The Impact of IFRS On UK, Germany and Italy

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Globalisation and internationalization has undoubtedly transformed global economies, making it more open and competitive, markets are integrating and with the advancements made in the field of technology and telecommunication global trades moving towards great momentum especially in the field of investments made across borders. These developments have often highlighted and reflected the need of the existence of accounting standards that are standards across all trading platforms thus replacing the existing local GAAP, this transformation would excel in+ternational investments and encourage investors to make investment decisions with greater confidence.

This research proposal highlights the impact that IFRS would bring in the world of accounting and finance thus transforming it into one single seamless system. However there are certain issues that need to be addressed like cost, convergence of local GAAP etc for economies to completely migrate to IFRS. The impact of IFRS adoption on economies is believed to be profound and advantageous.

The proposal aims to propose an in-depth research on the impact of IFRS on UK, Germany and Italy and thus with the help of analysis justify and establish that different economies would face varied issues and would benefit in numerous and different ways with the implementation of IFRS.


Globalisation and internationalisation has affected many areas of global trade, and the processes that are driven by globalisation have in many ways determined economic and accounting activity. One of the profound outcomes of globalisation has been on the evolution in the field of accounting and it has been that many countries today are adapting to this change that is at international level, to their maximum strength and potential. As mentioned by Joshi and Al-Basketi, 1999; Boolaky 2004 the International Accounting Board, driven by these various forces of globalisation and internationalisation are propagating the practice of International financial reporting standards (IFRS) around the globe, to which different countries are responding accordingly to the capability by either making an attempt to either adopt or partly adopt the IFRS. As Boolaky (2004) further mentions that owing to the element of cost associated with it, the adoption of IFRS around has been different, where some big organisations have completely adopted it while smaller businesses have made efforts to uplift their present accounting practices and standards that are in line with the IFRS.

Keeping into close consideration the financial crisis that have been very recent in the last few years, there has been a big void in the political and regulatory aspects of financial world keeping this into consideration there is need for a single set of converged, global accounting standard that sets a single platform for all accounting reporting and regulations. Especially in the case of banks such standards would add to the transparency and comparability across global banking industry.

Keeping the need for a seamless accounting structure the European Union on the first of January 2005 announced that all the listed companies in the European Union are required to publish their consolidated financial statements in accordance of the International Accounting Standards, known as IAS/IFRS rather than the local national requirements (GAP), as mentioned by many economist and financial scholars with the influx of greater transparency, improved accounting quality and comparability, the international standardisation of corporate accounting regulation would facilitate great accessibility of investment capital across the European Union.

However, even with numerous benefits that IFRS would bring to the table in the world of international standards of accounting, there are certain limitations and areas of concern like the element of cost etc, this research proposes to critically look into the Impact of the adoption and application of IFRS in the UK, German and Italian economies, the research with the help of various secondary and primary sources of information would critically evaluate the impact IFRS has had on these countries, and with the help of analysis using either qualitative or quantitative research methods the researcher then aims to relate the findings to the existing literature thus adding validity to the result and findings of the research.

Background to the research and industry background:

It is a fact that credible information is very valuable in the efficient working of capital markets, primarily the two reasons behind this being:

This increases the incentive to invest in the markets and also

It favors optimal allocation of the savings to the investment made.

Over the last few decades there has been an increased interest that has surfaced in the understanding and recognition of the different way corporate reporting can take the edge off information and agency problems. The Securities and Exchange Commission (SEC) over the years has been making continual efforts to develop a set of accounting standards that could serve a common purpose and form a financial framework for financial reporting across the borders offerings. The main driver for this need has been that the fact that issuers that are aiming to raise capital in multiple countries often victim of increased compliance costs and inefficiencies tagged along with preparing numerous financial statements that have to be line with the and have to comply with the different judicial accounting requirements of the country where the capital being raised from. In response to this emerging problem the International Organisation of Securities Commissions (IOSCO) made recommendations for the introduction of 30 core standards that would be issued by the IAB'S for cross-border offerings and listings.

