The uniformity-flexibility dilemma when comparing financial statements.
The view of auditors, analysts and other users.
Vicky Cole, Joël Branson and Diane Breesch
Vrije Universiteit Brussel
Faculty of Economic, Social and Political Sciences,
and Solvay Business School
Pleinlaan 2 -1050 Brussels
Belgium
E-mail: [email protected]
Working paper: version March 2010
Please do not quote without consulting the authors.
Comments are welcome.
Abstract
The comparability of financial statements is an important research topic in accounting literature. The
introduction of the International Financial Reporting Standards (IFRS) in the European Union and
many other countries has not eliminated the need for research concerning this topic, on the contrary.
Several studies showed that the IFRS still offer many options and require important estimates.
Extensive theoretical literature exists concerning the definition of comparable financial statements and
the factors that influence this comparability. This study contributes by determining how important these
factors are according to the auditors, analysts and other users of European IFRS financial statements
and what their view is on the comparability of financial statements. Our survey of 426 individuals
shows that, when forced to choose, most of them (67%) interpret comparability as uniformity, that is all
companies using the same accounting methods. Only 31% of the respondents interpret comparability
as flexibility, that is all companies can apply an accounting method that is adapted to their unique
circumstances. Comparability of financial statements over time and of companies operating within the
same industry are considered to be the most important types of comparability. Both types of
comparability are jeopardised by the IASB due to the constant changes and the lack of industry
specific guidance. Only 41% of the respondents believe that all IFRS financial statements are
comparable. Not only accounting methods used but also judgements made by preparers and
interpretation differences of the applied standards are viewed as important factors influencing the
comparability of financial statements.
1
Introduction
For many years now, the harmonisation of accounting standards has been the goal of national
and international accounting standard setters. Since 1973, the aim of the International Accounting
Standards Board (IASB1), for example, is to develop a single set of high quality, understandable and
international financial reporting standards (IFRS). In 2005, the European Union (EU) made the IFRS
mandatory for the consolidated financial statements of most European listed, or publicly traded
companies. The European Parliament and the Council decided to introduce the IFRS in the EU
because the reporting requirements set out in the Directives could not ensure a high level of
transparency and comparability of the financial statements of all listed companies. Both transparency
and comparability of financial statements were considered as necessary for the functioning of the
integrated capital market. The harmonisation effort of the EU was, therefore, mainly intended to attain
comparable financial statements.
A distinction has to be made, however, between de jure comparability and de facto
comparability. The former corresponds to formal comparability2 or the comparability of accounting
standards allowed by standard setters and the latter to material comparability or the comparability of
accounting practices applied by companies. Formal and material comparability can exist
independently. In the EU for example, formal comparability exists for listed companies since they have
to apply the IFRS for their consolidated financial statements but there is not necessarily material
comparability. Several studies already showed that the IFRS still offer many options and require
important estimates (see for example Nobes (2006) and The Institute of Chartered Accountants in
England and Wales (ICAEW) (2007)). The introduction of the IFRS in the EU and many other
countries has, therefore, not eliminated the need for research concerning the comparability of financial
statements, on the contrary. The introduction of the IFRS in the EU does, however, form a unique
opportunity since it is the first time in history that all European listed companies apply the same
standards.
1
The IASB was founded in 2001 and was preceded by the International Accounting Standards Committee (IASC) from 1973 to 2000. In this
paper, both will be referred to as the IASB.
2
For more information on formal comparability see for example Garrido, Leon, & Zorio (2002).
2
Using a survey, we examine the view of auditors, analysts and other users of European IFRS
financial statements on the existing discussions regarding the comparability of financial statements.
Auditors are important accounting professionals while analysts represent an influential group of
professional users. The other users like investors, employees, suppliers and consultants, represent
the average professional and private users. Knowing the opinion of these major stakeholders can help
standard setters when making policy decisions and may influence future discussions concerning the
uniformity-flexibility dilemma.
The comparability of financial statements is a major research topic in accounting literature.
Many articles discuss how to define comparable financial statements and how to measure this
comparability. The IASB struggles with defining comparability of financial statements as well. In order
to achieve comparable financial statements between companies, discussion exists whether uniformity,
harmony or flexibility is the best approach. These discussions are reflected in the measurement
methods that are developed to determine how comparable financial statements are with recent
publications of Jaafar & McLeay (2007), supporters of flexibility, and Taplin (2010), supporter of
uniformity. Our survey of 426 individuals shows that, when forced to choose, most of them (67%)
interpret comparability as uniformity, that is all companies using the same accounting methods. Only
31% of the respondents interpret comparability as flexibility, that is all companies can apply an
accounting method that is adapted to their unique circumstances.
Several studies also determine the factors that influence the comparability of financial
statements. Differences in these factors are used to classify countries in different groups and to
explain differences in accounting quality. This study contributes to this literature by determining how
important these factors are according to the auditors, analysts and other users of European IFRS
financial statements. Besides accounting methods used, judgements made by preparers and
interpretation differences of the applied standards are viewed as important influential factors for the
comparability of financial statements. These factors explain why the introduction of the IFRS will not
be enough to attain comparable financial statements.
Moreover, there are several studies concerning the comparability of voluntary disclosures (a.o.
Francis, Nanda, & Olsson (2008)), visual representations like graphs (a.o. Beattie & Jones (1997)),
press releases (a.o. Merkl-Davies & Brennan (2007)) and so on. This paper focuses, however, on the
3
comparability of accounting numbers. Comparability of accounting numbers can be looked at from two
perspectives, namely by analysing the financial statements themselves or by using the capital market
approach which uses for example differences in price multiples (a.o. Joos & Lang (1994)) to infer the
effects of measurement differences. This paper only focuses on analysing the financial statements.
The remainder of this paper is organised as follows. First the literature concerning the
comparability of financial statements will be discussed. Next, the research design and descriptive
statistics are given followed by a discussion of the results of the empirical study and the conclusions.
Literature review
The uniformity-flexibility dilemma
A distinction has to be made between comparability of a company over time and comparability
between different companies of the same country, industry, size and – as expected with the
introduction of the IFRS in the EU – between all listed companies. All these types of comparability
require that the financial information is consistent. Consistency means that companies should use the
same accounting methods for related items over time. In order to attain comparable financial
statements between companies, discussion also exists, however, between uniformity, harmony or
flexibility as the best approach.
In economic literature, the concepts comparability, uniformity, harmony and flexibility have
been defined in many different ways. Uniformity is reached when all companies apply the same
accounting methods. Some authors think of uniformity as companies applying the same accounting
methods under the same circumstances. This definition just causes another discussion since it is not
clear which circumstances should be taken into account. Flexibility is reached when all companies can
apply an accounting method that is adapted to their unique circumstances. Harmony lies somewhere
in between and is indicated by a clustering of companies around one or a few of the available
methods. The expectations of authors with respect to the ‘acceptable’ number vary. Uniformity,
harmony and flexibility are all associated with comparable financial statements.
The uniformity-flexibility dilemma has been discussed by many authors (a.o. Cole, Branson, &
Breesch (2009b; Sunder (2010), Estes & Brown Jr (1966), Hope (2004), Revsine (1975), RiahiBelkaoui (2004), Skinner (2005), Sunder (2007) and Wilkinson (1969)). There are some good reasons
4
why uniformity might be preferred above flexibility to attain comparability. First of all, flexibility can
result in inappropriate differences in the accounting methods used due to differences in management
judgement or due to account manipulation. Second, flexibility has some practical problems. As stated
before, it is difficult to define the relevant circumstances that should be taken into account. It is also
not clear when circumstances are the same. In the extreme, all companies operate under unique
circumstances and no transaction is the same. It would, therefore, be very difficult to control whether
two companies use different accounting methods due to differences in circumstances or due to
account manipulation. Furthermore, flexibility would make it difficult for users to compare financial
statements since they would have to understand all the different accounting methods used. Flexibility
would also complicate the collection of useful data by governments and economists, the education of
accounting students and the training and replacement of accounting employees. All of the above
makes clear that some form of uniformity is necessary. Unfortunately, uniformity has some
disadvantages too. Uniformity would produce merely the appearance of uniformity because no
standards could possibly contain all the existing and future complexities. In addition, uniformity can
reduce comparability by making unlike things look alike. Furthermore, uniformity ignores the signalling
value of the choices managers make and stands in the way of experimentation and progress. Despite
these disadvantages, we find that most of our respondents (67%) interpret comparability as uniformity.
The uniformity-flexibility dilemma is reflected in the methods developed to measure the
comparability of financial statements. When using the financial statements, there are two approaches
to measure their comparability: indices and statistical models. Users of indices tend to prefer
uniformity and claim that maximum comparability exists when all companies use the same accounting
methods (see for example van der Tas (1988), Taplin (2009)). On the other hand, users of statistical
models prefer flexibility and claim that maximum comparability exists when companies are able to use
the most appropriate accounting method regardless of the country they belong to (see for example
Tay & Parker (1990), Jaafar & McLeay (2007)). The definition of comparability is therefore critical
when choosing an appropriate measurement method. Our results show that, when measuring the
comparability of financial statements from the viewpoint of auditors and users of these statements,
uniformity and therefore indices are preferred over statistical models.
5
Comparability according to the Boards (IASB and FASB)
According to the Framework3 of the IASB, comparability is one of the qualitative
characteristics that make the information provided in financial statements useful to users. In its
Framework the IASB states:
“Users must be able to compare the financial statements of an entity through time in
order to identify trends in its financial position and performance. Users must also be
able to compare the financial statements of different entities in order to evaluate their
relative financial position, performance and changes in financial position. …”.
The comparability of financial statements over time is explicitly mentioned. In their joint
exposure draft4, the Boards conclude, however, that they are willing to sacrifice this type of
comparability to achieve improved relevance or faithful representation (or both) by introducing new
standards or amendments to existing standards. Since the end of the ‘stable platform’, the IFRS are
constantly amended and several new standards and interpretations were published. These constant
changes jeopardise comparability over time while this type of comparability is viewed as extremely
important by our respondents. The IASB also seems to focus on the comparability of the financial
statements of all listed companies. This type of comparability is, however, viewed as less important
than the comparability of financial statements of companies operating within the same industry. The
IASB, however, always tries to avoid requirements that are industry specific, focusing instead on
transaction types.
Although comparability is a qualitative characteristic, none of the Boards clearly state what is
meant by comparability. In their joint exposure draft5, the Boards state that:
“Comparability should not be confused with uniformity. For information to be
comparable, like things must look alike and different things must look different. An
overemphasis on uniformity may reduce comparability by making unlike things look
alike. Comparability of financial reporting information is not enhanced by making unlike
things look alike any more than it is by making like things look different”.
3
International Accounting Standards Board (IASB) (2001).
Financial Accounting Standards Board (FASB) (2008).
5
Financial Accounting Standards Board (FASB) (2008).
4
6
This ‘definition’ of comparability is not very useful because in accounting it is difficult to
determine what ‘things’ are and when they are ‘alike’ (Zeff (2007)). The Boards obviously struggle with
the uniformity-flexibility dilemma. Although their actions - developing worldwide standards and
reducing options within these standards - tend to uniformity, they explicitly state that comparability
should not be confused with uniformity.
The IFRS are also principles-based while rules-based
accounting standards are more associated with uniformity. Principles-based accounting standards
require more judgement of both preparers and auditors because they do not include specific criteria or
extensive implementation guidance and are, therefore, more associated with flexibility (see for
example Carmona & Trombetta (2008)).
Nonetheless, the IASB states in its Framework 6 that “Compliance with International
Accounting Standards, including the disclosure of the accounting policies used by the entity, helps to
achieve comparability”. Research has already shown, however, that international differences still
survive (Nobes (2006)) and that formal comparability does not necessary result in material
comparability due to cultural differences for example (Zeff (2007)). These results are confirmed by the
fact that only 41% of our respondents believe that all IFRS European financial statements are
comparable. There are other factors that influence the comparability of financial statements besides
the accounting methods used. These factors will be discussed below.
Factors influencing the comparability of financial statements
As stated above, research suggests that having the same set of accounting standards, or de
jure comparability, is not enough to attain comparable financial statements in practice. If a number of
accountants are given a set of transactions from which to prepare financial statements, they will not
produce identical statements, not even if they all apply the IFRS. As Beechy (1999) for example
states: “Uniform accounting standards can enhance comparability only if the underlying factors
affecting the enterprises also are similar. Such is not the case. Companies based in different countries
have different reporting objectives, different ways of doing business, and different underlying
economic and political factors”.
6
International Accounting Standards Board (IASB) (2001).
7
In accounting literature, many factors that influence the comparability of financial statements,
besides the accounting methods used, are identified (a.o. Nobes & Parker (2008), la Porta, Lopez-deSilanes, Shleifer, & Vishny (1998), Doupnik & Salter (1995), Gray (1988), Zysman (1984) and
Radebaugh (1975)). First of all, there are the different national accounting traditions based on
differences in:

