Chapter One
1. Introduction to International Reporting Standards
1.0 Introduction
According to Rostami et al. (2016), International harmonization of financial accounting
standards have been identified as the objective of researchers in recent decade. Prior to this,
they attest that the format of financial statements and disclosure requirements have varied from
one country to another. However, the rapid development of the international capital markets
and their role as economic resources distributers, and increasingly frequent cross-listing of
multinationals have generated an urgent need for a single universal set of accounting standard
for the firms and activities of institutional investors. Furthermore, Jones et al. (2016) relays
that proponents of International Financial Reporting Standards (IFRS) argues that accounting
standards harmonization via the IFRS which enhances the quality and comparability of
financial disclosures, which in turn facilitates a firm’s access to international capital markets
and thus cross-border investment flows. The first group includes all the companies that adopted
IFRS before 2005, while the latter group consists of firms that were forced to adopt IFRS. As
a result, currently there are three distinct groups of firms that exhibit different attitudes towards
IFRS which are: ‘Non-IFRS adopters’ that exploit the exemptions and choose not to report
under IFRS or that are listed in countries where IFRS is not allowed; ‘mandatory adopters’ that
only adopt when they are forced to comply and ‘voluntary adopters’ that choose to comply
with IFRS in the period before the regulatory rules demanded IFRS adoption. According to
earlier studies on ‘voluntary adopters’ provide valuable insights as to the effect of IFRS
disclosure, the results may not be generalised in the current mandatory setting ( Daske et al.
[2008]; Horton and Serafeim [2010]). We expect any effects from IFRS mandatory adoption
to be different from those documented from voluntary IFRS adopters (Asbaugh and Pincus
[2001]; Bae et al. [2008]; Guan et al. [2006]), since the former group is essentially forced to
adopt IFRS, compared to the latter that chooses to adopt. For an example, past research
according to ( Daske et al. [2008]; Leuz and Verrecchia [2000]) finds that the decision to
voluntarily adopt IFRS reporting is only one element of a boarder strategy that increases a
firm’s overall commitment to transparency. Therefore any effects around voluntary IFRS
adoptions cannot be attributed solely to IFRS compliance.
1
1. Introduction to International Reporting Standards
1.0 Introduction
According to Rostami et al. (2016), International harmonization of financial accounting
standards have been identified as the objective of researchers in recent decade. Prior to this,
they attest that the format of financial statements and disclosure requirements have varied from
one country to another. However, the rapid development of the international capital markets
and their role as economic resources distributers, and increasingly frequent cross-listing of
multinationals have generated an urgent need for a single universal set of accounting standard
for the firms and activities of institutional investors. Furthermore, Jones et al. (2016) relays
that proponents of International Financial Reporting Standards (IFRS) argues that accounting
standards harmonization via the IFRS which enhances the quality and comparability of
financial disclosures, which in turn facilitates a firm’s access to international capital markets
and thus cross-border investment flows. The first group includes all the companies that adopted
IFRS before 2005, while the latter group consists of firms that were forced to adopt IFRS. As
a result, currently there are three distinct groups of firms that exhibit different attitudes towards
IFRS which are: ‘Non-IFRS adopters’ that exploit the exemptions and choose not to report
under IFRS or that are listed in countries where IFRS is not allowed; ‘mandatory adopters’ that
only adopt when they are forced to comply and ‘voluntary adopters’ that choose to comply
with IFRS in the period before the regulatory rules demanded IFRS adoption. According to
earlier studies on ‘voluntary adopters’ provide valuable insights as to the effect of IFRS
disclosure, the results may not be generalised in the current mandatory setting ( Daske et al.
[2008]; Horton and Serafeim [2010]). We expect any effects from IFRS mandatory adoption
to be different from those documented from voluntary IFRS adopters (Asbaugh and Pincus
[2001]; Bae et al. [2008]; Guan et al. [2006]), since the former group is essentially forced to
adopt IFRS, compared to the latter that chooses to adopt. For an example, past research
according to ( Daske et al. [2008]; Leuz and Verrecchia [2000]) finds that the decision to
voluntarily adopt IFRS reporting is only one element of a boarder strategy that increases a
firm’s overall commitment to transparency. Therefore any effects around voluntary IFRS
adoptions cannot be attributed solely to IFRS compliance.
1