On an international platform the importance of IFRS has been recognized globally the International Federation of Accountants (IFAC) through the help of survey findings from

accounting leaders around the world revealed that out of the 143 countries survey 91 counties that is 90% of the total survey unanimously responded that a single set of international accounting standards were very important for the economic growth in their respective countries

IFRS owing to its associated benefits and the return it would bring through adoption has been globally accepted and have gained traction in all major regions of the world. The status of IFRS in Europe and the United states can be briefly discussed below:


It has been reported and claimed in various financial journals and papers that Europe among the many regions adopting IFRS has shown the most-noticeable progress. The European Union financial reporting strategy proposed the use and implementation of IFRS from 2005, and keeping the scale of the undertaking about 9,000 listed companies are now employing IFRS in the generation and processing of consolidated financial statements. Further to this all the member states of the European Union accept companies to use IFRS for corporate tax statements; it has also come into recognition that most companies in the European Union today are still using the local General Accepted Accounting Principle (GAAP) while still in implementation stages of IFRS, which shows a increased convergence of local GAAP with IFRS.

United States:

The signs of success reflected in the acceptance and implementation of IFRS at such a large scale in Europe the United States of America has introduced a renewed focus of merging the American standards of accounting with the International Financial Reporting Standards (IFRS). A major step in the convergence of US GAAP and the IFRS was initiated in 2007, when the SEC decided to vote reconciliation of differences by the 1,100 non- US companies who have their securities registered with US Securities and Exchange Commission (SEC). Further to this development IASB chairman commented that this merger of GAAP and IFRS should be complete by the end of 2012, it was then added by the chair of SEC that this convergence of accounting standards and reporting practices would prove to be of great benefits to the United States, it would not only improve the position of the US in the global financial markets but would also improve capital raising opportunities and also provide better comparability of financial statements from an investor perspective.

Rest of the World:

Regulating bodies in countries as diverse as Armenia, Costa Rica, Kuwait, Peru, Australia, and South Africa require reporting from all publicly listed companies to be based on IFRS. In addition, the International Organization of Securities Commissions has recommended that the world's regulators permit companies to prepare financial statements based on IFRS for cross-border offerings and listings. The IASB has also begun a project to merge the Japanese GAAP with IFRS.

Thus as the literature above reflects that the need for having a globally accepted standard for financial statement is a must and has significance in respects to creating a single platform for accepted standards, this would not only add to the efficiency but would also create opportunities to raise capital which would lead to growth and development, however, there is still work left to be done as most of the leading economies are on the final stages of convergence between their local GAAP and IFRS. The researcher strongly believes that this change and acceptance of IFRS globally would bring in many constructive changes and reforms that would integrate the global accounting practice and procedures to one single plan thus creating seamless accounting practices around the globe.

Research aim and objectives:

The primary aim of the proposed research would be to critically examine the implementation of IFRS in three countries namely the UK, Germany and Italy. The reason for particularly choosing these three countries is that these three countries are believed to be very much similar in their national accounting standards. Like the UK and Germany are common law countries where the economic interest focus is primarily on the needs of the shareholders and where-as Italy is considered to have a civil law system where the creditors are considered to be the most significant and vital part of the entire financial system.

The main objectives of the research are as follows:

To quantify the nature and the degree of changes in the financial reporting systems that have been experienced as a result of adoption of IFRS in the UK, Germany and Italy.

Accessing the element of cost associated with the production and publication of new information in the three countries.

To identify and evaluate the standards those which have been the greatest challenges in the implementation of IFRS in the three countries.

To evaluate the usefulness of IFRS information from the perspective of users of financial statements.

To review and comment on whether the information required under IFRS is decision-useful for stakeholders.

The researcher strongly believes with these objectives the research would be able to not only locate any gap in the existing literature but would also be able to clear the understanding of IFRS, highlighting its importance and advantages along with any drawbacks, if any.

Motivation behind the research:

In developing economies, government-owned institutions are dominant economic forces and as such require an efficient and effective government financial management system. Berry and Holzer (1993) argue that the accounting systems installed in those countries were often too sophisticated for local requirements because they were imported from developed jurisdictions to underdeveloped ones. But this argument is less relevant today because of globalization and thus the importance of IFRS around the world has grown.

Presently many developing countries are migrating to a free market policy through privatization and capital account liberalisation in order to increase competition and at the same time are opening up their economies by permitting entry to multinational corporations. The rationale behind this strategy is to demonstrate their economic freedom policy and the openness of the economy to the whole world - an aspect of globalization. International Accounting Standards (Nobes, 1998a, b) the process of moving towards international standards differs from the past when developing countries could not afford to finance the cost of transiting from local standards to international standards or could not develop "adapted accounting standards" suitable to their needs (Tettley, 1991; Joshi and Al-Basketi, 1999).

