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Abstract
We examine the effect of Australian equivalents to International Financial Reporting Standards
(IFRS) on the accounts and accounting quality of 1,065 listed firms, relying on retrospective
reconciliations between Australian Generally Accepted Accounting Principles (AGAAP) and
IFRS. We find that IFRS increases total liabilities, decreases equity and more firms have earnings
decreases than increases. IFRS earnings and equity are not more value relevant than AGAAP
earnings and equity and while adjustments for changes in accounting for provisions and intangibles
other than goodwill are value relevant, they weaken associations with market value. Goodwill
adjustments improve associations with market value. We also find that the reconciliation note for
the earnings adjustments contained no new information.
JEL Classi3cations: M40,M41
Keywords: LFRS, accounting quality
*Wethank participants at research workshops at The Hong Kong Polytechnic University, RMIT University,
The University of Technology Sydney, the AAA 2007 annual meeting, the AFAANZ 2007 annual meeting and
the JCAE/AJPT 2008 annual symposium for their valuable input. We also thank Eli Bartov, Kim Sawyer, Katherine
Schipper, the editors and the anonymous reviewer for their valuable input. Any errors remain the authors'.
90
1. Introduction
In 2002 the Financial Reporting Council (FRC) claimed that the implementation
of Australian equivalents to International Financial Reporting Standards (IFRS) would
enhance the overall quality of financial reporting in Australia (FRC,2002). This view
was supported by the Australian Accounting Standards Board (AASB) in suggesting that
complying with IFRS would not impose significant burdens and costs on entities when
compared with the benefits of more relevant and reliable information for users of financial
reports (Fenton-Jones, 2003,53). There was general agreement among commentators, the
firms, analysts and the wider community that the introduction of IFRS from 2005 would
materially affect Australian firms financial performance and accounts quality (Buffini,
2005; Clarke and Dean, 2005, Deegan, 2005,32-35). A study based on interviews of 60
senior financial executives from Australias top 200 firms reported that the introduction
of IFRS would have a significant impact on financial position and earnings. The majority
of executives expected earnings to be negatively affected while less than half expected a
positive effect on the financialposition of their firms (Jones and Higgins, 2006). However, no
substantialempirical study has been undertaken to assess the claim that financial statements
prepared under IFRS will enhance the quality of financial reporting in Australia or to
examine the effects of IFRS on financial performance. In this paper we use a representative
sample of listed firms in attempting to fill this gap in the literature.
Our study contributes to the current debate on whether IFRS based accounting numbers
are of a different quality to those produced under domestic GAAP in several important
ways. First, we examine all listed Australian firms that have available data. Second, the
exemptions from applying IFRS to restated earnings and equity are limited to a small
number of standards and all firms are required to restate and provide reconciliations from
Australian Generally Accepted Accounting Principles (AGAAP) to IFRS upon first-time
adoption of IFRS (AASB 1 First-Time Adoption of Australian Equivalents to International
Financial Standards, para 39): Prior studies use datasets that may not be representative
of the full effects of IFRS due to small sample size (e.g., Hung and Subramanyam, 2007)
or they may use firms that voluntarily adopt IFRS (e.g., Barth et al., 2005; Bartov et al.,
2005), meaning control for self-selection bias is needed. Self-selection bias is not an issue
with our dataset because early adoption is not permitted (AASB 1). Third, our large sample
size permits an empirical examination of the reconciliation adjustments to IFRS, which
has not been reported in the literature. Finally, examining the switch to IFRS for Australia
is useful, as similar studies have focused on code law countries such as Germany. In
Germany, accounting numbers are more conservative and have different value relevance
than accounting numbers produced under common law based countries like Australia (Ali
and Hwang, 2000; Ball et al., 2000).
IFRS is applicable for reporting periods beginning after 31 December 2004 and firms
are required to restate comparatives and provide reconciliationsto IFRS in their notes to the
Supporting this contention are the shareholder briefings held by some firms (e.g., Telstra and Alinta) to
explain the financial impact of IFRS on their accounts.
* There are some standards exempt from retrospective application, namely the two financial instruments
standards (AASB 132 and AASB 139),AASB 3 Business Combinations and the three insurance standards (AASB
4 Insurance Contracts,AASB 1023 General Insurance Contractsand AASB 1038Life Insurance Contracts).
accounts in the first year of adoption.This requirementpermits a research design that directly
compares accounting numbers and their properties prepared under AGAAP with those
under IFRS for the same set of firm-years, as firms provide earnings and equity amounts
measured under two different sets of accounting standards for the same periods.
Our investigation comprises two main parts. First, we document the effect of IFRS on
key accounting numbers and ratios. Using a sample of 1,065 listed firms, we find that the
mean (median) of total liabilities has increased and the mean (median) of total equity has
fallen. Total assets and earnings are higher under IFRS but the changes are not significant
apart from the increase in the half-year earnings median. IFRS increases the leverage ratio.
Second, we examine the relative value relevance of IFRS earnings and equity and the
incremental value relevance of IFRS over AGAAP. Using models with market prices and
returns as dependent variables, we carry out our tests on annual earnings (net income) and
equity measured at the changeover date to IFRS. We find no evidence that IFRS earnings
and equity are more value relevant than AGAAP. We find weak evidence that the aggregate
changes for earnings and equity are incrementallyvalue relevant to AGAAP.About half of
the reconciling adjustments to AGAAP are value relevant but are generally not timely. The
intangibles and provisions adjustments in particular weaken the association with market
value. Goodwill adjustments improve the association with market value.
Because our data is from retrospective reconciliations, the tests are only of the ability
of accountingnumbers to capture information used by the market. Therefore a coefficients
significanceprovides a lower bound on its true significance.We are aware of two other
similar papers, namely Rees and Elgers (1997) and Hung and Subramanyam (2007)
that examine a retrospective dataset. In our final test we examine whether the earnings
adjustments are associated with market values measured over the interval covering the
release of the IFRS reconciliation note. This test permits inferences about the usefulness
to investors of the reconciliation adjustments, as observing a significant coefficient in
this regression could result from investors using that information. We find that all of the
information in the earnings adjustments was impounded into prices before the release of
the accounts, suggesting that the market was able to obtain the information from sources
other than the reconciliation note.
The remainder of this paper is organised as follows. The literature review is covered
in the next section. Section 3 describes the institutional background and data collection
process. Section 4 describes the accounting differences between AGAAF and IFRS for the
major reconciliation adjustments and provides an examination of the effects of IFRS on
the accounts and on financial statement elements and ratios. Section 5 covers methodology
and results for relative value relevance tests and incremental value relevance is covered in
section 6. Section 7 concludes the paper.