Financing systems: shareholder ‘outsiders’ versus bank/state/family ‘insiders’;

Legal systems:
o
Roman (code) law versus common law (higher investor protection);
o
Monitoring and enforcement differences like different regulation of audit and different
activities of the stock exchange regulator and of any other monitoring or reviewing
bodies.

Tax systems.
These accounting traditions can differ from one country to another and can reduce the
worldwide comparability of financial statements. Business transactions can for example be designed
differently in different countries due to different incentives in the income tax law and other laws.
Different tax incentives can influence the choice between different accounting methods as well. In
some countries for example, percentage of completion accounting for long-term construction contracts
is hardly used because the companies do not want to be taxed any earlier than necessary. Although
taxes are not an issue for the consolidated statements, the traditional way of thinking might still
influence the preparers’ choices. The degree of regulation can also have an influence on the
worldwide comparability of financial statements. In countries where the regulator is stronger,
companies may be less willing to deport from a strict application of IFRS as apposed to companies in
countries where the regulator is softer (Zeff (2007)).
Many accounting articles discuss the classification of countries based on differences in these
accounting traditions (a.o. da Costa, Bourgeois, & Lawson (1978), Nair & Frank (1980), Doupnik &
Salter (1993), Nobes (1998) and Guenther & Danquing Young (2000)). One of the most recent
classifications is the ‘Accounting Classification in the IFRS Era’ (Nobes (2008)). He classifies the
accounting traditions of the Member States of the European Union in two groups based on previous
classification techniques (Table 1). The control of companies located in class A countries is widely
8
spread amongst a large number of equity-holders. These companies use their financial statements
mainly to inform these equity-holders. For most companies located in class B, however, a controlling
stake is in the hands of a small number of owners. These companies use their financial statements
mainly to inform their government (Nobes (1998)).
Table 1. Classification of EU countries7
Class A (strong equity, commercially driven)
Class B (weak equity, government driven, tax-dominated)
Cyprus
Austria
Latvia
Denmark
Belgium
Lithuania
Ireland
Czech Republic
Luxembourg
Malta
Estonia
Poland
Netherlands
Finland
Portugal
(Norway)
France
Slovakia
UK
Germany
Slovenia
Greece
Spain
Hungary
Sweden
Italy
(Switzerland)
We classified respondents in class A and B based on their nationalities and the classification
of Nobes mentioned above. We hardly found any differences in their responses. When comparing on
a country by country level, we found just as many differences between the views of respondents from
countries that are normally classified in the same group than between respondents from countries that
are normally classified in different groups. Furthermore, only 44% of our respondents consider
accounting traditions as an important factor influencing the comparability of financial statements.
These results seem to indicate that a different accounting tradition is not the only crucial factor that
can explain the lack of comparability.
Probably other factors besides country differences influence the comparability of financial
statements. Judgments made by preparers and their interpretation differences can, for example,
threaten the comparability of financial statements because prepares are most likely influenced by
different incentives. In accounting literature, many studies discuss the importance of reporting
incentives related to accounting quality and earnings management. Burghstahler, Hail, & Leuz (2006)
for example, find that private, or non-listed companies exhibit higher levels of earnings management
than public, or listed companies despite the fact that they face the same accounting standards and
accounting traditions. Christensen, Lee, & Walker (2008) also find that incentives of preparers
7
Bulgaria and Romania are not included.
9
dominate accounting standards and the institutional framework in determining accounting quality. Our
results confirm the importance of the influence of the preparers on the comparability of financial
statements.
Besides the influence of differences in accounting traditions and judgements made by
preparers, the properties of the individual companies, like the industry and size, can have an impact
on the comparability of the financial statements as well. The properties of the financial statements
themselves, like the layout and the terminology used, can reduce the comparability as well. Obviously,
these factors are influenced by all the factors mentioned above. Another threat for the comparability of
IFRS financial statements was recently suggested by Dahlgren & Nilsson (2009). They discovered
several problems with the translation of the approved English IFRS into Swedish. These problems
might also exist with the translations into other languages. If financial statements are influenced
differently by all or some of the factors described above, they are less likely to be comparable.
Research design and sample selection
Our research objective was to obtain a clear insight into the view of auditors, analysts and
other users of European IFRS financial statements on the uniformity-flexibility dilemma when
comparing financial statements. The dataset includes responses from 426 individuals to an online
version of our survey: 123 analysts (29%), 104 auditors (24%) and 199 other users (47%) of European
IFRS financial statements. The survey is based on a literature study and expert interviews with three
Belgian IFRS specialists. The online survey 8, which was only available in English, started in
September 2009 and was closed in March 2010.
Surveys are not so common in the accounting literature. For this research, however, we prefer
this method over an archival methodology 9. Using a survey allows us to address issues that traditional
empirical work based on large archival data sources cannot. The uniformity-flexibility dilemma when
comparing financial statements already exists for many years. Despite much previous theoretical and
empirical research mainly based on archival studies, a clear answer to what is understood by
comparable financial statements has not yet been given. Our survey allows us to determine what
8
9
See appendix A. Respondents could leave questions that were less relevant for them open.
Graham, Harvey, & Rajgopal (2005) also discuss the advantages of a survey for certain research topics.
10
auditors, analysts and other users ‘think’ of this discussion. A survey is also a good method to
discover new ideas and insights that have not yet been previously considered by academic
researchers. Surveys have, however, their limitations. It is possible that respondents copy
explanations they learned elsewhere because they think this is what we want to hear. If this is the
case, their answers might not reflect their true beliefs. Moreover, some survey questions can be
misunderstood or the responses might be misinterpreted. Our respondents might also not fully
represent the underlying population. Despite these considerations, though, we believe that knowing
the view of three important stakeholders, auditors, analysts and other users of European IFRS
financial statements, can improve future discussions concerning the uniformity-flexibility dilemma.
Several approaches were used to obtain as many responses as possible. Firstly, we randomly
searched for and consulted the websites of 1.055 European listed companies10 applying IFRS to
obtain information on their auditors and the analysts following these companies. Information on the
CFO’s, CEO’s and/or Investor Relations managers was also gathered since they can use IFRS
financial statements for professional and/or private reasons. Of the 1.055 companies, however, the
website of 558 companies did not provide any (of the required) financial information, was not available
in English or simply did not exist at all. Only 497 companies provided the necessary information. This
