International variations in IFRS

practices: and how Spain differs

from other major countries

Christopher Nobes
 Presenter:
• Dr Christopher Nobes is Professor of Accounting at the
University of London and at the University of Sydney. He
is Adjunct Professor at the Norwegian Business School.
He has taught in Universities in New York and San
Diego, and has been a visiting professor in Amsterdam,
Barcelona and Venice.
• He was a member of the Accounting Standards
Committee of the UK and Ireland (1987-90) and of the
Board of the International Accounting Standards
Committee (1993-2001).
• He is the author of 14 books and former co-editor of
Accounting and Business Research. He was the 2002
“Outstanding International Accounting Educator” of the
American Accounting Association.
 Tomorrow the world?

• The IASC began work in 1973, but the important

adoption of IFRS only started in 1994, with a few
German companies
• “The global rollout of International Financial
Reporting Standards is gaining momentum, with
more than 100 countries now using IFRS and all
of the world’s major countries anticipated to be
on board within the next few years” (BDO, 2012)
 Overview of this presentation

• An antidote to these wild claims is needed

• Even where IFRS is used, Nobes (2006 in ABR)
suggests motivation and scope for different
national versions of IFRS practice, including lists
of “overt options”
• Many researchers have used this as a starting
point
• This lecture reviews the findings (see Nobes in
ABR 2013)
Methods of implementing IFRS (consolidated statements of listed companies)

Implementing IFRS

Adopting the Standard-by-standard Optional Not fully

process converged

As issued by Fully converged As issued by

IASB with IFRS IASB, but with
deletions

Israel Canada Australia EU Switzerland China

South Africa Venezuela

Possible Unlikely
Yes

Company compliance with

IFRS as issued by the IASB
 IFRS implementations for domestic companies, 31 Dec 2012 year ends
1 2 3 4 5 6 7 8

Jurisdiction IASB-IFRS IASB-IFRS Version of IFRS Version of IFRS Version of Version of Version of IFRS
required required (intended to (intended to IFRS allowing IFRS allowing (allowing IASB-
for all for cons’d ensure ensure compliance compliance IFRS) required
regulated reports of compliance compliance with IASB-IFRS with IASB-IFRS (or allowed=A)
reporting listed co.s with IASB-IFRS) with IASB-IFRS) required for required for for
? (CSLC)? required for all required for all reporting? CSLC? unconsolidated
reporting? CSLC? reporting?
Australia N N N Y (2005) N Y N (A)
Canada N N N N N N N (A)
China N N N N N N N
France N N N N N Y (2005) N
Germany N N N N N Y (2005) N
Hong Kong N N N N N N N
India N N N N5 N N N
Japan N N N N N N N
Russia N Y (2012) N Y N Y N
South Africa N Y (2005) N Y N Y N (A)
South Korea N N N Y (2011) N Y N (A)
Spain N N N N N Y (2005) N
Switzerland N N N N N N N
UK N N N N N Y (2005) N (A)
 Conclusion so far

• Research needs a good institutional

setting
• But, for example, Francis et al. (2008 in
EAR) say that most unlisted companies in
most of 56 countries (e.g. Spain) had
adopted IFRS in 1999/2000
How IFRS Practices Can Differ
Eight opportunities for differences in
IFRS practices
1. Different versions of IFRS (see slide 5)
2. Enforcement, compliance (varies nationally)
3. Language
4. Gaps in IFRS
5. Measurement estimations
6. First-time adoption
7. Overt options
8. Covert options
 3: Different translations
• IAS 7 (para. 7): An investment normally qualifies as
a cash equivalent only when it has a short maturity
of, say, three months …(Portuguese omits the ‘say’)

• IAS 19 (para. 78): discount rate for pension

obligations uses interest rate on “commercial bonds”
(German says Industrieanleihen)

