IFRS is now permitted or required in over 120 countries.63 It is a recent phenomenon
and is regarded as one of the most significant regulatory changes in accounting history. This study exploits the New Zealand setting to investigate accounting choices made by firms with respect to the timing of IFRS adoption. Companies listed on the New Zealand Stock Exchange were required to adopt IFRS for periods beginning on or after 1 January 2007, but unlike many other countries (e.g., Australia and European Union countries) they were permitted the choice of voluntarily adopting IFRS up to two years earlier.
To investigate what motivates entities to adopt IFRS early or late, mixed methods research (quantitative and qualitative methods) is applied to three different sources of information. Although the sample size is small (n=80), all early adopters are considered (40) as well as an equal number of randomly selected late adopters.
First, the impact of IFRS on the financial information of early as opposed to late adopters is investigated. This research provides evidence of significant differences in most financial statement elements and ratios for both early and late adopters. The magnitude of these differences and the extent to which individual firms are affected varies considerably. There is however, little evidence of statistically significant differences when the IFRS differences for early adopters are compared to those for late adopters. These findings have implications for regulators, firms, analysts and others in countries which have signalled an intention to adopt IFRS in the future, but have yet to do so and may be useful in informing their decisions. The findings will be particularly pertinent for countries with characteristics similar to those of New Zealand (e.g., GAAP similar to IFRS; strong institutional arrangements, enforcement and reporting incentives). Further implications which are specific to the literature relating to IFRS and accounting choice are considered in the section below (6.2).
110 Second, discretionary narrative disclosures in annual reports are investigated to assess what they reveal about early and late adopter firms’ attitudes to IFRS adoption. Form oriented as well as meaning oriented content analysis is employed.64 Significantly more disclosure is found for early adopters relative to late adopters for all four measures of extent of disclosure. There is, however, relatively little narrative disclosure overall (e.g., none at all for fourteen late adopters and seven early adopters and generally less than a quarter of a page of the annual report for remaining firms). To the extent that such form oriented analysis reflects the importance of an event or issue, the adoption of IFRS appears to have been a relatively minor event in relation to overall business operations of sample firms, particularly for late adopters.
However, the ‘form oriented’ dimension of content analysis is generally accepted as being less informative than the ‘meaning oriented’ dimension. Meaning oriented analysis of narrative disclosures reveals three main themes, namely ‘informing of importance’, ‘potency’ and ‘evaluative’. ‘Informing of importance’ of IFRS adoption, is found to be the most dominant theme. Furthermore, descriptions of IFRS impacts are found to be predominantly ‘high potency’.65 ‘Evaluative’ narrative disclosures are less
frequent and found to be predominantly negative concerning IFRS adoption for both early and late adopters. Hence, IFRS related disclosure indicates that firms attach importance to the adoption of IFRS, but tend to have negative perceptions of the consequences of adoption. This has implications for the continuing acceptance of IFRS in its current form and emphasises the importance of ongoing improvement efforts by the International Accounting Standards Board (IASB), such as reducing disclosure requirements. Further implications which are specific to the literature relating to discretionary narrative disclosures and accounting choice are considered in the section below (6.2).
Third, early and late adopters are surveyed to collect data relating to the costs and benefits of IFRS adoption, as well as additional insights regarding the motivations for their adoption timing decisions. This study provides results for six different measures of the cost of implementing IFRS, as well as the perceptions of senior financial executives relating to nine expected benefits of IFRS (see 6.2 below for further detail). Further work is required to properly attempt to assess whether the benefits of IFRS exceed the
64 Form oriented analysis is concerned with extent of disclosures, while meaning oriented analysis is concerned with the nature of disclosures.
65 ‘High potency’ narratives reflect specific detail regarding the impact of IFRS; ‘low potency’ narratives are vague, general or report immaterial impacts.
111 costs, however there are some indications that, in the short term, this may not be the case. The findings have planning and budgeting implications for firms who are to adopt IFRS in the future and may be useful in informing their decisions. A further implication is the need for regulators to carefully manage expectations of firms to take a long-term view of the cost-benefit relationship in regard to IFRS adoption. The results also provide additional support for earlier comments regarding implications for the continuing acceptance of IFRS in its current form and the importance of ongoing improvement efforts by the IASB. Further implications which are specific to the