2. Literature Review
Barth et al. (2005) use data from 24 countries over a 15-year period to 2004 and find that
the transition to IFRS results in improved accounting quality using a variety of measures.
Specifically, they find that IFRS results in more timely recognition of losses and higher
R2s in regressions of market value on earnings and book value. A study using European
data by Armstrong et al. (2007) report that the stock market reacts positively to the early
92
adoption of IFRS, which suggests that European equity investors perceive net benefits due
to convergence of accounting standards and improved information quality following IFRS
adoption.While these results may be more representative of the overall effects of IFRS, they
are difficult to interpret for a study examining one country because each set of domestic
GAAP is likely different in a number of respects. For example, the timeliness characteristic
of earnings differs according to the institutional environment between countries (Ball et
al., 2000): The most closely related studies to the present study are those that examine
samples from one country.
An early single-country study by Kinnunen et al. (2000) exploits a unique market
setting in Finland, where foreign investors are restricted in their trading of certain shares.
This permits the authors to examine the relative value relevance of Finnish GAAP and
voluntarily adopted IFRS between two investor groups. They find IFRS improves the
information content for foreign investors but not for domestic investors. Another Finnish
study by Niskanen et al. (2000), examines components of reconciliations to IFRS for
18 Finnish firms voluntarily using IFRS over the period 1984 to 1992. They report the
aggregate earnings difference is value irrelevant for explaining returns but that untaxed
reserves adjustments and consolidation differences are value relevant. Since these papers
examine voluntary adopters the results may be affected by self-selection bias and they use
a dataset of accounting rules that is dated!
More recently, Christensen et al. (2007) have examined the economic consequences for
UK firms of the European Unions decision to impose mandatory IFRS. They show that
there are cross-sectionalvariations in both short-run market reactions and long-run changes
in cost of equity associated with the decision, suggesting that mandatory IFRS adoption
does not benefit all firms in a uniform way but results in winners and losers. Using a price
levels regression, Hu (2003) reports that Chinese GAAP is more value relevant than IFRS
using a sample of 252 firm-years. This finding is supported by Eccher and Healey (2003),
who investigated a sample of 83 Chinese firms that were required to provide two sets of
accounts using Chinese GAAP and IFRS, and found that earnings under Chinese GAAP
were more closely associated with returns than earnings under IFRS.
Hung and Subramanyam (2007) use a sample of 80 German firms which voluntarily
adopted IFRS over the period 1998-2002and provided accounts under German GAAP and
IFRS for the same period. Using price levelsmodels, they find that total assets and book
value of equity, as well as variability of book value and net income, are higher under IFRS
than under German Accounting Rules (HGB). They also find that book value of equity
and net income under IFRS are no more value relevant than the amounts under HGB.
Further, they report that earnings and equity under IFRS are incrementally value relevant
With respect to a countrys institutional environment, Ball et al. (2000) report that due to different levels
of conservatism, earnings of firms in common law based countries are more timely in impounding economic
information than earnings of firms in code law countries. They also find that earnings coefficients are larger for
code law than for common law countries.
Other studies on the voluntary adoption of IFRS investigate the distinguishing economic characteristics of
firms that switch to IFRS. El-Gazzar et al. (1999) report that firms voluntarily adopting IFRS are those seeking
to access foreign capital, improve customer recognition or reduce political costs. Lang et al. (2003) note that
firms electing to adopt IFRS early are more likely to be those firms with fewer reconciling items.
to German GAAP. Both coefficients are highly significant but the earnings coefficient sign
is negative which they suggest is consistent with more measurement errors in the IFRS
earnings than in the German earnings. Their relative value relevance results contrast with
Bartov et al. (2005) who also compare German HGB with IFRS (and US GAAP). They
find that IFRS is more value relevant than German HGB in its ability to explain returns (as
opposed to prices used by Hung and Subramanyam,2007). They also find little difference
in the value relevance of US GAAP earnings and IFRS earnings after self-selection bias
is controlled for?
Bartov et al. (2005) examine firms in the cross section rather than the same set of firms
as do Hung and Subramanyam (2007).The present study also examines the same firms with
the added advantage that firms must adopt IFRS rather than voluntarily.Although Hung
and Subramanyam (2007) control for self-selection bias, the possibility remains that the
bias in the IFRS accounts due to the effects of early voluntary adoptions may explain the
conflicting results, as Barth et al. (2005) have noted. Different models might be another
reason, which motives us to estimate both a price levels model and a returns model.
In sum, the literature gives conflicting evidence on accounting quality. Our study adds
to the existing literature on the effects of adopting IFRS on earnings and equity quality by
using recent data from companiesthat are required at initial adoption to provide earnings and
equity numbers under both AGAAP and IFRS, and by using price and returns models.
Leuz (2003) also examines the value relevance of German accounting numbers and reports that neither the
trading spread nor the trading volumes is significantlydifferent for the companies that choose IFRS or US GAAP
voluntarily.
Another requirement is to provide a reconciliation to half-year IFRS earnings (net income) to December
2004 in the half-year accounts ended 3 1 December 2005. These dates are different for a firm with a year-end that
differs from June 30 (see paragraphs 39 and 45 of AASB 1 for other requirements).
94
record details of any reconciliations for annual net income and equity at the last date that
AGAAP is used.
We delete 280 firms which were unaffected by IFRS and 42 firms with missing data
or identified as outliers in initial regression tests. In the final sample of 1,065firms there
are 1,020firms with earnings changes and 844 firms with equity changes. Table 1 shows
the sample description.
Table 1
Sample Description
Number of firms listed on ASX at January 2006
Less:
Firms listed in 2005 or 2006
F m s using foreign currency / foreign GAAP
Accounts not available
Firms delisted in 2006
Potential sample
Financial
Non financial
Mining
1,714
( 180)
(72)
(73)
(2)
1,387
18%
47%
35%
253
649
485
1,387
Less:
Unaffected by IFRS
Firms with missing data
Final sample
Financial
Non financial
Mining
(280)
3
1,065
18%
50%
32%
193
530
3
1,065
1,020
844
Of the 280 unaffected firms, 15 firms changed comparatives only for prior period errors and accounting
policy changes unrelated to IFRS .AASB 108Accounting Policies, Changes in Accounting Estimates and Errors
requires retrospective adjustment for these types of change (para 19 and 42).
