The adoption of IFRS, comparability of financial statements and foreign investors ownership

After reviewing foreign registrant’s IFRS financial statements for compliance, the SEC issues a comment letter for which a firm can remedy deficiencies or defend. The comment letters then become public information unless confidential treatment is granted by the SEC. We do not contend that suggesting IOSCO as an enforcement organization for IFRS is a cure-all, but we do suggest it as a next step toward improving comparability in the financial reporting of cross-listed firms stating compliance with IFRS. There is also empirical support for the notion that homogeneous IFRS application requires a supranational enforcer (Ball 2016, 2006; Pope and McLeay 2011; Schipper 2005).

Chief Financial Officer Programme

This shift affects financial reporting and business operations, enhancing transparency, comparability, and credibility of financial statements in increasingly interconnected global markets. This is due to legal and cultural differences, and sometimes the rules are not strictly applied. Nevertheless, IFRS aims to aid decision-making by ensuring financial reports are comparable.

Key documents

The U.S. enforces Generally Accepted Accounting Principles (GAAP) through FASB and the SEC. Meanwhile, the European Union adopted International Financial Reporting Standards (IFRS) in 2005. This move has helped in making international accounting more uniform. Not just in theory, but real improvements in financial stability and comparability have been seen.

The Essence of Comparability in Financial Reporting

By fully adopted we mean required for domestic and foreign companies as published by the IASB and without carve-ins and/or carve-outs and/or lags. It is crucial to adopt best practices, like standardised accounting rules and guidelines, so that all the accounting information should be comparable, reliable and useful for future investigation. The IAIS agreed to collect data from interested jurisdictions to aid in the development of the AM. The AM data collection is separate from ICS Confidential Reporting and is open to US-based Volunteer Groups and any other jurisdiction/Volunteer Group at the option of the group-wide supervisor.

• We consider this analysis as supplemental to our proposal of a global organization dynamic.
• The lack of CFR is also empirically evidenced in the IFRS-based earnings in financial reports of differing legal jurisdictions (Phan et al. 2020).
• Its objectives (IOSCO 2017b) are protecting investors, ensuring that markets are fair, efficient, and transparent and reducing systemic risk.
• IFRS also requires some research expenses to be included as assets, creating unique financial reporting characteristics.
• Based on its review, IOSCO would then deem the company as complying with full-IFRS or not.

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• For reliable financial reporting, it is important to follow a set of standardised accounting rules and guidelines, as per the Generally Accepted Accounting Principles (GAAP).
• IOSCO has several memorandums of understanding for enforcement, with the cooperation of over 130 national regulators (IOSCO 2019).
• Comparability in accounting means users can consistently review financial statements.
• In today’s financial markets, accounting information is important as it assists investors and creditors in making complex decisions.
• Felski (2017) examines countries that modify adoption of IFRS to assess the extent to which CFR is impaired.

Key Differences Between IFRS and Local GAAP

Moreover, pseudo-adoption timelines may vary across national jurisdictions when IFRS must go through a co-endorsement process like in the EU. In fact, Felski (2017) empirically finds that the pseudo-adopted IFRS financial reporting can impair CFR across countries. Felski (2017) examines countries that modify adoption of IFRS to assess the extent to which CFR is impaired. It follows that the specifics of how countries modify IFRS adoption may result in differences in comparable financial reporting between different countries, though all state IFRS compliance. Consistent with this, we suggest that the EMMoU includes the application of IFRS financial reporting as published by the IASB and a comment letter approach, especially for cross-border listed firms. Our proposed organizational dynamic is based on the establishment of a new body within IOSCO, namely the IOSCO Monitoring Board (MB).

After reviewing these divergences in country adoptions and company applications of IFRS, we study the discourses of the IASB and IOSCO with national jurisdictions to assess the volume of their enforcement-related interactions overtime. The globalization of financial markets worldwide has progressively pushed toward simultaneous globalization of accounting information. Thus, during the last 50 years, categories of preparers, users, and regulators have devoted their efforts to support the global comparability of financial reporting aiming at favoring the comparison of corporates’ financial performances at a cross-country level.

How can the comparability of financial statements be measured?

As a consequence, investors create their own subtotals differently and this limits the comparability of income statement subtotals, like operating income. So, comparability in accounting is essential to ifrs comparability data make comparisons in financial reporting easier, reliable and understandable. By following standardised accounting rules and guidelines, companies can ensure that their accounting information provides a constant and correct comparison, helping users of financial statements, such as investors and creditors, make well-informed decisions. Moreover, IOSCO could require cross-border listed firms to cooperate with the MB through its MMoU and EMMoU with cooperative nations.