to the change to IFRS. Papa suggested that
researchers should be aware of the actions of both
equity analysts and quantitative analysts in moving share
price. Prices may move in response to trading based
on technical analysis, which is unlikely to be directly
influenced by IFRS.
Thomas highlighted further problems for researchers
because, in the period following IFRS adoption, data are
affected by several factors. First (and as also noted by
Downes), many factors, not just financial information,
influence share prices, potentially obscuring the impact
any change in accounting standards may have. Second,
because share price movements reflect market sentiment
and economic conditions, Thomas saw the period
following widespread IFRS adoption (from 2005) as
particularly problematic because of the impact of the
global financial crisis and uncertainty surrounding
the Euro. She said there have been ‘serious liquidity
issues in the market over the past five years’ that
make interpretation of IFRS effects problematic. Thus,
practitioners point to the complexity of the ‘real world’
and the difficulty of adequately modelling factors and
relationships. Researchers have had mixed success in
developing models to investigate effects of interest while
controlling for other factors. Pope and McLeay (2011)
discuss various approaches used in IFRS studies.
High quality standards increase market efficiency,
lead to lower cost of capital, and promote
competitiveness and growth
We now consider the second element in the regulator’s
adoption statements shown above, namely, improve-
ments in market efficiency flowing from improved
transparency and comparability. Interestingly, many
studies claim to show capital market benefits from
IFRS even though other studies point to a lack of
324 Australian Accounting Review
P. Brown & A. Tarca
comparability and compliance. Brüggemann et al.
(2012) identify seven studies that provide direct evidence
of capital market benefits and a further six studies that
provide indirect evidence of IFRS effects consistent with
IAS objectives.14
One study of IFRS mandatory application, Daske
et al. (2008), tentatively concludes that IFRS has
improved liquidity and reduced the cost of capital in
some settings. A second study, by Li (2010), suggests
that IFRS has decreased the cost of capital, but only
for firms from countries with strong legal enforcement.
Christensen et al. (2010, 2012) support Daske et al.
(2008) by showing that improved liquidity appears
to be associated with greater enforcement activity.
Other studies point to an increase in cross-border
investments by mutual funds and institutional and
individual investors, albeit conditional on specific factors
(Defond et al. 2011; Florou and Pope 2011; Brüggemann
et al. 2011). Landsman et al. (2011) conclude that
the information content of earnings announcements
increased in countries with mandatory adoption of
IFRS; however, the effect depends on the strength of
enforcement in the adopting country. Beuselink et al.
(2010) report a post-adoption increase in synchronicity,
with a stronger effect for firms in countries with larger
national GAAP/IFRS differences.15
A desired key benefit from applying IFRS is a reduction
in companies’ cost of capital. However, Downes pointed
out that, realistically, the entire set of listed firms cannot
all achieve a reduction. Some firms may benefit from
‘first mover’ advantage; and some Australian companies
found their investor roadshows were easier with the
internationally recognised IFRS. Tokar agreed that it
may be difficult for researchers to isolate cost of capital
changes but they should recall that IFRS adoption in
Europe was primarily related to developing a single
capital market and this aspect of adoption could be
further investigated.
Some of the hoped-for benefits of adoption relating
to market efficiency (e.g., improving competitiveness
and boosting growth) are empirical questions that can
be investigated by researchers. There is evidence of
increased foreign investment associated with the use of
IFRS (Chen et al. 2011; Beneish et al. 2010; Yu 2009)
particularly in developing markets (Gordon et al. 2012;
Marquez-Ramos 2011). One interviewee saw companies
from emerging and developing markets, which come
often to the market for capital, as the major beneficiaries
of IFRS.
Interviewees suggested that the industry effects of
IFRS also offer a potentially fruitful area for research.
Tokar questioned whether analyst requirements may
be driving convergence in the use of options and in
consistency of application at an industry level, and
referred this question to researchers. She also asked
about the role of non-GAAP performance measures

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and whether their use clusters by industry. Brooks
explained that her company was involved in discussions
with other companies in the same industry during
the adoption process to minimise changes and ensure
comparability in the absence of authoritative guidance,
thus confirming Tokar’s ideas about possible industry
effects. Interviewees also noted that the value (i.e.,
incremental benefit) of IFRS may vary by industry. These
comments are in line with studies that find IFRS benefits
differ between firms and industries and they suggest
some areas for further research, which we expand upon
in the next section.