way, we contacted 2.156 potential respondents of which we knew they had experience with IFRS
(known experience, Table 3).
Table 3. Sample description
Known experience
Analysts
Unknown experience
1.338 Auditors
Auditors
492 Other users
Other users
326
Total
2.156 Total
Unknown experience
843
45 groups with 165.375 members
170
1.03111
2.53112 mails were send
In some countries, however, the names of the individual auditors are not included in the audit
report. As a second approach, we therefore randomly contacted 843 auditors in these countries
without knowing a priori whether they had experience with IFRS (unknown experience). In addition, we
contacted 170 users identified in a former survey concerning the use of financial statements of listed
10
In total about 10.000 European companies are listed of which approximately 7.500 have to apply the IFRS.
30 responded they had no experience with IFRS.
12
127 responded they had no experience with IFRS.
11
11
and non-listed companies (Cole, Branson, & Breesch (2009a)). Again, we did not know a priori
whether or not they had experience with IFRS. Thirdly, we used LinkedIn, an interconnected network
of experienced professionals from around the world. We started a discussion about our survey in 45
groups like the ‘IFRS Discussion group’, the ‘Finance club’ and some national business networks like
the ‘Romania business and professional network’. Randomly, 2.531 members of these groups (having
experience with IFRS or not) were contacted directly via mail. Finally, we asked the respondents to
send the survey request to other professionals they knew who use IFRS financial statements. This
way, for example, we reached a high number of Italian users (Table 4).
In total, we received 553 responses (response rate of around 12%13). This is in line with other
mail surveys. Interestingly, some potential respondents refused to fill in our survey because they are
fed up with the constant changes of the standards and fear that surveys like ours will “point to more
accounting regulation and/or changes to the current accounting procedures which means more
pointless work for the real business world while allowing accountants to move more paper around 14”.
57 respondents did not complete the survey entirely but responded to more than half of the
questions. These respondents were partially taken into account during the analysis. Respondents who
dropped out earlier (127), were eliminated from the sample. This resulted in 426 valid responses.
Results
Descriptive statistics: general
Table 4 shows that most respondents are British ( 12%), Belgian (9%) and Italian (8%). From
15 EU countries we received ten or more responses and we received at least one response from each
of the 27 Member States of the European Union. Looking at the relative importance of the EU
countries based on the number of companies applying the IFRS, the British, German and French
respondents are underrepresented (e.g. British importance based on number of companies using
IFRS is 24% while they represent only 12% of our respondents). The Belgian, Italian and Dutch
respondents on the other hand, are overrepresented. The other nationalities are more or less
appropriately represented. Respondents from countries classified in class A (according to Nobes
13
Due to the snowball effect and the fact that we did not know a priori whether the respondents had experience
with IFRS, however, we cannot determine the response rate exactly.
14
A quote of one of the respondents who refused to fill in the survey.
12
(2008)) are, therefore, slightly underrepresented (27% as opposed to 33% according to the number of
companies applying IFRS). During the discussion of our results, we will mention the potential
influences of these under- and overrepresentations.
Table 4. Nationalities of the respondents
Analysts
Auditors
Other users
Importance based on number of
Total
companies using IFRS15
British
19
16
15
50
12%
24%
Belgian
13
9
17
39
9%
2%
Italian
3
4
26
33
8%
5%
French
7
12
11
30
7%
12%
Dutch
15
5
9
29
7%
3%
Swedish
4
10
10
24
6%
6%
Greek
4
5
14
23
5%
5%
Bulgarian
9
2
10
21
5%
6%
German
6
4
9
19
4%
13%
Non-EU
9
2
7
18
4%
n/a
Polish
3
6
8
17
4%
3%
Spanish
10
1
6
17
4%
4%
Austrian
1
4
7
12
3%
1%
Romanian
2
2
8
12
3%
n/a
Danish
3
6
2
11
3%
2%
Estonian
3
2
5
10
2%
0%
Slovak
2
3
4
9
2%
n/a
Finnish
2
1
5
8
2%
2%
Latvian
1
1
6
8
2%
0%
Czech
1
0
5
6
1%
1%
Irish
2
2
2
6
1%
1%
Portuguese
2
2
1
5
1%
1%
Cypriot
0
2
3
5
1%
2%
Lithuanian
1
1
2
4
1%
1%
Slovenian
0
0
4
4
1%
1%
Hungarian
0
1
2
3
1%
1%
Maltese
1
1
0
2
1%
1%
Luxembourger
0
0
1
1
0%
3%
123
104
199
29%
24%
47%
Total
426
Most analysts work for a financial institution (79%) and most auditors work for a Big4 audit
company (63%). As for the other users, table 5 shows that 68% of them are professional users
compared to only 4% private users. We define professional users as any individual or entity using the
financial statements for business or professional activities. All other users are considered to be private
15
Based on Commission of the European Communities (2007).
13
users. The remaining 28% use financial statements for both professional and private reasons. The low
percentage of private users partially reflects reality but is also influenced by our sampling procedures.
Table 5 also shows the viewpoints that are taken by the other users while looking at the financial
statements. Most of them consult financial statements as shareholder or investor ( 58%).
Table 5. Other users
Professional
Private
Both
Shareholders or investors
65
8
42
115
58%
Employees
41
1
20
62
31%
Suppliers and other creditors
26
1
15
42
21%
Consultants
25
0
14
39
20%
Member of the Board of Directors
20
0
13
33
17%
Academic researchers
17
4
5
26
13%
Competitors
15
0
8
23
12%
Total
16
132
68%
9
4%
54
28%
Total
19517
Descriptive statistics: experience and focus of the respondents
72% of the respondents have more than five years of experience using financial statements
(Table 6). These respondents already used financial statements of European listed companies before
the introduction of the IFRS in the EU. They might, therefore, be in a better position to judge the
comparability of IFRS financial statements. The auditors (Au, 78%) have most experience based on
years, followed by the other users (U, 76%) and analysts (An, 62% which is significantly18 lower than
the auditors (sig. = .010) and other users (sig. = .005)).
Experience using financial statements can also be measured based upon the number of
companies treated by the respondents. 59% of the respondents are involved with more than five
companies and are thus more confronted with possible problems when comparing financial
statements. Analysts are involved with the highest number of companies (93 analysts or 79%),
followed by the auditors (64 auditors or 66%). Only 78, or 42% of the other users are experienced
based on the number of companies (which is significantly19 lower than for the analysts and auditors,
sig. = .000).
16
This represents the total number of users. Since one respondent can consult financial statements for different
reasons at the same time, this number does not equal the sum of the numbers above.
17
4 missing values.
18
Based on the Kruskal-Wallis test.
19
Based on the Kruskal-Wallis test.
14
Overall, 180 respondents, or 45%, have more than five years of experience and are involved
with more than five companies. We call these respondents ‘experienced’ using financial statements.
All other respondents (55%) are classified as ‘inexperienced’. The opinion of experienced respondents
will be valued higher during our analysis.
Table 6. Experience and focus of the respondents
Experience based on years
≤5
>5
Total
Number of
Industry
Country
companies
focus
focus
≤5
Total
Total
12
13
31
56
12
21
77
110
24
34
108
166
41%
>5
Yes
Local
2
0
0
2
1
3
1
5
3
3
1
7
12%
European
5
1
1
7
11
2
9
22
16
3
10
29
48%
Global
1
1
0
2
14
1
7
22
15
2
7
24
40%
Total
8
2
1
11
26
6
17
49
34
8
18
60
26%
Local
7
1
2
10
10
17
6
33
17
18
8
43
25%
European
9
3
1
13
11
10
15
36
20
13
16
49
28%
Global
8
3
10
21
14
22
26
62
22
25
36
83
47%
Total
24
7
13
44
35
49
47
131
59
56
60
175
74%
Local
9
1
2
12
11
20
7
38
20
21
9
50
21%
14
4
2
20
22
12
24
58
36
16
26
78
33%
9
4
10
23
28
23
33
84
37
27
43
107
46%
Total
32
9
14
55
61
55
64
180
93
64
78
235
59%
Local
6
2
12
20
3
6
24
33
9
8
36
53
38%
European
