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)
Methods of implementing IFRS (consolidated statements of listed companies)
Implementing IFRS
Adopting the
process
Standard-by-standard
As issued by
IASB
Israel
South Africa
Canada
Fully converged
with IFRS
Australia
Optional
As issued by
IASB, but with
deletions
EU
Switzerland
Possible
Yes
Company compliance with
IFRS as issued by the IASB
Not fully
converged
China
Venezuela
Unlikely
IFRS implementations for domestic companies, 31 Dec 2012 year ends
1
Jurisdiction
2
3
IASB-IFRS IASB-IFRS
required required
for all
for cons’d
regulated reports of
reporting listed co.s
?
(CSLC)?
4
5
6
7
Version of IFRS
Version of
Version of
(intended to
IFRS allowing IFRS allowing
ensure
compliance
compliance
compliance
with IASB-IFRS with IASB-IFRS
with IASB-IFRS) required for
required for
required for
all reporting?
CSLC?
CSLC?
Y (2005)
N
Y
8
Australia
N
N
Version of IFRS
(intended to
ensure
compliance
with IASB-IFRS)
required for all
reporting?
N
Version of IFRS
(allowing IASBIFRS) required
(or allowed=A)
for
unconsolidated
reporting?
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)
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.
2.
3.
4.
5.
6.
7.
8.
Different versions of IFRS (see slide 5)
Enforcement, compliance (varies nationally)
Language
Gaps in IFRS
Measurement estimations
First-time adoption
Overt options
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, firsttime adoption
• Gaps: e.g. IFRSs 4 and 6; and accounting
for artworks (see Dubai law case in 2012:
http://www.dfsa.ae/WhatsNew/DispForm.a
spx?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.
2.
3.
4.
5.
6.
7.
8.
Different versions of IFRS
Enforcement, compliance
Language
Gaps in IFRS
Measurement estimations
First-time adoption
Overt options
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
59.3
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
3a) equity acc profit in operating
63.2
24.5
6.9
0.0
18.8
3b) immediately below
15.8
34.0
3.4
8.3
62.5
3c) below finance
21.1
41.5
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 after
finance items
• H16: The tendency to use proportional consolidation
is 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)
1a) income statement by function
1b) by nature
1c) neither
2a) inclusion of a line for EBIT or op profit
3a) equity acc included in operating
3b) immediately below
3c) below finance
4b) showing net assets
5b) liquidity increasing
6b) OCI only
7b) indirect cash flows
8a) dividends received as operating
9a) interest paid as operating
10b) some PPE at fair value
11b) investment property at fair value
12a) some fair value designation
13a) interest capitalization
14a) FIFO only
14b) weighted average only
15a) actuarial gains/losses to OCI
15b) to income in full
15c) corridor
16a) proportional consolidation of JVs
Australia
59.3
29.6
11.1
51.9
63.2
15.8
21.1
100.0
0.0
65.9
0.6
87.5
90.9
13.6
42.9
29.6
75.8
27.3
59.1
72.7
18.2
9.1
0.5
UK
47.2
13.9
38.9
97.2
24.5
32.1
43.4
84.7
100.0
83.7
98.0
36.7
68.4
12.2
73.1
12.5
47.5
50.0
29.2
84.4
3.3
12.2
22.4
France
54.8
45.2
0.0
100.0
6.9
3.4
89.7
0.0
100.0
5.7
100.0
92.9
88.6
0.0
0.0
32.3
40.0
11.5
57.7
20.0
5.7
74.3
81.3
Spain
4.0
96.0
0.0
96.0
0.0
8.3
91.7
0.0
96.3
25.0
87.5
50.0
38.7
0.0
0.0
12.0
94.4
5.9
88.2
12.5
37.5
50.0
84.6
Germany
76.5
23.5
0.0
100.0
18.8
62.5
18.8
0.0
85.0
21.7
100.0
66.7
61.9
0.0
0.0
5.9
22.2
0.0
71.4
47.6
0.0
52.4
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
2005
2008
2005
2008
2005
65.0
67.5
83.5
90.6
2.9
0.0
8.3
Some investment
property at fair value
38.5
39.3
72.0
70.8
0.0
Interest capitalization
81.3
84.4
50.0
57.7
AGL to OCI
73.3
86.7
82.9
AGL to corridor
10.0
6.7
Proportionate
consolidation
3.8
11.5
OCI presented
Indirect cash flows
2008
Spain
2005
2008
Germany
2005
2008
43.5
63.3
50.0
28.6
64.3
100.0 100.0
90.5
100.0
14.3
0.0
13.3
5.9
5.3
46.2
44.4
94.1
100.0
22.2
41.7
86.4
20.6
50.0
14.3
63.2
45.5
63.3
13.4
9.9
76.5
47.1
50.0
10.5
54.5
33.3
20.0
23.3
80.6
75.8
87.0
91.3
31.3
15.8
100.0 100.0
100.0 100.0
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)
Policy choices (percentages of companies by country)
AUS
1 (a)
2 (a)
3 (a)
4 (b)
5 (b)
6 (b)
7 (b)
8 (a)
9(b)
10(b)
11(a)
12(a)
13(b)
14(a)
15(a)
Large
income statement by function
58.3
line for operating profit
58.3
equity profit in ‘operating’
64.7
focussing on net assets
100.0
liquidity increasing
0.0
OCI only
70.8
indirect cash flows
8.3
interest paid as ‘operating’ flow 87.5
some PPE at fair value
0.0
investment property at fair value 0.0
some fair value designation
25.0
interest capitalisation
87.0
weighted average only
52.9
actuarial gains/losses to OCI
84.2
proportional consolidation
18.8
Small
35.3
18.9
16.7
97.5
0.0
12.5
0.0
91.2
13.2
100.0
63.0
61.9
30.8
50.0
33.3
UK
Dif.