Suggestions for Future Research
Our interviewees pointed to many changes that
accompany IFRS, not least of all different recognition
and measurement requirements and more extensive
disclosures. This suggests opportunities for research to
look more deeply into the explanatory factors that could
give rise to changes in the metrics commonly used
in accounting research (e.g., share price associations,
accounting quality metrics, or properties of analyst
forecasts) and to link them to specific IFRS effects.
Schipper (2012) highlights a particular challenge for
IFRS researchers: we endeavour to investigate the
properties of accounting numbers (such as relevance,
representational faithfulness and comparability) but the
outcome indicators we use (such as measures of earnings
management or properties of analyst forecasts) are
noisy indicators of IFRS effects. They capture both the
effect of implementation decisions and other elements
of the financial reporting process. Consequently,
researchers need to work on isolating effects of the
specific factors influencing reporting outcomes. They
may like to consult Pope and McLeay (2011). This
paper explores design issues for IFRS researchers
when IFRS and other factors change at the same
time.
Researchers may benefit from strengthening their
understanding of IFRS in practice and building a
richer understanding of the institutional setting in
which IFRS is used, by partnering with researchers
in other countries or working more closely with
practitioners. One respondent questioned the extent to
which academics understand IFRS effects, since many of
them conduct their research independently of practice.
He recommended following standard-setting initiatives
more closely (e.g., the IASB work program) when
developing research ideas and motivating projects. Many
questions of interest come before standard setters, who
welcome evidence from empirical studies. For example,
the May 2012 IASB Update details issues, before the
Board, on which it is seeking input from academic
research (IASB 2012).16

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Albu and Albu (2012) provide an example of the
depth of country-level knowledge that is necessary
to accurately interpret IFRS effects. Better controls
for differences between countries and over time will
improve research designs. All our interviewees pointed
to widespread interest in the results of IFRS application
and enforcement in various countries. Their comments
suggest that there is scope for researchers to explore
further how culture is affecting the use of IFRS and
whether cross-country initiatives to harmonise the
regulatory environment (e.g., through EU-wide laws
such as the Transparency Directive and coordination
of EU enforcement bodies through ESMA) are indeed
reducing the effect of long-standing national differences
in approaches to preparing and using accounting
information. In this vein, Christensen et al. (2010)
examine capital market effects and country differences
as new (common) legislation is introduced in a range of
countries.
Similarly, the interaction between culture, governance
mechanisms and IFRS accounting outcomes offers many
opportunities for research. Country-based national
governance structures are seen to differ on many
dimensions, in both legal requirements and best
practice recommendations, and in the way these
recommendations and requirements are applied and
enforced. In order to make optimal public policy
decisions, there is much we need to know about what
makes governance mechanisms effective and the extent
to which such mechanisms can be transferred between
countries. One interviewee recommended more thought
about the ‘big picture’ questions, such as the ways global
standards affect our knowledge and understanding of
the nature, purpose and effects of financial reporting.
A limitation of our paper is that we focus primarily
on research relating to the 2005 IFRS adoption. The EU
countries, Australia and more recently China have so far
been the most widely studied IFRS countries. However,
there is scope for future studies to enrich the literature by
addressing IFRS questions in Eastern European, Middle
Eastern and Asian economies, which offer research
settings with diversity in institutional features and IFRS
adoption mechanisms. Studies of adoption in Eastern
European countries have mainly provided qualitative
analyses (see, for example, Jaruga at al. 2007; Sucher and
Jindrichovska 2004). Thus there is scope for empirical
studies exploring the impact of IFRS, particularly in
view of the International Monetary Fund (IMF) and
World Bank’s support of IFRS adoption (Hegarty 2004).
However, researchers should avoid simply replicating
earlier studies without good reason and instead look to
provide a genuine contribution to knowledge through
their work.