9
3
1
13
13
3
18
34
22
6
19
47
33%
No
Total
Total
Yes
European
Global
Global
Total
No
Local
European
Global
Total
An
Au
U
T
An
Au
U
T
An
Au
U
Total
2
2
3
7
16
2
16
34
18
4
19
41
29%
17
7
16
40
32
11
58
101
49
18
74
141
35%
8
3
8
19
13
27
23
63
21
30
31
82
32%
10
5
3
18
11
13
26
50
21
18
29
68
26%
9
7
18
34
17
25
34
76
26
32
52
110
42%
Total
27
15
29
71
41
65
83
189
68
80
112
260
65%
Local
14
5
20
39
16
33
47
96
30
38
67
135
34%
European
19
8
4
31
24
16
44
84
43
24
48
115
29%
Global
11
9
21
41
33
27
50
110
44
36
71
151
38%
44
22
45
111
73
76
141
290
117
98
38%
22%
24%
28%
62%
78%
76%
72%
29%
24%
Total
186 40120
46%
The more experience respondents have, the more skilled they are in comparing IFRS financial
statements. The focus of respondents on one or more industries and countries is another important
factor. Most respondents ( 65%) are involved with more than one industry and, therefore, have no
industry focus. Understandable, experienced respondents are less focused on one industry ( 26%)
20
Of the 426 respondents, 25 did not respond to all of the questions concerning their experience and are,
therefore, not included in the analysis.
15
than the inexperienced respondents (49%) who are only involved with less than five companies.
Auditors are the least focused since 80 of them, or 82% are involved with more than one industry. This
is significantly higher (sig. = .00021) than the other users (112, or 60%) and analysts (68, or 58%). The
respondents with no industry focus are, on average, involved with four different industries. Overall, the
most popular industries are financials (41%), industrials (36%), and consumer goods & retail (31%).
34% of the respondents are involved with only one country. We call these ‘local’ respondents.
29% are only involved with Member States of the European Union (‘European’ respondents) while the
others are also involved with non-EU countries (38%). We call these ‘global’ respondents. Once again,
the experienced respondents (38, or 21%) are less focused than the inexperienced respondents (97,
or 44%). Contrary to the industry focus, the analysts are the least focused with regard to countries
since 87 of them, or 74% are involved with more than one country. This is higher than the number of
other users (122, or 66%) and auditors (60, or 61%). Overall, the European and global respondents
are, on average, involved with four different countries from the EU. The most popular EU countries are
the UK (27%), Germany (18%), France (18%), the Netherlands (14%) and Belgium (21%). Note that,
despite the fact that British, German and French respondents are underrepresented, we did attract
enough respondents who are interested in these countries.
Of the experienced respondents involved with more than five companies for more than five
years, 77% are familiar with comparing IFRS financial statements of companies operating in different
industries and 79% are familiar with comparing IFRS financial statements of companies operating in
different countries. 54% are even involved with different industries ánd different countries. Auditors are
most experienced and least focused followed by the analysts and other users.
Based on their characteristics like experience and focus but also nationality, respondents can
be classified into different groups (table 7). For each question of the survey we checked whether or
not differences were noted between the answers of the different groups22. For the different groups
based on country focus, industry focus, nationality, employment status of the analysts and auditors
and the reason why users consult financial statements, we hardly found any significant differences.
21
22
Based on the Kruskal-Wallis test.
Using the Kruskal-Wallis test, the Chi-Square test or paired samples statistics.
16
For two classifications, we found significant differences: the type of respondents and their experience.
These differences will be discussed during the remainder of this paper.
Table 7. Different classifications of the respondents
Classification 1. Type of respondent
Classification 2. Experience
Analysts
123
29%
Auditors
104
24%
Other Users
199
47%
Inexperienced
221
55%
Experienced (More than 5 years of experience & involved
180
45%
National (Involved with one country.)
135
34%
European (Only involved with EU countries.)
115
29%
Global (Also involved with non-EU countries.)
151
38%
Industry focus
141
35%
No industry focus (involved with more than one industry.)
260
65%
Class A (based on Nobes (2008))
103
27%
Class B
with more than 5 companies.)
Classification 3. Country focus
Classification 4. Industry focus
Classification 5. Nationality
Classification 6. Analysts - Financial institution
Classification 7. Auditors - Big 4
272
73%
Working for a financial institution
97
79%
Other employment status
26
21%
Big 4, currently employed or ex-employee
79
76%
Non-Big 4
Classification 8. Other users – Purpose
Professional
Private
Both
25
24%
132
68%
9
4%
54
28%
Defining comparability
As discussed above, a uniformity-flexibility dilemma exists when defining ‘comparable financial
statements’. To get an idea of the view of auditors, analysts and other users on this dilemma, we first
asked them via an open question to define comparable financial statements. Then, we offered a
choice between three less extreme definitions (see Table 8). Most respondents ( 64%) prefer the least
extreme definition, namely “Financial statements are comparable if under the same circumstances
events are accounted for in the same way or if a company gives additional information to allow
comparability with more than one accounting method (multiple reporting)”. This definition was used by
van der Tas (1988) to introduce indices to measure the comparability of financial statements. When
forced to choose between uniformity and flexibility, most respondents (67%) prefer uniformity to define
comparable financial statements, namely “Comparability is reached when all companies apply the
same accounting methods”. The more experienced respondents are, the more they prefer uniformity
although the difference is not significant. There are also no significant differences between the other
classifications of the respondents.
17
These results indicate that, in order to attain comparable financial statements, the respondents
prefer all companies to apply the same standards and that these standards should not allow for many
options. The introduction of the IFRS in the EU and reducing the options in these standards by the
IASB are, therefore, viewed as useful for increasing the comparability of the consolidated financial
statements of European listed companies. Furthermore, the results show that, when measuring the
comparability of financial statements from the viewpoint of auditors and users of these statements,
uniformity and therefore indices are preferred over statistical models.
Table 8. Defining comparability
Analysts
Auditors
Other users
Total
Three definitions
Financial statements are comparable if the alternative accounting
20%
30%
28%
26%
70%
64%
59%
64%
6%
5%
12%
8%
4%
1%
2%
2%
68%
63%
69%
67%
28%
35%
30%
31%
3%
3%
2%
2%
methods applied by companies become concentrated on one or on only
a limited number of accounting methods.
Financial statements are comparable if under the same circumstances
events are accounted for in the same way or if a company gives
additional information to allow comparability with more than one
accounting method (multiple reporting).
Financial statements are comparable if companies are able to choose
the most appropriate accounting method from a list of alternative
accounting methods.
Missing values
Two definitions
Comparability is reached when all companies apply the same
accounting methods. (Uniformity)
Comparability is reached when all companies can apply an accounting
method that is adapted to their unique circumstances. (Flexibility)
Missing values
The answers to the open question confirm this preference for uniformity since 35% of the
respondents who answered this question consider financial statements to be comparable if they are
prepared according to the same accounting standards. Another 10% of the respondents also mention
applying the same accounting standards but they add the condition that the companies should be
operating in the same industry by stating for example:

“To a certain extent, financial statements are comparable for companies active in the same
sector or industry, as drivers for both revenues and the cost side are similar…”.
18
Other factors that were mentioned to attain comparable financial statements are:
same
country, similar size, similar business exposure, similar company structures, same layout and format
of the financial statements, same definitions of key items, same level of detail in disclosures and no
disturbances due to local regulatory requirements. These answers already indicate that having the
same accounting standards will not be enough to attain comparable financial statements.
Interestingly to note is that 35% of the respondents left the question open. Perhaps they found
it, just like the Boards, difficult to define comparability. Some respondents (8%) do not believe that
financial statements will ever be comparable by stating for example:

“Not at all. Sad to say but the interpretations of IFRS just make them more difficult to
understand and impossible to compare. When I meet our auditors to discuss news in IFRS
they always bring someone with a doctor degree. That tells you something”.

“Almost never. Only after detailed analysis of all the statements, the management comments
and own recalculations I can become figures that I feel comfortable with to compare on an
equal basis”.

“I believe that in their original form they are never comparable as no two businesses are
exactly the same.
Amendments to the statements are always required to make them
comparable”.
Next, we asked respondents which type of comparability they find the most important (Table
9). Overall, there are many significant differences in the importance that is attached to the different
types of comparability. Comparability of financial statements over time is considered as most
important and significantly more important than comparability of financial statements of companies
located in the same country (sig.=.000), of companies operating in the same industry ( sig.=.000) and
of all listed companies (sig.=.002). The Boards mention that they are willing to sacrifice the
comparability over time in order to improve the IFRS. Although the improvement of the IFRS is
important, it seems that since the end of the ‘stable platform’, the IFRS are constantly amended.
These frequent changes must be avoided since they jeopardise the comparability over time and are,
therefore, not well received by our respondents.
Comparability of financial statements of companies operating within the same industry is also
found to be significantly more important than comparability of financial statements of companies
19
located within the same country, of companies of the same size and of all listed companies
(sig.=.000). Perhaps it might, therefore, be a good idea to concentrate more on industry specific
problems when preparing new accounting standards. The IASB, however, opposes industry specific
guidance, focusing instead on transaction types.
Table 9. Importance of different types of comparability23
Not at all
Not very
Neutral
Important
Extremely important
important
important
T
T
T
An
Au
U
T
An
Au
U
T
1%
1%
5%
36%
37%
34%
35%
58%
58%
57%
57%
1%
1%
5%
43%
50%
39%
43%
53%
46%
51%
50%
2%
10%
20%
44%
52%
46%
47%
23%
14%
22%
20%
4%
13%
25%
33%
39%
38%
37%
13%
27%
20%
20%
9%
19%
34%
19%
39%
27%
27%
10%
1%
9%
8%
Comparability of financial
statements
of the same
company over time.
Comparability of financial
statements
of companies
operating within the same
industry.
Comparability of financial
statements
of companies
located within the same
country.
Comparability of financial
statements
of
all
listed
companies.
Comparability of financial
statements of companies of
the same size.
There are some differences between the different classifications of respondents. As for the
type of respondent, there is only one significant difference. Auditors (65%) and other users (58%), find
it significantly more ‘important’ to ‘extremely important’ that financial statements of all listed companies
are comparable than the analysts (46%, sig. = .001 and .038 respectively).
Experienced respondents (95%) find it significantly more ‘important’ to ‘extremely important’
that financial statements are comparable over time than inexperienced respondents (91%, sig. = .017).
On the other hand, the experienced respondents find it less important that financial statements of all
listed companies and of companies of the same size are comparable (sig. = .014 and .010
respectively). These results make the comparability of financial statements over time even more
important and, therefore, the constant changes in the IFRS even more problematic.
23
Percentages excluding the missing values (on average 12).
20
Factors that influence the comparability of financial statements
The importance that is attached to factors that influence the comparability of financial
statements differs significantly. The ‘accounting methods used’ is viewed as the most important
determinant. 93% of the respondents consider this factor as ‘important’ to ‘extremely important’ which
is significantly more than for all the other factors ( sig.=.000). This is, however, not the only important
factor. The ‘interpretation differences of the applied standards’ and ‘judgements made by preparers’
are viewed as important factors as well. 78% of the respondents consider these factors as ‘important’
to ‘extremely important’ which is significantly more than for the other remaining factors ( sig.=.000).
Respondents thus view the influence of the preparers as the second most important determinant of
the comparability of financial statements. Standard setters will, however, never be able to fully control
this factor. Principles-based accounting standards require more judgement of both preparers and
auditors because they do not include specific criteria or extensive implementation guidance. The
Enron bankruptcy on the other hand, has proven that rules-based accounting standards are not
immune to abuses by management and auditors either (see for example Hotaling & Lippitt (2003)).
The industry in which companies operate is viewed as an important factor too but this factor
can not be controlled for by standard setters. The factors that are more easy to influence by the
government and/or standard setters, namely the terminology used in the financial statements, the
enforcement bodies controlling the companies, the applicable tax law and the audit firm, are not
viewed as ‘extremely important’ factors but still ‘important’ ( 52%, 51%, 45% and 45% respectively).
This means that the Boards are indeed focusing on the most important factor to influence the
comparability of financial statements, namely the accounting standards. Full comparability of the
financial statements, however, will be hard to reach as a large number of important factors can not be
influenced by the standard setters and/or government.
The fact that the ‘interpretation differences of the applied standards’ and ‘judgements made by
preparers’ are viewed as important factors, confirms the studies related to accounting quality who
state that incentives of preparers dominate accounting standards and the institutional framework.
Differences in accounting traditions, however, are viewed as the least important factor influencing the
comparability of financial statements. Only 44% of the respondents consider these accounting
traditions as ‘important’ to ‘extremely important’. Our results, therefore, do not seem to confirm the
21
importance of country classifications that are often made in accounting literature when it comes to
determining the comparability of financial statements.
Table 10. Factors that influence the comparability of financial statements24
Not at all
Not very
important
important
T
T
Neutral
T
Important
Extremely important
An
Au
U
T
An
Au
U
T
Accounting methods used
1%
2%
4%
41%
43%
41%
41%
52%
54%
52%
52%
The preparers
5%
9%
25%
39%
47%
44%
43%
16%
20%
17%
17%
Judgements made by preparers
1%
3%
19%
50%
55%
53%
53%
25%
34%
21%
25%
14%
22%
38%
15%
26%
22%
21%
3%
5%
7%
6%
1%
3%
18%
53%
60%
57%
57%
20%
21%
23%
22%
Properties individual companies
5%
15%
32%
33%
41%
39%
38%
6%
9%
11%
9%
Industry of the companies
3%
11%
26%
43%
53%
45%
46%
10%
18%
15%
14%
Size of the companies
8%
20%
39%
22%
29%
34%
29%
3%
0%
7%
4%
Properties financial statements
5%
14%
34%
34%
37%
38%
37%
7%
6%
14%
10%
3%
11%
33%
36%
45%
44%
42%
7%
6%
14%
10%
6%
17%
35%
32%
29%
32%
31%
7%
5%
14%
10%
7%
14%
34%
31%
32%
39%
35%
9%
6%
11%
9%
9%
15%
40%
26%
30%
38%
32%
6%
0%
5%
4%
4%
10%
35%
38%
42%
42%
41%
10%
8%
11%
10%
Audit firm of the companies
8%
17%
31%
26%
37%
35%
33%
11%
10%
12%
12%
The applicable tax law
8%
15%
33%
36%
20%
40%
34%
7%
7%
16%
11%
Cultural background of
preparers
Interpretation differences of
applied standards
Terminology used in the
financial statements
Layout of the financial
statements
National accounting traditions
The home-country of the
companies