• IAS 41 (para. 34): account for a government grant

when receivable (Norwegian, until 2012, said
“received”)
 4, 5, 6: Gaps, measurement, first-
time adoption
• Gaps: e.g. IFRSs 4 and 6; and accounting
for artworks (see Dubai law case in 2012:
http://www.dfsa.ae/WhatsNew/DispForm.a
spx?ID=227)
• Measurement estimations: list in Nobes
2006 paper still applies, plus IFRS 7
• First-time adoption: e.g. survival of large
initial differences in starting positions on
goodwill
Eight opportunities for differences in
IFRS practices
1. Different versions of IFRS
2. Enforcement, compliance
3. Language
4. Gaps in IFRS
5. Measurement estimations
6. First-time adoption
7. Overt options
8. Covert options
 7, 8: Overt and covert options
• List of overt options has been used by several
researchers
 Examples of 2005/6 choices (% of companies)
Australia UK France Spain Germany

1a) income statement by function 59.3 47.2 54.8 4.0 76.5

1b) by nature 29.6 13.9 45.2 96.0 23.5
1c) neither 11.1 38.9 0.0 0.0 0.0
3a) equity acc profit in operating 63.2 24.5 6.9 0.0 18.8
3b) immediately below 15.8 34.0 3.4 8.3 62.5
3c) below finance 21.1 41.5 89.7 91.7 18.8
14a) FIFO only 27.3 57.1 11.5 5.9 0.0
14b) weighted average only 59.1 30.6 57.7 88.2 71.4
15a) actuarial gains/losses to OCI 72.7 84.4 20.0 12.5 47.6
15b) to income in full 18.2 3.3 5.7 37.5 0.0
15c) corridor 9.1 12.2 74.3 50.0 52.4
 7, 8: Overt and covert options
• List of overt options has been used by several
researchers
• A few options have since been removed by IASB
(e.g. expensing of interest, treatment of AGL,
proportional consolidation)
• Covert options include such issues as
recognising impairments and capitalising
development costs
• Paper (ABR, 2013) presents extended lists
 Why would options/estimations be
done differently?
• Tax? For example, tax-driven choices
flowing through from unconsolidated
statements (e.g. AVCO in Germany)
• Inertia?
• Cost-saving; helping analysts?
Empirical Studies
 First empirical studies

• Non-systematic samples of choices:

KPMG & von Keitz, 2006; ICAEW, 2007;
EC, 2008
• Morais (2008) and Fasshauer et al. (2008)
look at actuarial gains/losses in the EU
• Kvaal & Nobes (ABR in 2010) study 16
options for 232 companies in 2005/6
 ABR, 2010 paper

• Five largest IFRS-using stock markets:

Australia, France, Germany, Spain, UK

• Index companies (e.g. ASX 50, FTSE 100)