Frequencies and Percentages of Unsigned Earnings and Equity for Adjustments of Earnings and Equity
N
Share-based payment
Income tax
Goodwill
Intangibles
Provisions
Investments
Impairment
FX translation
Leases
Other
Total
594
456
38 1
183
165
131
98
98
90
353
1,020
Earnings
Mean%
-341
40
9
-3
75
Median%
-3
0
9
1
-1
6
-54
-4
-4
-16
0
-1
-1
0
0
N
83
415
315
194
174
94
120
84
84
361
844
Equity
Mean%
Median%
-4
0
3
-11
-1
5
-12
-1
-1
-9
-6
-1
0
1
-1
0
0
-4
0
0
-1
-1
Earnings is annual net income. Equity is net assets. Mean % (median %)is the mean (median) of the reconciling
adjustment amount for earnings or equity divided by the absolute value of AGAAP earnings or AGAAP equity
for each firm.Other is a catch-all component.
IFRS is
shown in Appendix A.
96
lo
91
We next examine the effect of IFRS on financial statement elements, retained profits,
cash flow and ratios. The top three rows of Table 3 shows that assets, liabilities and equity
differ under IFRS, but only the liabilities and equity differences are significant at the 10
percent level. The mean of total assets has risen yet the median is unchanged, due to some
very large asset increases for a small number of firms. These increases are mainly due
to first time consolidation of mortgage trusts by financial industry firms, which has also
increased liabilities with a zero or small net equity effect. By contrast, the effect is clearly
upward (downward) with liabilities (equity) due to recognition of new liabilities, such
as deferred tax liabilities for asset revaluations and restoration provisions; remeasuring
98
Table 3
Effect of IFRS on Financial Statement Numbers and Ratios
N
Total assets
Total liabilities
Total equity
Retained profits
Earnings
Earnings - half year
Net cashflow
Operating cashflow
ROE
ROA
TL I TA
Price earnings
Market to book
1,065
1,065
1,065
1,065
1,065
1,064
1,065
1,065
1,033
1,065
1,065
496
1,033
AGAAP
517.60
296.40
22 1.20
23.70
22.90
12.50
6.50
30.40
-0.24
-0.15
0.38
21.70
2.76
Mean
IFRS
t-test
AGAAP
Median
IFRS
529.30
342.30
187 .OO
13.60
24.40
13.20
6.10
3 1.40
-0.23
-0.16
0.41
21.56
3.23
0.49
0.02
0 .oo
0.01
0.11
0.21
0.27
0.21
0.73
0.19
0.oo
0.97
0.12
30.30
7.80
19.50
-3.90
0.10
-0 .o I
0.25
-0.07
0.01
0 .oo
0.31
10.95
1.71
30.30
8.20
18.50
-4.90
0.12
0.oo
0.25
-0.07
0.02
0.01
0.33
10.51
1.84
Wilcoxon
0.34
0 .oo
0 .oo
.oo
0
0.62
0.01
0.35
0.14
0.56
0.00
0 .oo
0 .oo
0.00
All balance sheet numbers are measured at the end of the last financial year reported under AGAAP. All
financial statement numbers are expressed in millions. ROE is earnings divided by equity at year-end. ROA
is annual earnings divided by total assets at financial year-end. TL is total liabilities. TA is total assets. Price
earnings ratio is calculated only for positive earnings for both AGAAP and IFRS.ROE and market to book ratio
are calculated on smaller samples because some firms (unincorporated trusts) report zero equity under IFRS.
P-values are for two-tailed tests
existing liabilities more conservatively, such as defined benefit superannuation plans; and
restoration provisions and reclassifications, such as equity to debt for trusts.I2
Both yearly and half yearly earnings have increased under IFRS, but the differences are
insignificant except for the half-year medians. Despite these trends more firms experience
an earnings decrease than an increase. This occurs because the dollar amount of the change
to earnings is about four times larger when it is positive. The main reasons for this are
unrealised gains on investments recognised in earnings under IFRS whereas those gains
were recognised directly in equity under AGAAP, and the reversal of goodwill amortisation.
The differences between operating and net cash flows are not significantly different.
With respect to the ratios the differences in means are insignificant with the exception
of leverage (TL/TA).The leverage median difference is also significant and indicates higher
accounting risk under IFRS.The ROA median is higher under IFRS,and the price earnings
ratio, which is measured only for positive earnings, is lower. The median difference of the
market to book ratio is higher reflecting much lower equity values. The results shown in
Tables 2 and 3 indicate that IFRS presents a weaker balance sheet for the average firm.
l 2 This latter reason is not expected to impact future reporting periods because trusts are presently amending
their deeds to circumvent the accounting requirement for trusts with limited lives to report zero equity.
Our second main objective is to examine the quality of IFRS-measured earnings and
equity.We adopt a value relevance perspective for accounting quality recognising that it is
but one of several perspectives (Schipper and Vincent, 2003).13Following similar studies
(e.g., Hung and Subramanyam, 2007), a price levels model based on Ohlson (1995), and
a returns model (e.g., Bartov et al., 2005) are used. In this section we compare in the cross
section the value relevance of earnings and equity measured using AGAAP and IFRS for
firms that report a net change from IFRS. These tests determine the relative abilities of
AGAAP and IFRS earnings and equity to capture information used by the market.
The price levels modelI4is:
where MV is the market value of the firms equity at the end of the last year that AGAAP
is used scaled by the number of shares at that time; E is the firms earnings for the last year
that AGAAP is used measured under AGAAP (denoted EA) or IFRS (denoted EI) scaled
by the number of shares at the end of that year; BVi, is the firms equity at the end of the
last year that AGAAP is used measured under AGAAP (denoted BVA) or IFRS (denoted
BVI) scaled by the number of shares at that time; and E is the error term.
We are also interested in examining the timeliness of the information contained in
AGAAP and IFRS-measured earnings. Our second model is:
where R is the annual raw return adjusted for capitalisation changes and dividends
measured to the end of the last year that AGAAP is used; E is the firms earnings for the
last year that AGAAP is used measured under AGAAP (denoted EA) or IFRS (denoted EI)
scaled by the market value of equity at the start of that period; and E is the error term.
A more common model includes earnings change as an additionalindependent variable
but data limitationsprevent us from using that model in the cross sectional comparison.We
do estimate that model in robustness tests in a longitudinal comparison (discussed below)
and inferences are unchanged.