Enforcement body controlling
the companies
There are some differences between the different groups of respondents. The other users
attach on average more importance to all factors. The opinions of the analysts and auditors are more
aligned. Their answers only differ on three factors:
 The analysts attach more importance to the applicable tax laws ( sig.=.001);
 The auditors attach more importance to the industry of the companies ( sig.=.009);
 The auditors attach more importance to the judgements made by preparers (sig.=.014).
There are some differences depending on the level of experience and focus of the
respondents. The inexperienced respondents attach more importance to the applicable tax law, the
size of the companies and the home-country of the companies (sig.=.000, .000 and .015 respectively).
24
Percentages excluding missing values (on average 23).
22
Respectively 55%, 40% and 41% of the inexperienced respondents consider these factors as
important to extremely important compared to only 32%, 25% and 30% of the experienced
respondents. More experienced and professional respondents (auditors and analysts) probably
developed methods to make financial statements more comparable despite differences in the
applicable tax law for example.
National respondents attach more importance to the enforcement bodies (63%) controlling the
companies than the European and global respondents ( 44% and 48%, sig.=.002). The enforcement
activities in the Member States of the European Union differ significantly. Results of a CESR’s survey
suggest that by 2006, only 11 EU members had introduced an enforcement mechanism that fully met
the requirements laid down by CESR’s Standards on Enforcement (Committee of European Securities
Regulators (CESR) (2007)). Perhaps the lack of strong enforcement bodies in many countries can
explain why it is only viewed as a moderately important factor. Since many countries do not have an
adequate enforcement body, respondents might not realise how important enforcement can be. That
enforcement can be very important is proved for example by a study of Ernstberger, Hitz, & Stich
(2009). They show that of the 138 financial statements of 2008 controlled for by the DPR25, 37
contained errors that could influence the decisions of investors.
IFRS financial statements
Table 13 shows that 41% of the respondents believe that all IFRS financial statements are
comparable. This also means, however, that more than half of the respondents do not believe that all
IFRS financial statements are comparable: 17% believe that they are simply not comparable while
20% and 13% respectively believe that they are only comparable for companies operating within the
same industry or country. This proves again that applying IFRS will not in itself result in comparable
financial statements despite what the Boards might claim.
There are no significant differences between the opinions of analysts, auditors and other users
although the other users are slightly more negative about the comparability of the IFRS financial
statements. Some differences are noted, however, between respondents with different levels of
experience. Experienced respondents believe less in the comparability of the IFRS financial
25
Deutsche Prüfstelle für Rechnungslegung = Financial Reporting Enforcement Panel
23
statements than the inexperienced respondents ( sig.=.015). Only 38% of the experienced respondents
find the IFRS financial statements comparable while 48% of the inexperienced respondents believe in
the comparability of these statements. So, the more experienced respondents are, the less they
believe that IFRS financial statements are comparable. This might be the biggest problem of IFRS
financial statements. While less experienced users might get the impression that IFRS financial
statements are fully comparable, this is only an illusion. There are many other factors influencing the
comparability of financial statements. If this illusion would cause users to make bad decisions, then
the intended blessings of IFRS turn to curses.
Table 13. Are IFRS Financial statements comparable
Analysts
Auditors
Other users
Total
Yes
42%
45%
39%
176
41%
Only within the same country
13%
11%
14%
55
13%
Only within the same industry
15%
19%
23%
84
20%
0%
0%
2%
3
1%
Only for companies of the same size
Only when they are audited by the same audit firm
No
Missing values
1%
6%
4%
14
3%
23%
14%
15%
72
17%
6%
5%
5%
22
5%
Potential influences of selection biases
As mentioned above, based on the number of companies applying the IFRS, the British,
German and French respondents are underrepresented while the Belgian, Italian and Dutch
respondents are overrepresented. Respondents from countries classified in class B (according to
Nobes (2008)) are slightly overrepresented. This selection bias might have an influence on our results.
On an aggregated level, we found no significant differences between class A and class B. This
means that the fact that class A countries are underrepresented probably does not have an affect on
our results. When comparing on a country by country level, we found several significant differences
(table 14). Table 14 shows, however, that there are just as many differences between respondents
from countries that are normally classified in the same group than between respondents from
countries that are classified in different groups (for example British – Belgian versus Belgian – Italian).
This shows again that the fact that class A countries are underrepresented probably does not affect
our results. It also shows that the classification of countries based on differences in accounting
traditions will not be very helpful when it comes to explaining or predicting the lack of comparability of
financial statements.
24
The under- and overrepresentation of the individual countries, however, could have an affect
on our results. The overrepresented Belgian respondents for example, are more negative about the
comparability of IFRS financial statements than the underrepresented British and French respondents.
The whole population might therefore be slightly more positive about the comparability of IFRS
financial statements than our results reveal. The overrepresented Italian respondents attach more
importance to the comparability of the financial statements of companies from the same size than the
underrepresented British and German respondents. This type of comparability might therefore be even
less important than our results reveal. Overall, however, the differences between the views of different
nationalities are minimal, suggesting that the under- and overrepresentation of certain nationalities in
our sample is not problematic.
Table 14. Nationalities – Differences in opinion
More important for…
Question
or
Significance
… are more negative.
British – Belgian
Are IFRS-financial statements comparable according to you?
British – Italian
Types of comparability - Comparability of financial statements of companies from the same size
British – French: /
British – Dutch: /
British – German
Factors influencing the comparability of financial statements – Layout of the financial statements
Belgian – Italian
Types of comparability - Comparability of financial statements of companies operating within the
same industry
Factors influencing the comparability of financial statements – Industry of the companies
Are IFRS-financial statements comparable according to you?
Belgian – French
Are IFRS-financial statements comparable according to you?
Belgian – Dutch: /
Belgian – German: /
Italian – French
Factors influencing the comparability of financial statements – Industry of the companies
Italian – Dutch
Types of comparability - Comparability of financial statements over time
Factors influencing the comparability of financial statements – Cultural background of the
preparers
Factors influencing the comparability of financial statements – Home-country of the companies
Italian – German
Types of comparability - Comparability of financial statements of companies from the same size
Factors influencing the comparability of financial statements – Layout of the financial statements
French – Dutch
Factors influencing the comparability of financial statements – Home-country of the companies
Factors influencing the comparability of financial statements – Cultural background of the
preparers
Factors influencing the comparability of financial statements – Industry of the companies
French – German
Uniformity versus flexibility: uniformity is more preferred by… respondents
Factors influencing the comparability of financial statements – Home-country of the companies
Dutch – German: /
.034
Belgian
.016
Italian
.022
British
.046
Belgian
.045
.001
Belgian
Belgian
.017
Belgian
.010
French
.031
Dutch
.011
Italian
.022
Italian
.022
.007
Italian
Italian
.006
French
.029
French
.030
French
.028
.039
German
French
25
Another selection bias might be that the private users are underrepresented. We do not have
