Donna L. Street

Disclosure Level and Compliance with IASs: A Comparison of Companies With and Without U.S. Listings and Filings

Abstract This research investigates the extent to which the disclosure requirements of the IASC are complied with or exceeded for companies claiming to use International Accounting Standards (IASs). Additionally, the research seeks to identify significant differences between those companies with U.S. listings, U.S. filings, and those with no U.S. listings or filings with regard to (1) compliance with IASC-required disclosures, and (2) level of disclosure (including both mandatory and voluntary items). The findings reveal the overall level of disclosure is greater for companies with U.S. listings. Additionally, greater disclosure is associated with an accounting policies footnote that specifically states that the financial statements are prepared in accordance with IASs and an audit opinion that states that International Standards of Auditing (ISAs) were followed when conducting the audit. Further, the findings indicate the extent of compliance with IASs is greater for companies with U.S. listings or filings. A higher level of compliance is associated with an audit opinion that states the financial statements are in accordance with IASs and that ISAs were followed when conducting the audit. The research highlights the significance of the enforcement issue for the International Accounting Standard Committee (IASC) as it seeks an International Organization of Securities Commissions (IOSCO) endorsement. The findings indicate enforcement of IASs may be less of an issue for companies with listings and filings in the U.S. However, for companies without U.S. listings and filings, compliance is indeed of great concern.

Factors Influencing the Extent of Corporate Compliance with International Accounting Standards: Summary of a Research Monograph

Abstract This report provides a summary of a research monograph sponsored by the ACCA (2001). The objective of the research is to examine the financial statements and footnotes of a worldwide sample of companies referring to the use of International Accounting Standards (IAS) to assess the extent of compliance and most importantly to provide evidence of the factors associated with compliance. The major findings are that there is a significant extent of non-compliance with IAS, especially in the case of IAS disclosure requirements. Further, as regards factors associated with compliance with IAS disclosure requirements, there is a significant positive association with a U.S. listing/filing and/or non-regional listing, being in the commerce and transportation industry, referring exclusively to the use of IAS, being audited by a Big 5+2 firm, and being domiciled in China or Switzerland. Additionally, there is a significant negative association with being domiciled in France, Germany, or other Western European countries. As regards compliance with IAS measurement and presentation standards, there is a significant positive association with exclusive reference to the use of IAS, being audited by a Big 5+2 firm, and being domiciled in China. Additionally, there is a significant negative association with being domiciled in France or Africa.

Compliance with the Disclosure Requirements of Germany's New Market: IAS Versus US GAAP

This research examines compliance with both International Accounting Standards (IAS) and United States Generally Accepted Accounting Principles (US GAAP) for companies listed on Germanys New Market. Based on a sample of 100 firms that apply IAS and 100 that apply US GAAP, we investigate the extent to which companies comply with IAS and US GAAP disclosure requirements in their year-2000 financial statements. Compliance levels range from 100% to 41.6%, with an average of 83.7%. The average compliance level is significantly lower for companies that apply IAS as compared to companies applying US GAAP. This study provides the first systematic evidence regarding the enforcement of US GAAP outside the US, and accordingly not subject to Securities Exchange Commission (SEC) review. The results unveil a considerable extent of non-compliance. The overall level of compliance with IAS and US GAAP disclosures is positively related to firms being audited by Big 5 auditing firms and to cross-listings on US exchanges. Compliance is also associated with references to the use of International Standards of Auditing (ISA) or US GAAS in the audit opinion. The findings add to the growing concerns regarding the lack of effective supervision in the German capital market.

Assessing the Acceptability of International Accounting Standards in the US: An Empirical Study of the Materiality of US GAAP Reconciliations by Non-US Companies Complying with IASC Standards

Abstract With the International Accounting Standards Committee (IASC) reaching the completion of its core standards program, the International Organization of Securities Commissions (IOSCO) is considering its response to the IASCs application for endorsement of International Accounting Standards (IASs). A critical aspect of IOSCOs acceptance of IASs is likely to be the extent to which such standards are compatible with US Generally Accepted Accounting Principles (US GAAP). This issue is explored by an empirical study of US GAAP reconciliations by non-US companies complying with IASC standards. The results indicate that the impact of accounting differences between IASs and US GAAP is narrowing and suggest that the Securities Exchange Commission (SEC) should consider accepting IASC standards without condition. Alternatively, an SEC endorsement could include a short list of IASs where acceptance is subject to additional disclosures.

Compliance with IFRS 3- and IAS 36-required disclosures across 17 European countries: company- and country-level determinants

In this study, we analyse compliance for a large sample of European companies mandatorily applying International Financial Reporting Standards (IFRS). Focusing on disclosures required by IFRS 3 Business Combinations and International Accounting Standard 36 Impairment of Assets, we find substantial non-compliance. Compliance levels are determined jointly by company- and country-level variables, indicating that accounting traditions and other country-specific factors continue to play a role despite the use of common reporting standards under IFRS. At the company level, we identify the importance of goodwill positions, prior experience with IFRS, type of auditor, the existence of audit committees, the issuance of equity shares or bonds in the reporting period or in the subsequent period, ownership structure and the financial services industry as influential factors. At the country level, the strength of the enforcement system and the size of the national stock market are associated with compliance. Both factors not only directly influence compliance but also moderate and mediate some company-level factors. Finally, national culture in the form of the strength of national traditions (‘conservation’) also influences compliance, in combination with company-level factors.