Ball (2006) notes there is little settled theory or empirical evidence on which to build an assessment of
the advantages and disadvantages of IFRS despite the fact that almost 100 countries have adopted them.
I* Some studies (e.g., Easton, 1998; Easton et al., 2003) criticise scaling by the number of shares, arguing
that it may lead to spurious results due to the effects of scale. Barth and Clinch (2001) investigate the relative
efficiency of deflating methods in mitigating a scale effects model and find that the number of the firms outstanding
shares, as used in our study, is more efficient in mitigating scale effects.
100
Because earnings releases contain information (Ball and Brown, 1968),value relevance
researchers often measure market value after the release of the accounts (e.g., three months
after fiscal year-end). However, in the present study this would bias the tests in favour of
AGAAP since the last AGAAP accounts are released before the measurement of market
value, and the IFRS reconciliation data are not released until the first IFRS accounts, which
is some months thereafter.Therefore, to place the two regressions on a more equal footing,
returns (and price) are measured at the end of the last year that AGAAP is used. Further,
as AGAAP half yearly earnings are released during the return interval used in Model ( 2 ) ,
which may introduce a bias favouring AGAAP, we also compare half yearly earnings using
model ( 2 ) and use 6-month returns. Results (untabulated) from this regression, discussed
in the robustness tests section below, leave inferences unaffected.
We assess accounting quality by comparing the explanatory power of the models
measured by the adjusted R2,using the test proposed in Vuong (1989). AGAAP regression
results are presented first so Vuongs (1989) Z-statistic is positive when the IFRS regression
is favoured over the AGAAP regression.
Table 4
Descriptive Statistics for Regression Variables
Panel A: Price levels regression (Model 1)
MV
AGAAPeamings
AGAAPequity
IFRS earnings
IFRS equity
Code
Mean
Median
StdDev
Min
Max
70Pos
MV
EA
BVA
EI
BVI
1,065
1,065
1,065
1,065
1,065
1.18
0.05
0.73
0.06
0.66
0.42
0.00
0.23
0.00
0.20
1.71
0.19
1.14
0.19
1.04
0.01
-1.42
-0.56
-1.02
-0.62
8.86
3.01
8.65
3.01
8.65
100
51
98
51
98
0.22
-0.07
-0.06
0.05
0.01
0.02
0.92
0.45
0.37
-0.95
-8.82
-4.68
7.84
1.68
2.06
55
52
52
Returns
AGAAP earnings
IFRS earnings
R
EA
El
922
922
922
In Panel A, all variables are scaled by number of shares outstanding at the end of the last year that AGAAP is
used. In Panel B, returns are measured over the 12-month period ending on the last day that AGAAP is used and
all independent variables are scaled by market value of equity at the start of the last year that AGAAP is used.
Detination of variables are described as in the text.
Table 4 shows descriptive statistics for the regression variables. As we estimate models
with different scalers, namely number of shares and market value of equity, two sets of
variables are shown in Panel A and B respectively. The second and third top rows of
Panel A show the mean (median) AGAAP earnings is $0.05 ($0) per share and for equity
it is $0.73 ($0.23) per share. The mean and median IFRS earnings are similar to AGAAP
earnings but the equity mean and median are lower as Tables 2 and 3 suggest. The number
of observations reported in Panel B is lower than in Panel A since valid 12-month returns
are needed, thereby excluding recently listed and thinly traded stocks. The sample size
reduces to 922 from 1,065 for the returns model.
5.3Results
Panel A of Table 5 shows the price levels model results.In the cross sectional comparison
for the AGAAP regression, the coefficients for earnings and book value of equity are
Table 5
Relative Value Relevance of AGAAP and IFRS Earnings and Equity
Panel A: Price levels model
W,,,
= a , , + a , E t ,+a,BV,, + E,,
Vuong Z-stat
(p-value)
31.82** 0.68
26.24** 0.62
1,118.64
878.15
-1.44
(0.15)
32.92** 0.73
24.63** 0.60
1,336.35
730.65
-2.52
(0.01)
t-stat
1.01
1.04
1.06
1.19
t-stat
F-stat
BV
Constant
t-stat
11.44**
9.31**
Constant
~~~~
(2)
~~
t-stat
t-stat
BV
t-stat
R2
F-stat
VuongZ-stat
(p-value)
4.24**
4.28**
0.02
0.02
17.94
18.28
0.03
(0.98)
3.01**
3.55**
0.01
0.02
9.03
12.59
0.30
(0.62)
E is annual AGAAPeamings, BV is book value of AGAAP equity at the end of the year. All independentvariables
are scaled by the number of shares at the end of the year in Panel A and by the market value of equity at the start
of the year in Panel B. Price is measured at the end of the last year that AGAAP is used in the cross sectional
comparison.Price is measured at the end of the respective financial year in the longitudinal comparison.Returns
are measured for the 12-month interval ending at the end of the last financial year that AGAAP is used in the
cross sectional comparison. Returns are measured for the 12-month interval ending at the end of the respective
financial year in the longitudinal comparison.** = significant at the 0.05 level (two-tailed test), * = significant
at the 0.10 level (two-tailed test)
102
2.04 and 1.01 respectively. For the IFRS regression the coefficients are 1.95 and 1.04
respectively. Both models are significant (p < 0.05) and the adjusted R2s are about 68
percent for AGAAP and 62 percent for IFRS ,suggesting possible higher value relevance
for AGAAP. However the Vuong (1989) Z-statistic of -1.44 is not significant (p = 0.15),
indicating no difference in explanatory power of earnings and equity for price. Since the
restated earnings and equity used in the cross sectional comparisons are not fully IFRS
compliant, it is possible that these numbers omit important information. Therefore, we also
estimate the models using IFRS fully compliant earnings and equity for the first year of
IFRS, and compare the results with those using AGAAP for the previous year, namely the
last AGAAP year. Inferences from these tests may be affected from time series variation,
however, which is unavoidable. These results are shown in the longitudinal comparison in
each panel and we lose some observations due to missing data. The Vuong (1989) Z-statistic
of -2.52 (p = 0.01) favours AGAAP earnings and equity over IFRS earnings and equity
in explaining price. AGAAP earnings and book value are more value relevant than IFRS
earnings and book value, ceteris paribus.