enough data from private users, however, to determine whether this selection bias could have an
influence on our results. Furthermore, our survey was only available in English which excludes many
potential respondents. We targeted, however, auditors, analysts and other users who are faced with
comparing IFRS financial statements from different countries. Since most companies only offer their
financial statements in their mother language and English, international users of these statements are
forced to have a basic knowledge of English. We also believe that those stakeholders that are more
confronted with comparing IFRS financial statements were more motivated to answer the survey and
these were exactly the stakeholders we targeted most. Furthermore, considering the diversity and the
number of the respondents, we believe that the responses can be used to get valuable insights in the
view of auditors, analysts and other users of European IFRS financial statements on the comparability
of these statements.
26
Conclusions
Many articles discuss the comparability of financial statements and the factors that influence
this comparability. This paper explores the view of auditors, analysts and other users of European
IFRS financial statements on these important matters. The study is based on responses from 426
individuals: 123 analysts, 104 auditors and 199 other users like investors, employees, suppliers and
consultants.
In accounting literature, a uniformity-flexibility dilemma exists when it comes to defining
comparable financial statements. When given the option, most respondents define comparability by
creating a balance between uniformity and flexibility. When forced to choose, most respondents
interpret comparability as uniformity which states that comparability is reached when all companies
apply the same accounting methods. The uniformity-flexibility dilemma is reflected in the methods
developed to measure the comparability of financial statements. When using financial statements,
there are two approaches to measure their comparability: indices and statistical models. Our
respondents clearly prefer the definitions of comparability used by authors who develop indices over
those used by authors who develop statistical methods. When measuring the comparability of financial
statements from the viewpoint of auditors and users of these statements, indices are, therefore,
preferred over statistical models.
Despite the fact that standard setters struggle with the uniformity-flexibility dilemma, they
believe that applying the same accounting standards and reducing the options within these standards
will help to attain comparable financial statements. The prospect of attaining comparable financial
statements is one of the reasons why the European Union has made the IFRS compulsory for the
consolidated financial statements of all listed companies as of 2005. Only 41% of our respondents
believe, however, that all IFRS financial statements are comparable. More importantly, the more
experienced respondents are, the less they believe that IFRS financial statements are comparable.
This might be the biggest problem of IFRS financial statements. While less experienced users might
get the impression that IFRS financial statements are fully comparable, this is only an illusion. True
comparability of financial statements will be hard to attain since there are many other factors
influencing the comparability of financial statements.
27
The fact that other factors can influence the financial statements is also shown by studies
concerning accounting quality. Our results confirm that preparers have an important influence on the
financial statements. Since prepares can be influenced by different incentives, this can threaten the
comparability of financial statements. Differences in accounting traditions are also often used to
explain differences between different countries and many studies classify countries in different groups
based on these accounting traditions. Our study does not confirm the importance of these
classifications when it comes to the comparability of financial statements. There are just as many
differences between respondents from countries that are normally classified in the same group than
between respondents from countries that are classified in different groups. Furthermore, our
respondents consider accounting traditions as the least important factor influencing the comparability
of financial statements. The accounting methods used, the influence of the preparers and the
properties of the companies and financial statements are all considered to be more important.
Perhaps the declining importance of accounting traditions is a consequence of the fact that many
listed companies nowadays operate in different countries and are even listed on different stock
markets. Differences in accounting traditions might still be an important issue for smaller private
companies.
Finally, our survey reveals that the IASB and FASB made some incorrect assumptions
concerning the importance of different types of comparability. The Boards do not have a problem with
sacrificing the comparability of financial statements over time which is proven by the frequent
amendments to the IFRS. This type of comparability is viewed, however, as extremely important by
our respondents and these frequent changes are, therefore, not well received. Furthermore, the IASB
seems to focus on the comparability of the financial statements of all listed companies. This type of
comparability is, however viewed as less important than the comparability of financial statements of
companies operating within the same industry. The IASB, however, always tries to avoid requirements
that are industry specific, focusing instead on transaction types. Our results thus show that the view of
the Boards is not always the same as the view of the auditors, analysts and other users of European
IFRS financial statements.
28
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30
Appendix A: Survey - Auditor
What is your nationality?
 Austrian
 Irish
 Belgian
 Italian
 British
 Latvian
 Bulgarian
 Lithuanian
 Cypriot
 Luxembourger
 Czech
 Maltese
 Danish
 Polish
 Dutch
 Portuguese
 Estonian
 Romanian
 Finnish
 Slovak
 French
 Slovenian
 German
 Spanish
 Greek
 Swedish
 Hungarian
 Other: ………………..
Are you:
 Male  Female
How many years of experience do you have as an auditor?
 <5
 6 to 10
 11 to 15
 > 15
What is/was your status as an auditor?
 I am currently working as an auditor with a Big4 audit company (Deloitte, E&Y, KPMG or PwC).
 I am currently working as an auditor with a non-Big4 audit company.
 I used to work as an auditor with a Big4 audit company (Deloitte, E&Y, KPMG or PwC).
 I used to work as an auditor with a non-Big4 audit company.
For how many companies who have to apply IFRS are/were you involved in the audit-process?
 1
 2 to 5
 6 to 10
 > 10
In which industries are these companies operating?
 Basic materials
 Industrials
 Consumer goods and retail
 Media and telecommunications
 Consumer services
 Technology
 Energy
 Telecommunications
 Financial
 Utilities
 Food and agriculture
 Other
 Healthcare
31
Where are the headquarters of these companies located (place the number of companies behind the
relevant countries or regions)?
 Africa:
 Middle East:
 Asia:
 North America:
 Australia and Oceania:
 Non EU European countries:
 Central and South America:
 European Union, namely:
 Austria:
 Latvia:
 Belgium:
 Lithuania:
 Bulgaria:
 Luxembourg:
 Cyprus:
 Malta:
 Czech Republic:
 Netherlands:
 Denmark:
 Poland:
 Estonia:
 Portugal:
 Finland:
 Romania:
 France:
 Slovakia:
 Germany:
 Slovenia:
 Greece:
 Spain:
 Hungary:
 Sweden:
 Ireland:
 United Kingdom:
 Italy:
When do you consider financial statements to be comparable?
Which of the following definitions resembles best your vision on the comparability of financial
statements?
 Financial statements are comparable if the alternative accounting methods applied by
companies become concentrated on one or on only a limited number of accounting methods.
 Financial statements are comparable if under the same circumstances events are accounted
for in the same way or if a company gives additional information to allow comparability with
more than one accounting method (multiple reporting).
 Financial statements are comparable if companies are able to choose the most appropriate
accounting method from a list of alternative accounting methods.
32
Which of the following definitions resembles best your vision on the comparability of financial
statements?
 Comparability is reached when all companies apply the same accounting methods.
 Comparability is reached when all companies can apply an accounting method that is adapted
to their unique circumstances.
How important are the following forms of comparability to you?
Comparability of financial statements of the same company over time:
Not at all important
Not very important
Neutral
Important
Extremely important