• 2005/6 statements

• 16 policy choices (e.g. FIFO or weighted

average; proportional consolidation for JVs)
 Hypotheses
• Null hypothesis of same practice in all countries
• 19 alternative hypotheses (assuming continuation of
previous policies)
• H3: French and Spanish companies are more inclined
than others to show equity-accounted profits after
finance items
• H16: The tendency to use proportional consolidation
is found in the following countries in decreasing
order: France, Spain, Germany, UK, Australia
• 84 tests: 69 reject null hypothesis at 1%; 7 at 5%; 8 not
rejected
 Policy choices (% of companies by country)
Australia UK France Spain Germany
1a) income statement by function 59.3 47.2 54.8 4.0 76.5
1b) by nature 29.6 13.9 45.2 96.0 23.5
1c) neither 11.1 38.9 0.0 0.0 0.0
2a) inclusion of a line for EBIT or op profit 51.9 97.2 100.0 96.0 100.0
3a) equity acc included in operating 63.2 24.5 6.9 0.0 18.8
3b) immediately below 15.8 32.1 3.4 8.3 62.5
3c) below finance 21.1 43.4 89.7 91.7 18.8
4b) showing net assets 100.0 84.7 0.0 0.0 0.0
5b) liquidity increasing 0.0 100.0 100.0 96.3 85.0
6b) OCI only 65.9 83.7 5.7 25.0 21.7
7b) indirect cash flows 0.6 98.0 100.0 87.5 100.0
8a) dividends received as operating 87.5 36.7 92.9 50.0 66.7
9a) interest paid as operating 90.9 68.4 88.6 38.7 61.9
10b) some PPE at fair value 13.6 12.2 0.0 0.0 0.0
11b) investment property at fair value 42.9 73.1 0.0 0.0 0.0
12a) some fair value designation 29.6 12.5 32.3 12.0 5.9
13a) interest capitalization 75.8 47.5 40.0 94.4 22.2
14a) FIFO only 27.3 50.0 11.5 5.9 0.0
14b) weighted average only 59.1 29.2 57.7 88.2 71.4
15a) actuarial gains/losses to OCI 72.7 84.4 20.0 12.5 47.6
15b) to income in full 18.2 3.3 5.7 37.5 0.0
15c) corridor 9.1 12.2 74.3 50.0 52.4
16a) proportional consolidation of JVs 0.5 22.4 81.3 84.6 31.3
 Examples of Spanish choices
• Why choose the ‘by function’ income
statement?
• Actuarial items are large, out-of-control
and (usually) losses. Why would Spanish
companies choose to include them in
‘earnings’?
• Why did Spanish companies choose
proportional consolidation? It makes sales
and cash larger, but….?
Do policy choices change over time?
• Kvaal & Nobes (EAR, 2012) look at all
changes from 2005 to 2008
• H1: more change on transition than from
2005 to 2008 (not for France/Spain)
• H2: more continental change than Anglo
change (yes)
• H3: variance greater for continentals (yes)
• No effect of IASB proposed changes
 Some policy changes from 2005 to 2008

Australia UK France Spain Germany

2005 2008 2005 2008 2005 2008 2005 2008 2005 2008

OCI presented 65.0 67.5 83.5 90.6 2.9 50.0 28.6 64.3 43.5 63.3

Indirect cash flows 0.0 8.3 100.0 100.0 100.0 100.0 90.5 100.0 100.0 100.0

Some investment 38.5 39.3 72.0 70.8 0.0 14.3 0.0 13.3 5.9 5.3
property at fair value
Interest capitalization 81.3 84.4 50.0 57.7 46.2 44.4 94.1 100.0 22.2 41.7

AGL to OCI 73.3 86.7 82.9 86.4 20.6 50.0 14.3 63.2 45.5 63.3

AGL to corridor 10.0 6.7 13.4 9.9 76.5 47.1 50.0 10.5 54.5 33.3

Proportionate 3.8 11.5 20.0 23.3 80.6 75.8 87.0 91.3 31.3 15.8
consolidation
 Do small companies make different
choices?

• Nobes & Perramon (AAR, 2013)

• Same five countries; 2008/9; compare to
small listed companies
• Small companies make different choices
(and more homogeneous within country)
 Policy choices (percentages of companies by country)

