Study by UK researchers shows inconsistency in IFRS application

A new report by U.K. researchers found inconsistencies in compliance with certain impairment disclosure requirements across jurisdictions in Europe, which suggested that IFRS are not being evenly applied across jurisdictions.

International Accounting Standards Board Chairman Hans Hoogervorst said more consistent application remains a worthwhile goal that requires the attention of regulators, auditors, and standard setters. But he said that even in the presence of inconsistencies, worldwide adoption of IFRS remains the best way to arrive at global comparability between companies.

“The truth is that even an unevenly applied global standard provides much more global comparability than an equally unevenly applied multitude of diverging national standards,” Hoogervorst said Jan. 17 at the unveiling of a report by three researchers at the Cass Business School at the City University of London. “Without a global standard, there is absolutely no chance you will ever arrive at global comparability.”

Researchers Hami Amiraslani, George Iatridis, and Peter Pope studied impairments recognized at 4,474 listed companies from the European Union, Norway, and Switzerland. Their findings included:

• Compliance with some impairment disclosure requirements varied across European countries, which suggests uneven application of IFRS.
• Companies operating in countries with strong regulatory and institutional infrastructure, such as the U.K. and Ireland, are more likely to exhibit high-quality impairment reporting.
• Companies in jurisdictions with strong regulatory and enforcement settings recognize economic losses in a more timely manner than companies located where enforcement is weaker.

“Ultimately, IFRS appear to have had a significant and positive impact on the financial reporting practices of many reporting companies across Europe,” the researchers wrote. “However … there is scope for further improvement in the application of IFRS requirements.”

The research confirms an assertion by the SEC, whose study of the benefits and shortcomings of possible IFRS adoption in the United States reviewed financial statements prepared in accordance with IFRS. The SEC study found that the financial statements generally complied with IFRS, but that global application could be improved to narrow diversity in practice.

The SEC has not voted on whether to allow or adopt IFRS for U.S. public companies, and has provided no timetable for the decision.

But Hoogervorst said that current U.S. standards are not applied consistently, either. He called attention to a finding in the SEC report that showed that in 2010, SEC reviews resulted in 735 restatements by 699 U.S. issuers.

“This goes to show that in an economy as sophisticated as the United States, using a deeply entrenched national GAAP, you still see challenges with consistent application of the standards,” Hoogervorst said.

—Ken Tysiac (ktysiac@aicpa.org) is a JofA senior editor.