They are all similar in size (i.e., market capitalization) and book to market ratio, and use the same set of accounting standards, IFRS, for their consolidated financial statements. The international investor may believe that the financial reports of all three companies are comparable since they all state some form of compliance with IFRS. In the realm of financial reporting, comparability and consistency are not just theoretical concepts; they are practical tools that have been successfully implemented by numerous organizations to enhance transparency and trust among stakeholders. These twin pillars serve as a foundation for stakeholders to make informed decisions, as they ensure that financial statements and reports are presented in a manner that is both understandable and reliable over time.

Options in accounting standards

By following and enhancing these standards, we boost the analysis of financial statements. As more than 165 countries have adopted some form of IFRS reporting, investors need to be able to compare the financial reports of firms listed across borders. For example, they argue that companies compute subtotals differently and investors create their own subtotal differently such that companies’ income statement subtotals, like operating income, cannot be compared for similarities and differences. Prior accounting research studies provide empirical evidence that adoption, application, and enforcement of IFRS varies across legal jurisdictions. IOSCO has established relationships with over 130 national regulators (Kempthorne 2013). Next, NVivo is used to search for the keyword “enforce” with its stemmed words (such as enforcing, enforceable, enforcement, enforceability) in all 9585 IASB documents.

Intriguingly, firms with high accounting comparability saw their valuation for each dollar in reported EPS jump to $6.76, a 25% increase. This shows that the market values reliable and comparable financial disclosures differently. Comparability in accounting means users can consistently review financial statements. It also boosts the reliability and understanding of a company’s financial position. The objective of our study is to suggest a global organization dynamic change in the enforcement of IFRS through IOSCO to enhance CFR globally. First, we conduct a simple qualitative analysis of the content of IASB and IOSCO documents to understand the trend and current status of CFR in application and enforcement of IASB’s IFRS.

Accounting standards for markets globally

Each country may have adopted a different version of IFRS (Felski 2017; Zeff and Nobes 2010). Some could have ifrs comparability data adopted IFRS as published by the IASB, whereas other countries may have adopted IFRS with a lag or with differing versions of IFRS. IFRS S1 permits a company to present additional information disclosed to meet other requirements, such as specific jurisdictional requirements. But the company is prohibited from obscuring material information with that additional information. The climate-related governance disclosure requirements in IFRS S2 are consistent with and complement the requirements in IFRS S1.

Only then can meaningful comparisons be made, ensuring that the proverbial fruits are judged on a level playing field. To illustrate these points, consider the case of a U.S.-based technology firm and a European manufacturing company. At first glance, their financial statements might reveal stark differences in profitability.

The following example might be helpful in understanding the potential complexities that affect comparability of companies’ financial reports relative to adoption, application, and enforcement of IFRS. An international investor is interested in selecting among three investment options in the securities of companies in the telecommunication industry, all cross-listed or listed in the German capital market. We consider two foreign companies, namely, Chunghwa Telecom Ltd. from Taiwan, and Swisscom AG from Switzerland, and one domestic company, namely Deutsche Telekom.

Literature review about differences in IFRS adoption across the world

From the perspective of an auditor, comparability means applying the same accounting principles across periods and entities. For investors, it translates into the ability to make informed decisions based on the similarities and differences between financial statements. And for regulators, it’s about ensuring that the full disclosure principle is upheld, providing a level playing field for all market participants. To achieve the objective of this study, we use a inductive approach to define the theoretical framework, develop our literature review, and state our research question. We adopt the Gioia et al. (2012) qualitative theoretical framework to frame our literature review and to prescribe an organizational dynamics change to achieve CFR globally (see Fig. 1). Then, we refer to Gioia et al.’s framework (2012) to identify and prescribe organizations’ interrelationship dynamics change process.

For instance, consider the impact of the Brexit vote on the British pound, which saw a sharp devaluation, subsequently affecting the UK’s trade relationships and investor confidence. Accountants and financial analysts, on the other hand, grapple with the standardization of financial reporting. They strive to create frameworks that can accommodate the vast array of financial transactions and conditions, yet remain flexible enough to provide a true and fair view of an entity’s financial health. Under IFRS the switch from a 12-month loan loss allowance to a full lifetime allowance takes place when there has been a significant increase in credit risk compared with the credit risk on the date the loan was originated.