The returns model results shown in Panel B indicate no difference between AGAAP
and IFRS earnings timeliness (Z-stat = 0.03, p = 0.98). Both models explain about 2
percent of the variation in returns. With respect to the longitudinal comparison we find no
difference in explanatory power between the two models. Thus the price levels regression
results provide stronger evidence in favour of AGAAP than the returns results, suggesting
timeliness is unlikely to be worse under IFRS than under AGAAP.
5.4 Robustness tests
We test the robustness of the results by partitioning the sample by firm size, industry
and then by profitability and estimating the models on these samples, in cross sectional
and longitudinal analyses. These results are not reported in a table for parsim~ny.~
Commentators expressed concerns about the effect of IFRS adoption on small firms and on
certain industries. For example, in 2005,25 submissions were made to the Parliamentary
Joint Committee on Corporations and Financial Services (hereafter the Committee) inquiry
into Australian accounting standards detailing different views on the effects of IFRS.
Most of those submissions suggest that firm size may be an important discriminator for
accounting quality. For example, in a discussion paper submitted to the Committee of the
Australian Institute of Company Directors (AICD) stated: Smaller companies are at a
greater disadvantage in moving to IFRS than larger companies...,mainly because of lack
of resources (AICD, 2004). Statistics (untabulated) reveal that large firms experience
an increase in earnings while small firms experience a decrease, and large firms have a
decrease in equity while small firms have no change. The effects of IFRS are not symmetrical
across firm size, which may affect value relevance.16We split the sample firms based on
Results are available from the authors on request.
The main reason for the earnings differences is that write-downs of intangibles and recognition of share
based payments expense, while pervasive across firm sizes, are more material in small firms. Recognition of
unrealised investment gains in earnings and reversal of goodwill amortisation are each about six times more
common in large firms than in small firms. The negative adjustments to equity for unfunded superannuation
plans, employee loans under share schemes, reclassifications of equity to debt and intangible write-downs are
more common in large firms.
Is
l6
median total AGAAP assets at the end of the last year that used AGAAP and re-estimate
both models for the cross sectional and longitudinal samples. None of the Vuong (1989)
Z-statistics are significant, suggesting there is no difference in accounting quality across
firm sizes.
Industry accounting differences may affect our inferences because IFRS effects are not
uniform across industries. For example, unreported statistics reveal initial recognition of
restoration provisions are more common in the non-financial group and re-measurement of
those provisions common in the mining sector; unrealised gains and losses on investments
recognised on earnings are about three times as common in the financial than in other
sectors; and the intangible adjustments are about twice as common across the non-financial
sector than either of the other two sectors. Accordingly, we divide our sample into three
main groups following Barth and Clinch (1998) and re-estimate the models for the two
samples. The only significant Z-statistic is for the cross sectional comparison for the
financial industry (Z-stat = 1.68, p = 0.09), which favours AGAAP over IFRS.
Loss-making firms may affect our inferences. Specifically, it is possible the comparisons
of accounting quality between the two samples are affected by different numbers or
materiality of losses, since losses reduce value relevance (Hayn, 1995; Collins et al., 1997).
Additionally, a more timely recognition of economic losses from initial recognition of
provisions and the more stringent asset impairment test under IFRS may result in higher
explanatoly power of earnings for returns under IFRS. We estimate the models separately for
profit only and loss only sub-samples. The Z-statistics indicate no difference in accounting
quality between the price levels or returns models.
5.5 Other Tests
Since we use price and returns at the end of the year, we estimate the regressions
using prices (returns) measured at (to) three months after reporting date. As noted above,
we acknowledge that for the cross sectional comparison this test is biased in favour of
AGAAP. Because the half-year AGAAP accounts are released within the annual return
measurement interval used in Model (2), we also estimate Model (2) with half-year returns
and earnings. Finally, we add earnings changes in a longitudinal comparison using annual
earnings, earnings changes and annual returns and then using half yearly earnings, earnings
changes and half yearly returns. No evidence is found that IFRS enhances accounting
quality in any of these tests.
between AGAAP and IFRS are more significant for large firms.
For example, in the cross sectional analysis for the price levels regression (untabulated), the 2-statistic is -1.34
(p = 0.18) for large firms, and it is -0.41 (p = 0.68) for small firms.
* The Z-statistic (untabulated) are more significant for profit samples than for loss samples. For example,
for the price levels regression, the Z-statistic for the cross sectional sample is -1.58 (p = 0.1 1) and for the
longitudinal sample it is -1.29 (p = 0.20).
However, we observed that the differences
104
to that captured by AGAAP accounting numbers, despite the results on relative value
relevance (Biddle et al., 1995). Therefore in this section we examine incremental value
relevance. Existing studies on the incremental value relevance of IFRS examine only the
total difference (e.g., Hung and Subramanyam, 2007).A shortcoming with these studies is
that one cannot be sure that IFRS provides incremental information since the components
of the difference are not tested. Specific adjustmentscan be value relevant and thus improve
our understanding of the quality of the recently introduced IFRS, when the total difference
is insignificant (value irrelevant). We examine the aggregate differences and the nine
most common adjustments of the earnings difference for earnings and for equity. These
latter tests are related to the literature examining the value relevance of specific pieces of
information, such as intangibles.
(3)
1-1
where EDIFF is IFRS earnings for the last year that the firm used AGAAP disclosed
in the annual accounts less AGAAP earnings for the last year that the firm used AGAAP
scaled by the number of shares at the end of that year;19BVDIFF is IFRS equity at the end
of the last year that the firm used AGAAP disclosed in the annual accounts less AGAAP
equity at the end of the last year that the firm used AGAAP scaled by the number of shares
at the end of that year; and IND is a dummy variable that equals 1 if the observation is
from ASX industry number 1 through 24 and zero otherwise, for each industry 1 through
24, other variables are as defined above.