Researchers could consider further differences in
the audit environment between countries and how
this affects the application of IFRS. As noted by our
Australian Accounting Review 325
Ten Years of IFRS
interviewees, auditors have a key role in promoting
IFRS understanding and compliance. Where have firms
been most successful in this role? What factors are
promoting or hindering progress? Archival studies that
can combine fields traditionally of interest in audit
research (e.g., audit quality, auditor specialisation and
auditor independence) with exploration of the effects
of IFRS application can potentially offer many insights
into the benefits (or costs) of IFRS. The examination of
audit fee-related data can help illuminate the costs of
IFRS compliance for companies (see, for example, Kim
et al. 2012; DeGeorge et al. 2012). Behavioural research
in auditing can examine the effect of the change to
IFRS on the judgements and decisions of auditors. For
example, a recent study examined the change in focus
from rules- to principles-based standards associated
with IFRS on auditor judgements and found principles-
based standards were associated with more conservative
reporting (Cohen et al. 2012).17
Our interviewees mentioned the interaction between
IFRS information and other sources of information
and the way IFRS information is amended and
extended. Thus, research opportunities exist to explore
the interrelationship of statutory accounts (based
on IFRS) and non-GAAP information. Company
communications, based on IFRS and other information
in earnings announcements, other company releases
and investor road shows could also be considered.
Addressing questions about the quality and effectiveness
of corporate communications will be relevant for
preparers, auditors, users and regulators and could add
considerably to the existing literature. One respondent
mentioned the on-going debate about the usefulness
of financial reporting, particularly the proposition that
IFRS financial statements are of little value because
‘investors don’t use them’ or they are ‘too complex’. This
debate highlights opportunities for well-designed and
executed qualitative research (based on interviews with
financial statement users) to provide useful input to a
key discussion.
Another limitation of our paper is that we have focused
on benefits of IFRS but not addressed the costs. Few
studies have explored the costs of adoption per se.
At present our understanding is drawn mainly from
papers exploring the implications of adoption, drawing
on interviews with participants such as Albu and Albu
(2012) in this forum. There are further opportunities
for researchers to explore this important area, including
fieldwork studies.
Questions about IFRS education are also of interest.
One interviewee expressed concern that many academics
have little involvement in standard setting and no
practitioner experience of IFRS. Although the audit
firms have large databases of issues arising from
application of IFRS, academics are generally not privy
to this information and thus do not incorporate
326 Australian Accounting Review
P. Brown & A. Tarca
an understanding of implementation issues in their
teaching. A key question is: in what ways is education
evolving to train future business professionals about the
application of principle-based IFRS standards? In light
of the comments of interviewees above about estimates
and judgements, how are educators changing the way
they teach future practitioners in response to the changes
introduced by IFRS? Jackling et al. (2012) comment on
these questions and also raise other issues that may be
usefully investigated in future research.
Exploring the impact of IFRS appears to be
predominantly the domain of researchers focused on
financial accounting and financial markets. However,
there is scope to investigate further how IFRS impacts
on the information used for internal decision making.
For example, has adoption of IFRS improved the
quality of information used internally in managements’
decision-making processes? Hemmer and Labro (2008)
show that the properties of management and financial
accounting systems are not independent. Thus there
is scope to explore how management information
systems are modified when IFRS are introduced, if IFRS
provides qualitatively different information compared
to prior national GAAP. IFRS 8 Segment Reporting
provides a setting for revealing the interaction between
management and financial reporting. Tarca and Pitman
(2012) quote a KPMG study of implementation of IFRS
8 by 81 companies in 17 countries. The study finds that
95% of companies report segment measures that are
based on IFRS, suggesting that IFRS are now embedded
in management reporting. The authors conclude that
there are several projects, involving qualitative research
methods, which could be built around standard setters’
unresolved questions about IFRS 8.
In addition, there are many non-capital market
effects of IFRS yet to be considered. For example,
researchers could consider the wider benefits that flow
to an economy from EU membership (where IFRS are
required), from access to funds provided by international
agencies such as the IMF and the World Bank, or
from less time spent by international companies on
consolidating financial statements of subsidiaries. Other
areas of interest are: better education of professionals and
more flexibility in the supply of professionally trained
accountants; ‘better’ accounting standards from pooling
the skills of standard setters in different jurisdictions;
less costly and more consistent professional advice when
audit firms do not have to deal with as much cross-
country variation enabling them to concentrate on high-
level technical skills; and more effective compliance
monitoring and enforcement as regulators pool their
knowledge and experience.