GAAP 2001—Benchmarking national accounting standards against IAS: summary of results ☆

Abstract This paper provides an overview of GAAP 2001 and discusses the implications of the publication’s findings in regard to convergence of national standards and IAS. Two years of GAAP comparison studies conducted by the global accounting firms indicate that, while progress has been made in many countries, much work remains to be done. The global accounting firms argue that convergence “will require a joint effort of governments, stock market regulators, standard setters, preparers, users and the accounting profession.” Based on the country surveys provided in GAAP 2001, 62 countries are ranked based on the number of differences between their national GAAP and IAS on 80 accounting measures and disclosures. Additionally, the major areas of divergence between national GAAP and IAS are discussed. Based on information provided in GAAP 2001, 62 countries are grouped as follows: no differences with IAS, minimal differences with IAS, no differences with IAS following implementation of an EU regulation that proposes to require all listed companies to use IAS for consolidated statements from 2005, responding to differences with an active agenda, and major differences with IAS and little if any commitment to convergence. A discussion of these groups focuses on issues including convergence strategy, recent progress, and remaining challenges.

How wide is the gap between IASC and U.S. GAAP? impact of the IASC comparability project and recent international developments

Abstract The objectives of this paper involve determining the significant areas of difference between International Accounting Standards (IASs) and U.S. GAAP following the IASC’s Comparability Project and the most recent IASC and FASB projects on these issues. In addition, the paper assesses the consistency of U.S. practice with the IASs revised via the Comparability Project. For this purpose, the 1996 annual reports of 38 large multinational U.S. companies are examined and an empirical analysis of reporting practices is carried out. Finally, the remaining gap between IASs and U.S. GAAP is evaluated and policy implications are considered for the IASC and FASB. It is concluded that while there are still some significant issues to be resolved, notably relating to the determination of net profit/loss for the period, research and development, changes in foreign exchange rates, and business combinations, these differences are not insurmountable.

LARGE ACCOUNTING FIRMS’ SURVEY REVEALS EMERGENCE OF “TWO STANDARD” SYSTEM IN THE EUROPEAN UNION

Abstract Convergence with International Financial Reporting Standards (IFRS) as promulgated by the International Accounting Standards Board (IASB) is receiving great attention. In 2005, all listed companies domiciled in the European Union (EU) will be required to prepare consolidated accounts based on IFRS. Individual EU member states are, however, permitted to decide whether IFRS will be required or allowed for non-listed companies or for listed companies’ individual accounts. Based primarily on data collected by the six largest international accounting firms during their most recent convergence survey, this paper examines each of the 15 EU member states’ convergence plans and their perceived barriers to convergence. The findings indicate that most EU members do not plan to converge national GAAP with IFRS, thereby highlighting the great significance of the large firms’ concerns regarding emergence of a “two-standard” system in the EU. The survey indicates the majority of EU countries will continue to require or allow national GAAP for individual accounts. While Belgium is considering requiring IFRS for all consolidated accounts, other EU countries have decided to allow or are considering allowing non-listed companies to prepare IFRS consolidated accounts. In most EU countries, the link between financial accounting and tax accounting represents a major barrier to convergence. Other frequently cited barriers include disagreement with certain IFRS and the complicated nature of certain IFRS. International requirements for financial instruments are viewed as particularly problematic.

LOB and geographic segment disclosures: an analysis of the impact of IAS 14 revised

Abstract To better satisfy important information needs of users of financial statements, as set forth in the IASC Framework , the IASC issued IAS 14 revised (IAS 14R), Segment Reporting , in 1997. IAS 14R became effective for fiscal years beginning on or after July 1, 1998. This research examines the pre-IAS 14R and post-IAS 14R line of business (LOB) and geographic disclosures of a global sample of companies that refer to IAS to ascertain the impact and effectiveness of IAS 14R in practice. Specifically, this research considers whether the new requirements resulted in (1) a greater number of LOB segments for some enterprises, particularly those that previously claimed to operate in one LOB, (2) more meaningful, transparent geographic groupings, as opposed to the vague groupings associated with the original version of IAS 14, (3) companies reporting more items of information about each LOB and/or geographic segment, and (4) improved consistency of primary segment information with other parts of the annual report. Additionally, the research examines the extent to which IAS companies provided voluntary segment disclosures and suggests some problems associated with compliance. The findings indicate IAS 14R resulted in a significant increase in the number of items of information disclosed for each primary and secondary segment. Additionally, the consistency of segment information with introductory annual report material increased significantly and the number of companies claiming to operate in one LOB declined significantly. On a less positive note, the results reveal that many companies continued to utilize broad, vague geographic groupings. And, a significant minority continued to report segment information on a basis inconsistent with other sections of the annual report. The research also identified several instances where it appears companies may not be fully complying with the all the new disclosure guidelines. As the IASB’s new work program includes a convergence project on segmental reporting, recommendations are made regarding possible modifications to IAS 14R.

Geographic segment disclosures in the United States: reporting practices enter a new era

Abstract The promulgation by the FASB of SFAS 131, Disclosures about Segments of an Enterprise and Related Information, in 1997 (FASB, 1997) (effective 1998) heralded a new era of segment reporting in the United States. The purpose of this paper is to assess the impact and effectiveness of the new standard with reference to geographic segment disclosures. Given the criticisms of its predecessor, SFAS 14, relating to segment identification and the consistency of internal and external reporting, the key issue is the extent to which companies have responded to the changes in geographic information disclosures required by SFAS 131. An empirical study of the 1997 and 1998 annual reports of US Global 1000 companies reveals mixed results. While more country specific data is disclosed and the consistency of disclosures with other parts of the annual report is increased, the problem of reporting highly aggregated geographic areas remains for a significant group of companies.