6.2 Testing the adjustments
To examine the ability of the adjustments to explain market value the following model
is estimated:
I0
10
24
Mi,
=a,, + a,EAi,+ a2BVAir+ ~ c ( , ~ E A U J+ ,~~a ,, , B V A D J , ,+ ~ a , , I N D+,
It-l
"-1
(4)
1-1
The adjustments are: share-based payment instrument (SHAI), income tax (TAX),
goodwill (GOO), intangibles (INT), provisions (PRO), investments (INV), leases (LEA),
I9 Reconciliations from the annual accounts are used because about one third of listed firms changed their
reconciliations in their annual accounts (Goodwin et al., 2008).
impairment (IMP), foreign exchange translation (FX)and other (OTH) is the catch-all
component. The adjustments and OTH sum to the aggregate differences between AGAAP
and IFRS except for SHAI. Since the measurement of the share-based payment expense
(SHA) includes the firms price, the variable SHA is correlated with the error term in
Model (4). We follow Aboody (1996) and Bell et al. (2002) and use the instrumental
variables technique. Specifically, SHA is replaced with the number of equity instruments
(e.g., options, shares) outstanding at the end of the year (scaled by the number of shares),
denoted SHAI. For consistency with the other adjustments, the sign of SHAI is coded
negative for an expense?O
We also use a returns design, which assesses the timeliness of information in the
adjustments by adapting Model (2) as follows:
24
(5)
where EDIFF is IFRS earnings for the last year that AGAAP is used disclosed in the
annual accounts less the AGAAP earnings for that period scaled by market value of equity
at the beginning of that period, and other variables are as defined above.
As with the price levels regression, the earnings differences are disaggregated and the
following model is estimated
10
R,
= a.
24
The adjustments in EADJ are measured identically to EADJ in Model (4) except that
the variables are scaled by the market value of equity at the start of the period and we use
the share-based payment expense (SHA) instead of the instrumental variable (SHAI). In
a robustness test, we replace SHA with SHAI and then with the number of instruments
granted during the year (scaled by market value) with the same inference as for SHA in
Model (6).
By drawing on prior literature, predictions for the signs of the adjustmentscoefficients
in the price levels model are offered. Market value is measured before release of the
reconciliation note containing the adjustments. Therefore, our predictions are based on
the assumption the market obtains the information from sources other than the note. In
another test conducted in the last section, we find that the information in the earnings note
contains no new information to the market.
Share-BasedPayment :The most closely related studies to ours are those examining
More recent studies also include option pricing inputs, such as expected volatility (e.g., Bell et al., 2002;
Aboody et al., 2004). However those studies examine only options. Share-based payment expense in this study
includes shares, options and performance rights, in some cases for the same firm,which makes that approach
problematic.
106
Variable
IND13
IND14
INDI5
IND16
IND17
IND18
IND19
IND20
IND2 1
IND22
IND23
IND24
456
381
183
165
131
90
98
98
353
SHA
TAX
GOO
INT
PRO
INV
LEA
IMP
FX
OTH
No. Pos
7
27 1
31
67
77
30
2
72
26
24
19
13
0 .oo
0 .oo
0 .oo
0.00
0 .oo
0 .oo
0 .oo
0.01
0 .oo
-0.03
-0.05
594
0 .oo
0.02
0.oo
0 .oo
0.05
0 .oo
-0.02
0 .oo
-0.01
0 .oo
0 .oo
1,020
EDIFF
BVDIFF
SHAI
0.03
0.05
0.03
0.01
0.14
0.01
0.07
0.01
0.10
0.09
0.09
-0.23
-0.03
-0.24
-0.05
-0.53
-0.06
-0.51
-0.09
-1.11
-0.78
- 1.07
Earnings
Mean Median StdDev Mi0
0.34
0.74
0.08
0.06
0.82
0.02
0.09
0.03
0.46
0.01
0.82
49
97
63
25
70
33
48
50
36
45
Max %Pos
83
475
375
194
174
94
84
120
84
361
844
~~~~~
-0.02
-0.02
0.02
-0.08
-0.01
-0.01
-0.01
-0.07
-0.01
-0.14
-0.09
0 .oo
0 .oo
0.01
0 .oo
0 .oo
0 .00
0 .oo
-0.02
0 .oo
0.00
0.00
0.04
0.12
0.07
0.35
0.05
0.04
0.03
0.14
0.03
0.52
0.40
-0.24
-0.92
-0.08
-2.85
-0.58
-0.26
-0.30
-1.05
-0.27
-5.08
-5.08
Equity
Mean Median StdDev Min
~~
0.05
0.42
0.99
0.07
0.06
1.74
0.05
0.03
0.02
0.27
1.10
30
51
96
29
28
50
20
3
36
28
41
Max % Pos
All continuous variables are scaled by number of shares outstanding at the end of the last year that AGAAP was used. Definition of variables are described as in the text.
Continuous Variables
Earnings difference
Quity difference
Share-based payment
Instrument
Share-based payment
Tax
Goodwill
Intangibles
Provisions
Investments
Leases
Impairment
FX translation
Other
Dummy variables
Variable
No. Pos
10
INDl
IND2
6
IND3
63
44
IND4
IND5
17
IND6
26
IND7
103
IND8
71
IND9
4
INDlO
34
INDll
46
2
IND 12
Code
Table 6
Code
Variable
IND13
IND14
IND15
IND16
IND17
IND18
IND19
IND20
IND21
IND22
IND23
IND24
15
11
18
No. Pos
6
237
28
58
67
25
2
64
21
922
5 14
399
348
158
153
120
81
93
87
316
N
0.01
-0.o1
0 .oo
0.02
0.oo
0 .oo
0.04
0 .oo
-0.02
0.oo
0.01
Mean
0
0
.oo
.oo
0.oo
0 .oo
0.oo
0.01
0 .oo
0.oo
.oo
.oo
0.oo
0
0
Median
0.50
0.05
0.06
0.05
0.08
0.01
0.16
0.oo
0.22
0.03
0.46
Std Dev
-8.54
-0.85
-0.24
-0.26
-0.80
-0.03
-0.36
-0.01
- 1.94
-0.10
-0.77
Min
3.70
0.02
0.83
0.52
0.53
0.04
1.23
0.01
0.41
0.15
7.85
Max
51
2
51
97
63
25
68
35
47
51
36
% Pos
All continuousindependent variables are scaled by market value of equity at the start of the last year that AGAAF' was used. Definition of variables are described as in the
text.
~~
-~
Continuous Variables
Earnings difference
EDLFF
Share-based payment
SHA
TaX
TAX
GOO
Goodwill
Intangibles
INT
Provisions
PRO
Investments
INV
Leases
LEA
Impairment
IMP
FX translation
Fx
Other
OTH
Dummy variables
Variable
No Pos
INDl
9
5
INDZ
IND3
57
IND4
41
IND5
17
IND6
23
IND7
86
IND8
56
IND9
3
INDlO
32
INDll
39
IND12
2
Variable
Table 6 (Cont.)