In some jurisdictions such as Australia, IFRS are
also used by public sector and not-for-profit entities.
Research questions about the effect of applying IFRS can
consider a different set of metrics from those applicable

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P. Brown & A. Tarca
to listed entities. Given the important role played by
many public sector entities in their respective countries
and economies, research that considers costs and benefits
of IFRS for these entities may provide important
evidence for public policy decisions. In addition, there
is a lack of research about the use of the IFRS for
Small and Medium-sized Enterprises (SMEs), possibly
because this standard is a more recent addition to the
IFRS literature. However, this standard will potentially
be used by a large number of unlisted entities and in
countries where high-quality principles-based standards
have not been previously used by smaller entities. This
possibility suggests some areas of exploration that would
be of major interest to regulators, the IASB and to
global institutions such as the IMF and the World Bank.
For example, as suggested by Pacter (2011), studies of
companies adopting the IFRS for SMEs could investigate
the nature of the changes from prior GAAP and the
policy choices made by companies; the costs of transition
and the difficulties encountered; changes in accounting
quality; whether the cost of debt financing is lower; and
the response of bank lenders to the new information.
In conclusion, we believe that there is a great deal of
scope for IFRS research to extend beyond the current
focus on listed companies, financial statements and
market-related data and metrics. As researchers explore
IFRS research questions in broader areas, they may also
make greater use of other research methods, such as
qualitative analyses (using case studies and interviews)
and behavioural experiments, in their investigations. We
believe that researchers can and will rise to the challenge
of effectively exploring IFRS effects and we look forward
to seeing their output in the years ahead.
Philip Brown is at the University of New South Wales and at the
University of Western Australia. Ann Tarca is at the University
of Western Australia. The views expressed in this article do not
represent those of the IASB, which have been arrived at after due
process and deliberation. The authors gratefully acknowledge the
contribution of the interviewees who shared their time and IFRS
experience: Karyn Brooks, Judith Downes, Vincent Papa, Serene
Seah-Tan, Alison Thomas and Mary Tokar. We also sincerely
thank Michael Bradbury, Ulf Brüggemann, Peter Clark, Paul
Coram, Bryan Howieson, Stijn Masschelein, Warren McGregor,
Chris Nobes, Paul Pacter, Katherine Schipper, Thorsten Sellhorn,
Kevin Stevenson and Donna Street for their constructive input
and helpful comments on our paper.
Notes
1 EU statement issued in Brussels on 7 June 2002 (EC 1606/2002).
2 Chua and Taylor (2008) and Rammana and Sletten (2009,
2011) explore additional factors affecting a country’s adoption
decision.
3 ICAEW (2007), CESR (2007) and reports from the European
Commission’s Accounting Regulatory Commission (ARC).
4 CESR has been replaced by the European Securities and Markets
Authority (ESMA).

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Ten Years of IFRS
5 Notably, the report did not find great use of the EU’s widely cited
IAS 39 Financial Instruments: Recognition and Measurement fair
value carve-out. It stated that ‘only a few banks’ used the option
provided by the carve-out.
6 For further discussion of the SEC (2011a) report, see Erchinger
(2012) and Street (2012) in the first part of this forum
(September).
7 These comments about guidance are made by the SEC staff,
people who are accustomed to the US reporting environment. It
is generally recognised that US constituents work with far more
financial reporting guidance (from the SEC and FASB) than those
in IFRS-applying jurisdictions.
8 We recommend readers consult these three papers for a detailed
review of the current literature.
9 The comments of the interviewees represent their personal
opinions. They do not represent the views of the firms
or organisations where they are (or have been) employed.
In addition, we held discussions with several national and
international standard setters and three security market analysts
with experience of IFRS, US GAAP, UK GAAP and other
European GAAP, whose comments were provided anonymously.
