Smart Move, Holding Off on IFRS

04.03.2011
The U.S. may be among the last holdouts when it comes to implementing International Financial Reporting Standards. (Currently, 123 jurisdictions out of 174 with domestic listed companies either allow or require the use of IFRS, according to .) But the nation’s wait-and-see approach has its benefits. Among the most important, at least for companies faced with implementing IFRS: the ability to learn from the implementations that have taken place.

In fact, MIT Sloan School of Management Associate Professor of Accounting Joseph Weber – along with a trio of researchers from the University of Technology, Sydney – did just that. The group studied the IFRS transition experience of 280 companies, excluding trusts and REITs, that made up the Australian S&P. They looked for links between errors made during the transition, and the firm’s CFO, auditor and debt monitoring. The results can be found in their study, “.”

Across the 280 companies, the scope of IRFS errors ranged from $10,000 to nearly $500 million. More than half – 142 companies – overstated an earnings number. About the same number had errors in their reporting of stock-based compensation.

The biggest surprise to Joseph Weber, the MIT associate professor and one of the authors? “The number of firms with errors.” At the same time, Weber notes that the way in which Australia made the transition may have contributed to the number of mistakes. Australia took a “big bang” approach to IFRS adoption, the study authors say. That is, companies weren’t allowed to use IFRS before the adoption year, which began with financial years starting on or after January 2004. Then, for financial years starting on or after January, 2005, firms were required to use IFRS. The results could differ in countries that allow voluntary adoption.

The study authors found that “certain CFO characteristics, auditor characteristics and the timing of adoption all are associated with IFRS adoption errors.”