AUS UK GER FRA SPA

Large Small Dif. Large Small Dif. Large Small Dif. Large Small Dif. Large Small Dif.
1 (a) income statement by function 58.3 35.3 -23.0 50.8 100.0 +49.2 82.6 36.0 -46.6 60.0 20.0 -40.0 4.8 4.0 -0.8
2 (a) line for operating profit 58.3 18.9 -39.4 98.4 100.0 +1.6 91.3 96.0 +4.7 96.7 100.0 +3.3 100.0 92.0 -8.0
3 (a) equity profit in ‘operating’ 64.7 16.7 -48.0 40.8 55.6 +14.7 22.7 15.4 -7.3 10.0 0.0 -10.0 0.0 0.0 0.0
4 (b) focussing on net assets 100.0 97.5 -2.5 85.2 45.0 -40.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
5 (b) liquidity increasing 0.0 0.0 0.0 100.0 100.0 0.0 69.6 92.0 +22.4 100.0 100.0 0.0 95.2 100.0 +4.8
6 (b) OCI only 70.8 12.5 -58.3 92.1 50.0 -42.1 43.5 8.0 -35.5 13.3 0.0 -13.3 42.9 8.0 -34.9
7 (b) indirect cash flows 8.3 0.0 -8.3 100.0 100.0 0.0 100.0 100.0 0.0 100.0 100.0 0.0 100.0 96.0 -4.0
8 (a) interest paid as ‘operating’ flow 87.5 91.2 +3.7 65.1 68.6 +3.5 68.2 76.0 +7.8 80.0 56.0 -24.0 47.6 58.3 +10.7
9(b) some PPE at fair value 0.0 13.2 +13.2 3.2 7.5 +4.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
10(b) investment property at fair value 0.0 100.0 +100.0 25.0 75.0 +50.0 0.0 0.0 0.0 0.0 25.0 +25.0 0.0 0.0 0.0
11(a) some fair value designation 25.0 63.0 +38.0 11.1 12.0 +0.9 17.4 28.6 +11.2 33.3 25.0 -8.3 19.0 42.9 +23.8
12(a) interest capitalisation 87.0 61.9 -25.1 54.3 37.5 -16.8 43.5 11.1 -32.4 40.0 16.7 -23.3 100.0 76.2 -23.8
13(b) weighted average only 52.9 30.8 -22.2 32.6 30.0 -2.6 75.0 68.4 -6.6 50.0 44.4 -5.6 88.2 77.3 -11.0
14(a) actuarial gains/losses to OCI 84.2 50.0 -34.2 88.3 92.3 +4.0 73.9 25.0 -48.9 53.3 15.0 -38.3 69.2 55.6 -13.7
15(a) proportional consolidation 18.8 33.3 +14.6 20.9 41.7 +20.7 18.8 42.9 +24.1 72.4 100.0 +27.6 93.8 83.3 -10.4
 Significant differences, small/large
No. Topic 1% 5% 10%
1 Use of by-nature income statement UK, Ger, Fra - Aus
(more in Ger/Fra; less in Aus/UK)

2 Less use of line for operating profit Aus - -

4 Less focus on ‘net assets’ in balance sheet UK - -

5 Less use of ‘cash first’ in balance sheet - Ger -

6 Less use of OCI Aus, UK, Ger, Spa - Fra

7 Less use of indirect cash flow method - - Aus

8 Less showing of interest paid as operating - - Fra

9 More use of fair value for PPE - - Aus

10 More use of fair value for investment property Aus - UK

11 More fair value designation Aus - Spa

12 Less interest capitalisation - Ger, Spa Aus

14 Less use of OCI for actuarial gains/losses Ger, Fra - -

 Do other factors affect policy
choice?
• Jaafar & McLeay (Abacus, 2007) find an
influence of sector, but pre-IFRS
• Cole et al. (2011): influence of auditor on
disclosures/formats
• Nobes & Stadler (2012): country influence
survives the inclusion of variables for sector, firm
and topic; extractive industry has idiosyncratic
policies
Classification
 Pre-IFRS classifications
• Hatfield (1911), Seidler (1967), AAA (1977), da
Costa et al. (1978), Frank (1979), Nair & Frank
(1980) all find three groups: US, UK, other
• Mueller (1967) has four groups with the US/UK
in the same group. Why?
• Nobes (1983) and Doupnik & Salter (1993)
agree with Mueller
• Shoenthal (1989), Cairns (1997), Alexander &
Archer (2000), d’Arcy (2001) all reject ‘Anglo-
American accounting’
 Figure 1. A suggested classification of accounting
‘systems’ in some developed western countries in 1980

Accounting systems

Micro-fair-judgemental Macro-uniform
Commercially-driven Government-driven
Tax dominated