10 Brüggemann et al. (2012) focus on EU studies. Other IFRS
studies including a larger range of countries provide evidence of
benefits. For example, Aussenegg et al. (2008) report less earnings
management although results vary by country. See Brown (2011)
for further discussion.
11 Schipper (2012) provides examples of cases where lack of
expertise was linked to inadequate reporting and fraud, namely
Enron, Fannie May and General Motors.
12 See ESMA (2012) for related discussion.
13 For further discussion on this point, see feedback from analysts
to security regulators in ESMA (2011).
14 The studies providing direct evidence are Daske et al. (2008), Li
(2010), Defond et al. (2011), Brüggemann et al. (2009), Florou
and Pope (2012), Florou et al. (2010) and Schleicher et al. (2010).
The studies providing indirect evidence are Landsman et al.
(2011), Kim and Li (2011), Beuselinck et al. (2010), Byard et
al. (2011), Horton et al. (2012) and Tan et al. (2011).
15 Synchronicity refers to the extent to which individual stock prices
move in concert with overall market prices.
16 The report mentions a research program encompassing discount
rates, the equity method of accounting, extractive industries,
intangible assets and research and development, financial
instruments with the characteristics of equity, foreign currency
translation, non-financial liabilities, and financial reporting in
high inflation and hyperinflationary economies.
17 We thank Paul Coram for these suggestions.
Appendix 1: Interviewees
Karyn Brooks, Senior Vice President and Controller at
Bell Canada Enterprises.
Judith Downes, Australian Company Director, former
Chief Financial Officer Alumina Ltd.
Vincent Papa, Director of Financial Reporting, CFA
Institute, London.
Serene Seah-Tan, Senior Manager, Ernst & Young’s
IFRS Services Global Professional Practice.
Alison Thomas, Director, PricewaterhouseCooper’s
Global Reporting Team, London.
Mary Tokar, US Partner, KPMG, currently working in
KPMG’s Global IFRS Group in London.
Australian Accounting Review 327
Ten Years of IFRS
Appendix 2: Interview questions
Questions: preparers and auditors
• Would you expect that the reliability of accounting
information improves when IFRS are adopted?
• What factors do you consider would contribute to an
increase in reliability of accounting information under
IFRS? Are there any factors that potentially reduce
usefulness of IFRS information?
• In what ways have IFRS made financial reporting more
transparent? Are there any areas where IFRS has made
financial reporting less transparent?
• Ahmed, A., Neel, M. and Wang, D. 2012, ‘The Effects of
Do you consider that adopting IFRS has improved the
comparability of financial reporting, e.g., summary
accounting measures and key performance ratios?
• Are you aware of national patterns in firms’ usage
of IFRS? Are there any factors that might impede
comparability between firms from different countries?
• 341–352.
Are you surprised by the academic findings that the
usefulness of IFRS financial reports (measured by the
statistical association between firms’ IFRS numbers
and their share prices) varies between countries? What
might explain the variation?
• Are you aware of any benefits for companies from
increased competitiveness or a lower cost of capital?
Questions: analysts
• How important are accounting standards in ensuring
that reliable, transparent and comparable financial
information is provided by firms to security market
analysts?
• How important are other factors (e.g., legal protections
and enforcement of the law) in promoting the quality
of information available to analysts? Can you indicate
which ones are important and the extent of their
importance?
• Can you give examples where adoption of IFRS has
changed the reliability, transparency or comparability
of information available to analysts from firms’ statu-
tory financial statements (balance sheet, statement
of comprehensive income, cash flow statement and
notes)?
• If you consider there may be benefits for analysts when
companies adopt IFRS, do they vary by company
or industry sector, and do they vary by type of
analyst (buy-side, sell-side and credit analysts)? Which
companies, industries and analysts appear to have
benefited the most?
• To what extent is it reasonable for researchers to
expect to be able to show that IFRS adoption improves
key attributes of analysts’ forecasts (e.g., IFRS leads
to reduced error and less disagreement about the
forecasts)?
328 Australian Accounting Review
P. Brown & A. Tarca
• Does it seem reasonable for researchers to link
movements of firms’ share prices to better disclosure
under IFRS?
• Do you consider that use of IFRS has changed the level
of cross-border investment?
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C 2012 CPA Australia