110
Table I
Results From Regressions of Prior Period Market Value on Prior Period Earnings, Equity and Current
Period Aggregate IFRS Differences
Panel A: Price scaled by number of shares as dependent variable (N = 1,065)
10
10
24
MV,, =a,+a,EA,,+a,BVA,,+C/a,,EADJ,,,+~a,,BVADJ,,,+~a,,lND,+E,,
"-1
t-stat
Constant
0.25
4.17**
n- I
EA
1.99
9.77'
BVA
1.04
27.33**
(3)
1- I
EDIFF
-0.21
-0.53
BVDIFF
0.14
1.41
R'
0.69
F-stat
87.87
R'
0.05
F-stat
3.05
t-stat
Constant
0.29
4.96**
EA
0.35
4.17**
EDIFF
0.24
1.88*
EA is annual AGAAP earnings. BVA is book value of AGAAP equity at the end of the year. EDIFF is IFRS
annual earnings less AGAAP annual earnings. BVDIFF is IFRS book value of equity at the end of the year less
AGAAP book value of equity at the end of the year. Except for the industry dummies, all independent variables
are scaled by the number of shares at the end of the year in Panel A and by the market value of equity at the start
of the year in Panel B. Price is measured at the end of the last year that AGAAP is used. Returns are measured
for the 12-month interval ending at the end of the last year that AGAAP is used. Industry dummy variable results
are not reported for parsimony. ** = significant at the 0.05 level (two-tailed test), * = significant at the 0.10
level (two-tailed test)
earnings and equity differences are insignificant. The returns regression results shown in
Panel B show that the EDIFF variable is positive and significantat the 0.10 level, indicating
weak evidence of timeliness for the IFRS earnings difference. We examined the dataset
in attempting to reconcile these results. Estimating the price levels model on a constant
sample of 922 firms gave the same inferences. However, after removing the largest 20
observationsby market value from the constant sample,the EDIFF coefficientsare negative
and significant in both models and the equity difference is positive and significant in the
price levels model. This suggests that the insignificant results for earnings and equity
differences are due to a small number of influential observations.
6.5 Results - adjustments
Price Levels Regression:Table 8 shows results from estimatingthe price levels model
(Model 4). Coefficients for five of the ten earnings adjustments and for six of the ten equity
adjustments are significant.The equity adjustment for tax (TAX) is negative indicating that
those adjustments weaken associations with price. The coefficient for the goodwill (GOO)
adjustment to earnings is positive and significant suggesting that investors do not view
amortisation as a wasting asset. The IERS accounting policy of no amortisation improves
the association with market value over the AGAAP amortisation policy. However, the
Results From Regression of Prior Period Market Value on Prior Period Earnings, Equity and Current
Period IFRS Adjustments
Variable
Constant
AGAAP earnings
AGAAP equity
Share-based payment
instrument
Share-basedpayment
Tax
Goodwill
Intangibles
Provisions
Investments
Leases
Impairment
FX translation
Other
Industry dummies
R2
F-stat
N
Earnings
t-stat
Code Expect Sign Coeff
EA
BVA
SHAI
0.28
2.52
4.87
12.32
0.11
0.27
SHA
TAX
GOO
INT
PRO
INV
LEA
IMP
?
?
-1.85
7.39
-6.99
-46.55
-1.61
3.22
-4.27
4.34
0.08
-1.11
4.51
-2.51
-5.01
-2.57
0.19
-2.98
0.68
0.12
included
0.73
65.62
1,065
Fx
OTH
+
7
?
?
?
?
Equity
Expect Sign Coeff
t-stat
**
**
4-
0.83
19.42
-1.79
-1.34
1.01
-0.83
-3.18
0.01
-11.52
0.89
-6.06
0.21
-0.75
-3.07
0.96
-4.08
-2.02
0.02
-3.05
1.41
-1.71
1.95
**
**
**
**
+
?
?
**
?
**
**
**
**
**
*
*
MV,, is the market value per share measured at the end of the last year that AGAAP is used. EA is annual AGAAP
earnings for the last year that AGAAP is used scaled by the number of shares outstanding at the end of that
year. BVA is the AGAAP equity measured at the end of the last year that AGAAP is used scaled by the number
of shares outstanding at the end of that year. Other independent variables are as described in the text. Industry
dummy variable results are not reported for parsimony. ** = significantat the 0.05 level (two-tailed test), * =
significant at the 0.10 level (two-tailed test)
coefficient for the equity adjustment is not significant,which is puzzling. We removed the
15 negative goodwill adjustments to equity, and after estimating the model on the sample
of 1,050 firms this coefficient became significant at the 0.10 level. In this regression (N
= 1,050) there was no change in inferences from other variables apart from the 'other'
variable adjustment to equity, which became significant. As expected, the intangibles'
(INT) coefficients for earnings and equity are negative, suggesting that the changes to
accounting for intangibles under IFRS are inconsistent with investors' beliefs about the
value of intangibles.
Compared with AGAAP, intangible accounting under IFRS seems too conservative
when benchmarked against investors' beliefs. A similar argument is made by Amir and
Lev (1996) on the positive association between the immediately expensed investment costs
112
Table 9
Results From Regressions of Prior Period Returns I Current Period Returns on Prior Period Earnings I
Current Period Earnings and Current Period IFRS Adjustments
10
24
-1
,-I
R,,=~,,+~,EA,+C~,,EADJ,,+C~,,~ND,,+E,
Variable
Code
Constant
Earnings
Share-based payment
Tax
Goodwill
Intangibles
Provisions
Investments
Leases
Impairment
FX translation
Other
Industry dummies
E
SHA
TAX
GOO
INT
PRO
INV
LEA
IMP
FX
OTH
R2
F-stat
N
0.28
0.52
-3.47
0.06
3.07
-1.29
2.87
0.25
-36.43
0.26
I .46
0.49
included
0.08
3.46
922
9.46**
3.77**
-0.68
0.12
0.21
0.36
1.42
-0.57
-1.38
0.23
1.05
-0.21
included
0.09
3.29
744
Prior period return (R,) is the 12-month raw return measured to the end of the last year that AGAAP is used.
Current period return (Rit)is the 12-month raw return measured to the end of the first year that IFRS is used. E
is the annual AGAAP net income for the last year that AGAAP is used for the prior period returns regression
and E is the annual IFRS net income for the first year that IFRS is used for the current period returns regression.