Business economics Business practice

Extreme judgemental Professional rules
British origin

UK influence US influence Code-based Plan-based Statute-based Economic

Professional regulation SEC enforcement international control
influences

Netherlands Australia NZ UK Ireland Canada USA Italy France Belgium Spain Germany Japan Sweden
 Classification of IFRS practices

• Nobes (Abacus, 2011)

• Uses 2008/9 data from Kvaal & Nobes, and

adds 3 countries to ‘cover’ Figure 1
 Policy choices (percentages of companies by country), 2008
Aus UK Ger Fra Spa NL Ita Swe

1 (b) balance sheet focus on net assets 100.0 85.2 0.0 0.0 0.0 14.3 0.0 0.0
2 (a) income statement by function 58.3 82.1 82.6 62.1 4.8 50.0 7.1 95.0
3 (a) equity profit in ‘operating’ 68.8 42.6 22.7 10.0 0.0 0.0 0.0 93.3
4 (b) OCI only 67.5 90.6 36.7 14.7 32.1 41.1 18.8 23.1
5 (b) indirect cash flows 8.3 100.0 100.0 100.0 87.5 100.0 100.0 100.0
6 (a) interest paid as ‘operating’ flow 81.5 65.1 68.2 80.0 47.6 78.5 92.9 90.0
7 (b) some PPE at fair value 15.0 11.1 0.0 0.0 0.0 11.8 0.0 3.8
8 (b) investment property at fair value 39.3 70.8 5.3 14.3 13.3 75.0 5.6 100.0
9 (a) some fair value designation 25.0 11.1 17.4 33.3 19.0 75.0 12.5 52.6
10 (a) interest capitalisation 84.4 57.7 41.7 44.4 100.0 66.6 27.8 33.3
11 (b) weighted average only 52.9 30.0 75.0 50.0 88.2 41.7 78.6 10.0
12 (a) actuarial gains/losses to OCI 86.7 86.4 63.3 50.0 63.2 31.3 20.8 20.0
13 (a) proportional consolidation 11.5 23.3 15.8 75.8 91.3 46.0 39.1 33.3
 MDS configuration

150
Swe

100
Dimension 2

50
NL

Ita
0

Fra UK
Ger
-50

Spa
Aus
-100

-100 -50 0 50 100 150

Dimension 1
Modern MDS (loss=stress; transform=monotonic)

Multidimensional scaling of two dimensions

 200
150
100 Dendrogram for _clus_1 cluster analysis
50
0

Swe Ger Fra Ita NL Spa Aus UK

Dendrogram of two-cluster solution

 Classification of IFRS practices

• Nobes (Abacus, 2011)

• Uses 2008/9 data from Kvaal & Nobes, and

adds 3 countries to ‘cover’ Figure 1

• After 30 years of EU and IASC/B harmonisation,

the UK is still with Australia and not with Spain
 Experiments: Data on accounting
differences under the same regulation
• Nobes and Stadler (AOS, 2013)

• IFRS practices in 2011 on 14 policy options:

hand-picked data

• 12 countries (including China, HK, South Africa,

South Korea for the first time)

