The implementation of IFRS in the UK, Italy and Ireland

LONG ABSTRACT §

INTRODUCTION §
One of the most fundamental changes to affect the financial reporting of EU-quoted firms in recent times has been introduction of the International Financial Reporting Standards (IFRSs) since 2005. Therefore, in the European Union (EU), the basis underpinning the preparation of the annual report as well as the components, formats and presentations of the financial reporting have been changed. Many concerns have been raised about IFRS, some real and some serious. An independent assessment was, therefore, required to examine IFRS implementation in different EU countries and to assist future adopters of the IFRS.

PURPOSE §
This study examines the implementation of IFRS in three countries: the UK, Italy and Ireland. The study focused on these three countries because it was expected that companies in countries with a similar national accounting environment, such as the UK and Ireland, would experience similar reporting changes following the adoption of IFRS, and that companies in countries with a very different reporting environment, legal system and culture, such as Italy, would be affected differently by the adoption of IFRS. For example, the UK and Ireland are common law countries with accounting standards that focus primarily on the needs of shareholders, while Italy has a legal system based on civil law where traditionally creditors are viewed as being the most important users of financial statements. Thus, it was expected that the implementation of IFRS, with its shareholder focus, would require more of a cultural change in Italy than in the UK or Ireland.
The following research objectives are addressed in this study:
• To quantify the nature and extent of the changes in financial reporting that have been experienced as a result of IFRS adoption. In particular, the study examines the increase in disclosure relating to these new accounting standards as well as the changes to net profit and equity when comparing national Generally Accepted Accounting Practice (GAAP) to IFRS GAAP.
• To assess the costs associated with the production and publication of the new information.
• To identify the standards which have caused the greatest challenges for preparers and users to implement, reflecting education and training needs, changes to valuation models and the need for a general understanding of the accounting requirements and concepts.
• To examine the usefulness of IFRS information from the perspective of preparers and users of financial statements, both from the usefulness of the contents being mandated as well as the formats in which the additional information must be disclosed.
• To review whether the information required under IFRS is decision-useful for stakeholders.

DESIGN AND METHODOLOGY §
The above research objectives are considered within the framework of decision-usefulness to assess whether IFRS is more useful to users than national GAAP for making investment decisions, after consideration of the costs involved for both preparers and users. Three different methods of analysis were used to examine the introduction of IFRS to address the above research aims:
• a content analysis of financial statements (in total 175 pre-IFRS annual reports and 175-post IFRS annual reports were analysed);
• an analysis of the reconciliation statement between IFRS and national GAAP using a ‘conservatism’ index (in total 125 reconciliation statements were analysed); and
• a multiple-stakeholder perspective on the adoption of IFRS using interviews with preparers, auditors, analysts and regulators (in total 32 subjects were interviewed).
Each of these three methods provides an international comparison on the adoption of IFRS between the UK, Italy and Ireland.