Comparability of financial statements of companies located within the same country:
Not at all important
Not very important
Neutral
Important
Extremely important





Comparability of financial statements of companies operating within the same industry:
Not at all important
Not very important
Neutral
Important
Extremely important





Comparability of financial statements of companies from the same size:
Not at all important
Not very important
Neutral
Important
Extremely important





Comparability of financial statements of all publicly traded companies:
Not at all important
Not very important
Neutral
Important
Extremely important





How important are the following factors for the comparability of financial statements?
Not at all important
Not very important
Neutral
Important
Extremely important
Accounting methods used:





Judgements made by the preparers:






























The audit firm of the companies:





The industry of the companies:










The size of the companies:





The applicable tax law:





Possible interpretation differences of
the applied standards:
Cultural
background
of
the
preparers:
Terminology used in the financial
statements:
Layout of the financial statements:
Enforcement body controlling the
companies:
The
home-country
of
companies:
the
33
Are IFRS-financial statements comparable according to you?
 Yes
 Only within the same country.
 Only within the same industry.
 Only for companies of the same size.
 Only when they are audited by the same audit firm.
 No
Why (not)?
Which of the following aspects of IFRS-financial statements cause problems in obtaining comparability
of these financial statements?
Not at all
Few
Neutral
Some
Many










Presentation of the statement of changes in equity:





Presentation of the statement of cash flows:





Basis of consolidation:

























Borrowing costs:





Government grant:








































Presentation of the income statement:
Presentation of the balance sheet:
Business combinations, associates and joint-ventures:
Classification of assets:
Classification of liabilities:
Construction contracts:
Employee benefits:
Share-based payments:
Taxation:
Property, plant & equipment:
Leases:
Goodwill:
Intangible assets:
34
Not at all
Few
Neutral
Some
Many
Impairments of financial assets:





Impairments of non-financial assets:





Inventories:





Revenue recognition:




















Derivative financial instruments (and hedging):





Provisions:





Critical judgements & key sources of estimation uncertainty:





Segment information:





Timing of the adoption of new standards:





Fair value measurement:





‘Own use’ contracts
(contracts held for the purpose of the receipt or delivery of a nonfinancial item in accordance with the entity’s expected purchase, sale or
usage requirements):
Financial assets:
Financial liabilities and equity instruments issued by the
company:
How important is the remaining impact of the options made under IFRS 1 'First-time Adoption of
International Financial Reporting Standards’ for the current financial statements?:

Not at all important

Not very important

Neutral

Important

Extremely important
Why?
35