Other variables are as described in the text.Al1 independent variables are scaled by market value of equity at the
start of the year. Industry dummy variable results are not reported for parsimony. ** = significant at the 0.05
level (two-tailedtest), * = significant at the 0.10 level (two-tailed test)
and market value for firms in the wireless communications industry? The coefficients
for provisions (PRO) for earnings and equity are both significant, suggesting that the fair
valuing of provisions is sufficiently reliable to be value relevant, but the negative signs
imply that the accounting is inconsistent with investors beliefs. The negative coefficient
for investments (INV) for earnings also suggests that investors view these adjustments
differently to the accounting policy. The coefficient for impairment (IMP) is negative
indicating that write-offs of different types of assets in earnings under IFRS polices are
also inconsistent with investor beliefs, although the equity adjustment is not significant.
We also re-estimated the price levels model on the same sample as the returns model (922
firms) and the results (untabulated) are consistent with the larger sample (1,065 firms).
Returns Regression: The returns model results, presented in the left half of Table
9, show that the model explains about 8 percent of the variation in returns and that the
21
coefficient for AGAAP earnings is positive and significant (coeff = 0.52, t-stat = 5.79).
There are three other significant coefficients.The goodwill (GOO) coefficient is positive
and significant, which is consistent with the price levels model, indicating that these
adjustments are also timely. The coefficientfor SHA is negative and significant,indicating
a positive relation between share-based payment expense and returns. As a check on this
result, we replaced the variable (SHA) with the instrument used in the price levels model,
namely SHAI, and then with the number of instruments granted scaled by market value.
Both of these coefficients also indicate a positive relation with returns?* These results
suggest that the market does not view equity instruments granted as a period expense and
are inconsistent with the price levels model results. A possible explanation is that sharebased payments are regarded by the market as transitory. We leave further exploration of
this inconsistency to future research. The coefficient for all other items (OTH) is positive
and significant which is inconsistent with the price levels model. Compared to the price
levels model results, four coefficients became insignificant, namely INT, PRO, INV and
IMP, indicating that these variables are value relevant but not timely. Overall these results
indicate that much of the information in the reconciliationswas impounded in prices before
the release of the reconciliation note.
We are also interested in whether the reconciliation note provided new information to
the market, that is, whether the reconciliations are useful to investors. We acknowledge
that the usefulness to other users (e.g., creditors) is not considered by our tests. To examine
this question, we estimate Model (6)using returns measured over the 12-monthperiod to
the end of the first year of IFRS, replacing AGAAP earnings with IFRS earnings for the
first IFRS year.
Results, shown in the right half of Table 9, indicate that the IFRS earnings level
coefficient is positive and significantly associated with returns (coeff = 0.19, t-stat =
3.77). However, none of the coefficients for the earnings adjustments are significant.The
same inferences are also obtained if we use 12- or 15-month returns measured to the end
of the third month after the end of the first year of IFRS (untabulated). This suggests that
all of the information contained in these adjustments was impounded in price prior to the
start of the first year of IFRS. These reconciliation data contain no new information for
the market, casting doubt on the usefulness of the earnings reconciliation note. A similar
result is reported in Rees and Elgers (1997) in their examination of reconciliations using
US data.
7. Conclusion and Limitations
This paper provides evidence on the effects of IFRS on the accounts and accounting
quality for a sample of 1,065Australian listed firms.An important contributionof this study
is that we use a dataset of firms that must apply IFRS,which means that self-selectionbias
does not impact the results. We also examine a common law based country, which differs
from the code law based countries examined in most previous studies.
We find that under IFRS, mean (median) liabilities increase; mean (median) equity
z2 When we estimatethe price levels model using the same sample as for the returns mode1,theSHAI variable
coefficient becomes negative but remains insignificant.
114
decreases; there are more decreases to earnings than increases; and the leverage ratio
increases. Unrealised gains on investment property and reversal of goodwill amortisation
are the main drivers of earnings increases. Recognition of share-based payment expense
is the most common item decreasing earnings. Impairment is an important cause of equity
decreases. Write-downs of intangibles and reclassifications of equity to debt reduced equity
substantially but those adjustments are not pervasive.
No evidence is found that IFRS earnings and equity are of higher quality (more value
relevant) than AGAAP earnings and equity, consistent with other studies comparing within
country (Eccher and Healey, 2003; Hu, 2003; Bartov et al., 2005; Hung and Subramanyam,
2007). These results hold across subsamples of firm size, industry sector and profit- versus
loss-making firms. We find an instance of higher value relevance of AGAAP for the financial
industry. Our evidence is not consistent with the claim by the Financial Reporting Council
that IFRS will enhance financial reporting quality.
We also examine the incremental value relevance of the aggregate change and of
adjustments in reconciliations from AGAAP earnings and equity to IFRS earnings and
equity. Results show that in aggregate, the net changes to AGAAP earnings and book value
are not associated with prices and there is weak evidence that the incremental earnings
aggregate is timely.
Both the earnings and equity adjustments for intangibles are negatively associated with
price. This suggests that the change to IFRS accounting for intangibles is too conservative
when compared with AGAAP. We also find that the provisions, investments and impairment
adjustments are value relevant but not consistent with investors perceptions. These
adjustments are not timely however. We also find that the adjustment for share-based
payment is timely, and is not consistent with the markets perception.We find no association
of share-based payment with price. The goodwill component which comprises mainly
amortisation reversal is positively associated with market price and returns, consistent with
investors perceptions of value changes for this asset. We also find that foreign exchange
translation adjustments are negatively associated with market value, as do Louis (2003)and
Pinto (2005).Tests using returns measured over the period that the accounts were released
reveal that no information is contained in the earnings reconciliation note, suggesting that
this note is not useful to investors.
Apart from the usual limitations of studies such as ours, other limitations need to be
noted. Our cross sectional tests use a dataset that is not fully IFRS compliant, namely the
last year of AGAAP use. Tests on earnings and book value for the first year of IFRS use
provide consistent evidence. Nevertheless inferences may change when more periods of
IFRS are available. Relatedly, the first year of adoption of IFRS may increase incentives
to engage in earnings management, which may have a consequential effect for value
relevance. This is an interesting area for future research.
Appendix A
Summary of Major Accounting Differences Between AGAAP and IFRS
Share-based
payment
AGAAP
IFRS
No standard
Standard requires expenses for
Practice varies, most firms do
share based payments
not recognise expenses for share
based payments
Income tax
Goodwill
Intangibles other Can be capitalised and revalued Can only be revalued upward if
upward with increment to reserve active market
than goodwill
Must be amortised
Amortisation only if finite life
Restoration
provisions
No standard
Investments
FX translation
Leases
Revenue
recognition
Impairment
116
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