• 515 largest listed companies

 Percentages of policy choice by country and topic

IFRS Policy Choice AU UK CA CN HK FR ES IT DE CH ZA SK

1. Income statement by nature 35 11 5 42 36 29 96 81 24 29 15 3

2. Operating profit not shown 42 1 31 29 29 3 0 0 12 0 0 0

3. Equity profits in operating 59 35 48 4 0 8 23 14 35 39 7 2

4. Balance sheet shows net assets 100 76 0 41 82 0 0 0 0 5 0 0

5. Balance sheet starts cash 100 10 100 24 14 10 22 29 26 50 9 98

6. Indirect cash flows 4 98 100 98 100 100 91 95 100 95 66 100

7. Dividends rec. as operating 87 37 85 5 30 79 39 20 71 43 86 91

8. Interest paid as operating 86 61 74 47 43 79 52 69 61 64 96 89

9. Some property at FV 10 10 2 0 5 0 0 0 0 0 0 0

10. Investment property at FV 93 68 36 20 94 20 5 0 5 80 40 3

11. Some FV designation 10 3 13 0 7 24 4 4 6 7 23 19

12. FIFO only 21 42 23 5 15 11 22 19 0 36 23 6

13. Actuarial losses to OCI 85 89 72 8 36 60 68 30 59 35 28 85

14. % consolidation of JVs 6 25 55 8 0 71 70 38 17 43 59 17

 Experiments: Data on accounting
differences under the same regulation
• IFRS practices in 2011 on 14 policy options:
hand-picked data

• 12 countries (including China, HK, South Africa,

South Korea for the first time)

• 515 largest listed companies

• Notice the sector difference

 Sample by country and sector
AU UK CA CN HK FR ES IT DE CH ZA SK

0/1 Extractive 6 9 21 7 0 2 1 1 0 0 7 3

0/1 Other oil and gas, basic 4 3 2 5 0 2 3 0 7 3 1 4

2 Industrials 7 15 2 12 4 9 8 7 6 2 6 13

3 Consumer goods 2 10 2 3 3 7 1 5 7 3 2 5

4 Health care 2 3 0 1 0 2 1 1 2 4 2 0

5 Consumer services 8 20 8 4 3 7 3 8 6 0 6 4

6 Telecommunications 1 4 3 1 1 1 1 1 1 1 2 3

7 Utilities 1 5 1 3 3 2 4 3 2 0 0 2

8 Financials 20 22 10 13 8 6 9 12 6 6 6 10

9 Technology 0 2 0 2 0 2 1 0 2 1 0 4

∑ 51 93 49 51 22 40 32 38 39 20 32 48
 Examples of sectoral differences in policy choice
p-value

Country IFRS Policy Choice % Financials % Extractives % Others

<0.01
All 10. Investment property at fair value 62 0 9

<0.01
All 13. Actuarial gains/losses to OCI 40 58 73

<0.01
All 14. Proportionate consolidation of JVs 27 56 35

<0.01
Aus 10. Investment property at fair value 100 - 50

<0.01
Can 13. Actuarial gains/losses to OCI 10 82 100

0.01
Can 14. Proportionate consolidation of JVs 30 82 36

<0.01
UK 4. Balance sheet showing net assets 45 67 89

<0.01
UK 5. Balance sheet with liquidity decreasing 32 0 3
 Percentages of policy choice by country and topic

IFRS Policy Choice AU UK CA CN HK FR ES IT DE CH ZA SK

1. Income statement by nature 35 11 5 42 36 29 96 81 24 29 15 3

2. Operating profit not shown 42 1 31 29 29 3 0 0 12 0 0 0

3. Equity profits in operating 59 35 48 4 0 8 23 14 35 39 7 2

4. Balance sheet shows net assets 100 76 0 41 82 0 0 0 0 5 0 0

5. Balance sheet starts cash 100 10 100 24 14 10 22 29 26 50 9 98

6. Indirect cash flows 4 98 100 98 100 100 91 95 100 95 66 100

7. Dividends rec. as operating 87 37 85 5 30 79 39 20 71 43 86 91

8. Interest paid as operating 86 61 74 47 43 79 52 69 61 64 96 89

9. Some property at FV 10 10 2 0 5 0 0 0 0 0 0 0

10. Investment property at FV 93 68 36 20 94 20 5 0 5 80 40 3

11. Some FV designation 10 3 13 0 7 24 4 4 6 7 23 19

12. FIFO only 21 42 23 5 15 11 22 19 0 36 23 6

13. Actuarial losses to OCI 85 89 72 8 36 60 68 30 59 35 28 85

14. % consolidation of JVs 6 25 55 8 0 71 70 38 17 43 59 17

Principal component analysis using all available data
Country Component 1 Component 2 Component 3