How do accounting regulations like those from the IASB and FASB affect comparability?

The ISSB is focused on simplifying the landscape even further by ensuring its standards work well with jurisdictional requirements, when relevant, and with the GRI Standards so that a common baseline of information is available. IFRS generally uses a single-step impairment model, while GAAP applies a two-step process. IFRS allows capitalization of certain development costs, whereas GAAP typically requires you to expense them. While countries like China and India have developed IFRS-converged standards, the United States continues to use Generally Accepted Accounting Principles (GAAP).

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Improved comparability has influenced corporate strategy and investor relations by enabling companies to communicate financial results more transparently. This transparency can bolster market confidence and potentially lower capital costs, as investors perceive reduced risk in financial disclosures. IFRS S1 requires a company to consider SASB disclosure topics when identifying industry-specific sustainability-related risks and opportunities.

As markets continue to globalize, understanding the nuances of exchange rates and their impact on market volatility remains a critical, albeit challenging, endeavor for analysts, investors, and policymakers alike. The key lies in recognizing the patterns within the chaos and navigating the slippery slope with informed caution. Investors require financial data that is comparable over time, comparable within a single set of financial statements, and comparable between companies. We explain how differences between IFRS and US GAAP, accounting policy options, differing interpretations and accounting estimates, can all reduce comparability.

• The ISSB issued its inaugural IFRS Sustainability Disclosure Standards—IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures—in June 2023.
• But the regeneration and preservation of that resource could positively affect the company.
• Finally, we do not address the IFRS Interpretations Committee’s timeliness or lack thereof as an impediment to global CFR (see Quagli et al. (2020)).
• For instance, while one country may use International Financial Reporting Standards (IFRS), another might use Generally accepted Accounting principles (GAAP), leading to significant differences in reported earnings and assets.

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Its objectives (IOSCO 2017a, 2017b) are protecting investors, ensuring that markets are fair, efficient, and transparent and reducing systemic risk. There is significant cross-sectional heterogeneity in application of IFRS, some of which is related to management’s corporate governance incentives. Wójcik (2006) argues that differences exist in corporate governance practices between countries and industries.

The problem is that most of these terms do not have a clear definition for the purpose of financial reporting. The exception is the use of ‘probable’ in IFRS, which means more likely than not (i.e. a greater than 50% probability). Unfortunately, the same term has a different, and less precise, meaning in US GAAP where it represents a higher level of probability, which is confusingly closer to the use of ‘highly probable’ in IFRS. The application of hedge accounting by some companies, and not others, and its application to some hedges and not others by individual companies, is confusing and impairs comparability. Hedge accounting is the process of adjusting the accounting to eliminate these mismatches – in this case by applying cash flow hedging and deferring the gains and losses for the currency swaps in other comprehensive income.

• This change is proposed to mitigate differences in enforcement of IFRS at the country level and thus enhance global CFR.
• It involves the examination and comparison of financial statements from companies in different countries to evaluate performance, risks, and opportunities.
• IFRS S1 permits a company to present additional information disclosed to meet other requirements, such as specific jurisdictional requirements.
• Financial analysts often employ normalization adjustments to reconcile these differences.
• The Full Disclosure Principle plays a vital role in ensuring that financial statements are a reliable source of information for all stakeholders.

In the realm of financial analysis, the act of comparison is foundational yet fraught with pitfalls. The phrase “comparing apples to oranges” is often invoked to describe the futility of comparing two items that, at first glance, seem similar but are inherently different in critical ways. This section delves into various case studies where comparisons have gone awry, leading to misleading conclusions and, at times, significant financial repercussions. Through these examples, we will explore the nuances and complexities involved in financial data comparison, underscoring the importance of context, standardization, and a deep understanding of the underlying metrics. In the intricate world of financial data analysis, sector-specific challenges often arise due to the unique nature and context of each industry.