-23.0
-39.4
-48.0
-2.5
0.0
-58.3
-8.3
+3.7
+13.2
+100.0
+38.0
-25.1
-22.2
-34.2
+14.6
Large
50.8
98.4
40.8
85.2
100.0
92.1
100.0
65.1
3.2
25.0
11.1
54.3
32.6
88.3
20.9
Small
100.0
100.0
55.6
45.0
100.0
50.0
100.0
68.6
7.5
75.0
12.0
37.5
30.0
92.3
41.7
GER
Dif.
+49.2
+1.6
+14.7
-40.2
0.0
-42.1
0.0
+3.5
+4.3
+50.0
+0.9
-16.8
-2.6
+4.0
+20.7
Large
82.6
91.3
22.7
0.0
69.6
43.5
100.0
68.2
0.0
0.0
17.4
43.5
75.0
73.9
18.8
Small
36.0
96.0
15.4
0.0
92.0
8.0
100.0
76.0
0.0
0.0
28.6
11.1
68.4
25.0
42.9
FRA
Dif.
-46.6
+4.7
-7.3
0.0
+22.4
-35.5
0.0
+7.8
0.0
0.0
+11.2
-32.4
-6.6
-48.9
+24.1
Large
60.0
96.7
10.0
0.0
100.0
13.3
100.0
80.0
0.0
0.0
33.3
40.0
50.0
53.3
72.4
Small
20.0
100.0
0.0
0.0
100.0
0.0
100.0
56.0
0.0
25.0
25.0
16.7
44.4
15.0
100.0
SPA
Dif.
-40.0
+3.3
-10.0
0.0
0.0
-13.3
0.0
-24.0
0.0
+25.0
-8.3
-23.3
-5.6
-38.3
+27.6
Large
4.8
100.0
0.0
0.0
95.2
42.9
100.0
47.6
0.0
0.0
19.0
100.0
88.2
69.2
93.8
Small
4.0
92.0
0.0
0.0
100.0
8.0
96.0
58.3
0.0
0.0
42.9
76.2
77.3
55.6
83.3
Dif.
-0.8
-8.0
0.0
0.0
+4.8
-34.9
-4.0
+10.7
0.0
0.0
+23.8
-23.8
-11.0
-13.7
-10.4
Significant differences, small/large
No.
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 ‘AngloAmerican accounting’
Figure 1. A suggested classification of accounting
‘systems’ in some developed western countries in 1980
Accounting systems
Micro-fair-judgemental
Commercially-driven
Business economics
Extreme judgemental
Macro-uniform
Government-driven
Tax dominated
Business practice
Professional rules
British origin
UK influence
US influence
Code-based Plan-based
Professional regulation SEC enforcement international
influences
Netherlands Australia NZ
UK
Ireland
Canada
USA
Italy
Statute-based
Economic
control
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
150
MDS configuration
0
50
Dimension 2
100
Swe
NL
Ita
UK
Ger
-50
Fra
Spa
-100
Aus
-100
-50
0
50
Dimension 1
Modern MDS (loss=stress; transform=monotonic)
Multidimensional scaling of two dimensions
100
150
0
50
100
150
200
Dendrogram for _clus_1 cluster analysis
Swe
Ger
Fra
Dendrogram of two-cluster solution
Ita
NL
Spa
Aus
UK
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
Percentages of policy choice by country and topic
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
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
Sample by country and sector
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
Examples of sectoral differences in policy choice
p-value
Country
IFRS Policy Choice
% Financials
% Extractives
% Others
<0.01
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
10
82
100
<0.01
Can
13. Actuarial gains/losses to OCI
0.01
Can
14. Proportionate consolidation of JVs
30
82
36
4. Balance sheet showing net assets
45
67
89
5. Balance sheet with liquidity decreasing
32
0
3
<0.01
UK
<0.01
UK
Percentages of policy choice by country and topic
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
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)
7
Not 2,4,5,7
All
2
2
2
1
1
1
1
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
11
All
Not F+E
3
2
1 (3)
2
1
1
1
1
2 (1)
2
1
1 [2]
1 [2]
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
0
50
100
150
Dendrogram
AU
UK
HK
FR
DE
ES
IT
CH
Figure 2 Dendrogram for run 6
0
50
100
150
Dendrogram
AU
UK
HK
FR
ZA
DE
CH
ES
IT
Try Excluding Countries, Topics, Sectors
• Countries:- compare runs 5 and 6: no change in
principal components; but affects
dendrograms (Figures 1 and 2)
• Topics: - compare runs 2 and 3
- for Canada, compare runs 3 and 7
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)
7
Not 2,4,5,7
All
2
2
2
1
1
1
1
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
11
All
Not F+E
3
2
1 (3)
2
1
1
1
1
2 (1)
2
1
1 [2]
1 [2]
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)
• 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
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)
7
Not 2,4,5,7
All
2
2
2
1
1
1
1
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
11
All
Not F+E
3
2
1 (3)
2
1
1
1
1
2 (1)
2
1
1 [2]
1 [2]
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’
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)
7
Not 2,4,5,7
All
2
2
2
1
1
1
1
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
11
All
Not F+E
3
2
1 (3)
2
1
1
1
1
2 (1)
2
1
1 [2]
1 [2]
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 has
improved
- enforcement is not within IASB’s control
- alternatives to IFRS would have similar
problems (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