AU 0.1785 0.1484 -0.6303

UK 0.0948 0.4722 -0.1484

CA 0.4691 -0.1076 -0.1560

CN -0.0264 0.4860 0.2531

HK -0.0851 0.6521 -0.0984

FR 0.3568 -0.0119 0.1979

ES 0.1787 0.0370 0.4532

IT 0.1507 0.1335 0.4591

DE 0.3716 0.0462 0.0762

CH 0.2569 0.2296 -0.0015

ZA 0.3699 -0.0443 0.0379

SK 0.4562 -0.0763 -0.1418

 Grouping of countries based on principal component analysis

Run # Topics Sectors AU UK CA CN HK FR ES IT DE CH ZA SK

1 All All 1 (2) 2 1 2 2 1 3 3 1 1 (2) 1 1

2 All All 1 2 1 2 3 (1) 3 3 1 1

3 Not 2,5,7 All 2 2 1 2 1 1 1 1 1

4 Not 2,5,7 All 2 2 2 1 1 1 1

5 Not 2,5,7 All 2 2 2 1 1 1 1 1 (2)

6 Not 2,5,7 All 2 2 2 1 1 1 1 1 (2) 1

7 Not 2,4,5,7 All 2 2 2 (1) 2 1 1 1 1 1 [2]

8 Not 2,5,7 Not F 2 2 2 1 1 1 1

9 Not 2,5,7 Not F+E 2 2 2 1 1 1 1

10 Not 2,4,5,7 Not F 2 2 (1) 1 1 1 1 1 1 1 [2]

11 All Not F+E 3 2 1 (3) 2 2 1 1 1 1 1 1 3 (1)

 Try Excluding Countries, Topics, Sectors

• Countries:- compare runs 5 and 6: no change in

principal components; but affects
dendrograms (Figures 1 and 2)
 Figure 1 Dendrogram for run 5

Dendrogram
150
100
50
0

AU UK HK FR DE ES IT CH
 Figure 2 Dendrogram for run 6

Dendrogram
150
100
50
0

AU UK HK FR ZA DE CH ES IT
 Try Excluding Countries, Topics, Sectors

• Countries:- compare runs 5 and 6: no change in

principal components; but affects
dendrograms (Figures 1 and 2)
• Topics: - compare runs 2 and 3
- for Canada, compare runs 3 and 7
 Grouping of countries based on principal component analysis

Run # Topics Sectors AU UK CA CN HK FR ES IT DE CH ZA SK

1 All All 1 (2) 2 1 2 2 1 3 3 1 1 (2) 1 1

2 All All 1 2 1 2 3 (1) 3 3 1 1

3 Not 2,5,7 All 2 2 1 2 1 1 1 1 1

4 Not 2,5,7 All 2 2 2 1 1 1 1

5 Not 2,5,7 All 2 2 2 1 1 1 1 1 (2)

6 Not 2,5,7 All 2 2 2 1 1 1 1 1 (2) 1

7 Not 2,4,5,7 All 2 2 2 (1) 2 1 1 1 1 1 [2]

8 Not 2,5,7 Not F 2 2 2 1 1 1 1

9 Not 2,5,7 Not F+E 2 2 2 1 1 1 1

10 Not 2,4,5,7 Not F 2 2 (1) 1 1 1 1 1 1 1 [2]

11 All Not F+E 3 2 1 (3) 2 2 1 1 1 1 1 1 3 (1)

 Try Excluding Countries, Topics, Sectors

• Countries:- compare runs 5 and 6: no change in

principal components; but affects
dendrograms (Figures 1 and 2)
• Topics: - compare runs 2 and 3
- for Canada, compare runs 3 and 7
• Sectors: - runs 4, 8 and 9 are the same,
but moving from run 7 to 10 or from
run 1 to 11 shows an effect
 Grouping of countries based on principal component analysis

Run # Topics Sectors AU UK CA CN HK FR ES IT DE CH ZA SK

1 All All 1 (2) 2 1 2 2 1 3 3 1 1 (2) 1 1

2 All All 1 2 1 2 3 (1) 3 3 1 1

3 Not 2,5,7 All 2 2 1 2 1 1 1 1 1

4 Not 2,5,7 All 2 2 2 1 1 1 1

5 Not 2,5,7 All 2 2 2 1 1 1 1 1 (2)

6 Not 2,5,7 All 2 2 2 1 1 1 1 1 (2) 1

7 Not 2,4,5,7 All 2 2 2 (1) 2 1 1 1 1 1 [2]

8 Not 2,5,7 Not F 2 2 2 1 1 1 1

9 Not 2,5,7 Not F+E 2 2 2 1 1 1 1

10 Not 2,4,5,7 Not F 2 2 (1) 1 1 1 1 1 1 1 [2]

11 All Not F+E 3 2 1 (3) 2 2 1 1 1 1 1 1 3 (1)

 But, Some Stable Groups

• Italy with Spain

• Germany with France

• China and Hong Kong with UK

• South Africa, South Korea and Switzerland with

Germany
 Common Law/ Code Law?

• Does classification fit with common/code

regulation?
• When Scotland becomes a separate Roman law
country, will its accounting change?
• We could ‘prove’ either:
– for, run 7
– against, run 1
• …and it depends on whether you decide that
South Africa and Canada are ‘common law’
 Grouping of countries based on principal component analysis

Run # Topics Sectors AU UK CA CN HK FR ES IT DE CH ZA SK

1 All All 1 (2) 2 1 2 2 1 3 3 1 1 (2) 1 1

2 All All 1 2 1 2 3 (1) 3 3 1 1

3 Not 2,5,7 All 2 2 1 2 1 1 1 1 1

4 Not 2,5,7 All 2 2 2 1 1 1 1

5 Not 2,5,7 All 2 2 2 1 1 1 1 1 (2)

6 Not 2,5,7 All 2 2 2 1 1 1 1 1 (2) 1

7 Not 2,4,5,7 All 2 2 2 (1) 2 1 1 1 1 1 [2]

8 Not 2,5,7 Not F 2 2 2 1 1 1 1

9 Not 2,5,7 Not F+E 2 2 2 1 1 1 1

10 Not 2,4,5,7 Not F 2 2 (1) 1 1 1 1 1 1 1 [2]

11 All Not F+E 3 2 1 (3) 2 2 1 1 1 1 1 1 3 (1)

 Conclusions (I)
• Versions of IFRS (which allow compliance with
IASB-IFRS) have been adopted in about 90
countries for listed/consolidated reporting
• Reasons for differences in pre-IFRS practices can
affect IFRS policy choice
• There are many opportunities for different
versions of IFRS practice
• Pre-IFRS practice is a strong explanation of IFRS
policy choice
• The IASB should remove the choices
 Conclusions (II)
• Countries can be put into groups by pre-IFRS practices

• National patterns of IFRS practice existed in 2005/6 and

continued into 2008/9

• On some topics, continental companies changed in the

period (and changed more than at transition)

• Even after this, the two-group classification has survived

30 years of harmonisation by the EU and the IASC/B

• Analysts need to be warned that IFRS practices vary, and

they could use the profiles
 Conclusions (III)

• Small listed firms choose different policies from

large firms

• Therefore, national profiles are even clearer for

small companies

• Work has begun on other issues, e.g. whether

estimations are done differently by country
 Conclusions (IV)

• This is not (largely) a criticism of IASC/B:

- comparability of listed/consolidated has
improved
- enforcement is not within IASB’s control
- alternatives to IFRS would have similar
problems (except that US GAAP has fewer
options)
 Conclusions (V)
• Classification is greatly affected by changing
characteristics, but little effected by changing
countries or sectors
• 5 countries classified here for the first time
• Does classification fit with common/code
regulation? We could ‘prove’ either.
• Classifiers should disclose data, judgements, etc.
• Further research: many examples in ABR 2013
paper