Although the three countries under consideration are categorised under the more developed economies there are anomalies in their implementation of IFRS and their present degree of convergence with their local GAAP practices, this fact that with varied law systems in these countries these countries have still shown maximum sign of convergence and adoption of IFRS, this has been of particular interest to the researcher and the diversity and volatility in the economic environment in which these standards are being implemented has really motivated to further research in this area of global accounting practices and procedures.

Literature review:

This section of the research forms a theoretical framework for the entire research, the researcher in this section would be critically reviewing and analyzing the various literatures that is available on IFRS and other related concepts and understanding. This section would first aim to introduce the very concept of IFRS, its origin, associated benefits with a brief overview of the convergence progress and the top ten issues in the successfully adoption and implementation of IFRS as a globally accepted and practiced accounting standard.

Introducing IFRS:

IFRS are accounting rules ('standards') issued by the International Accounting Standards Board (IASB), an independent organisation based in London, UK. They purport to be a set of rules that ideally would apply equally to financial reporting by public companies worldwide. Between 1973 and 2000, international standards were issued by the IASB's predecessor organisation, the International Accounting Standards Committee (IASC), a body established in 1973 by the professional accountancy bodies in Australia, Canada, France, Germany, Japan, Mexico, Netherlands, United Kingdom and Ireland, and the United States. During that period, the IASC's rules were described as 'International Accounting Standards' (IAS).

A single set of global financial reporting standards has been under development for more than three decades since the International Accounting Standards Committee (IASC) was first established in 1973. Today, the suite of standards comprises of International Accounting Standards (IAS), which were first issued by the IASC and, subsequent to April 2001, IFRS issued by the IASC's successor, the IASB and interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC).

The IASC Foundation and IASB's objective is "to develop a single set of high quality, Understandable and enforceable accounting standards to help participants in the world's capital markets and other users make economic decisions". The IASB also seeks to "co-operate with national standard setters to achieve convergence in accounting standards around the world."

It was not until 2005, when the European Commission's required public companies reporting within the European Union (EU) to prepare consolidated financial statements compliant with IFRS that IFRS began to be widely applied around the world. With that, the IASB made significant progress in achieving its goal.

Benefits of IFRS adoption:

IFRS promises more accurate, comprehensive and timely financial statement information, relative to the national standards they replace for public financial reporting in most of the countries adopting them, Continental Europe included. To the extent that financial statement information is not known from other sources, this

should lead to more-informed valuation in the equity markets, and hence lower risk to investors.

Small investors are less likely than investment professionals to be able to anticipate financial statement information from other sources. Improving financial reporting quality allows them to compete better with professionals, and hence reduces the risk they are trading with a better-informed professional

IFRS adoption could reduce the cost to investors of processing financial information. The gain would be greatest for institutions that create large, standardised-format financial databases.

Research methodology:

The research methodology for any research is considered to be the most significant and is an vital aspect of the business, this process includes the different data collection methods employed by the research and the research methodology that is either qualitative or quantitative research methodology. This section of the research is of particular significance as this adds to the significance of the research findings and inappropriate research methodology could diverge the researcher from its objectives thus resulting in incorrect results and research findings. It is very important that the researcher picks the correct sources of information as these add validity to the research other aspects of methodology that have particular significance are sample size, sample population, and size etc.

The researcher in this particular research aims to use the qualitative research methodology the reason being it would be critically evaluating the findings from financial statements and then linking the finding with the reviewed literature.

Data collection technique and methodology:

The secondary research forms an important aspect of the research methodology adopted by this research, secondary data would be collected from different secondary resources and then critically analyze the collected data with the aim to form theoretical framework for the entire research.

The significance of the secondary research are numerous as it helps the researcher pave the theoretical standing of the entire research. Data from various sources that have academic standing will be taken into consideration and all the previous work done in related area of research will be compiled and theoretically criticized developing the scope of the research and identifying the key area of further research.

In the course of this research the research will be conducted on the secondary data collected from various academic journals, books and other electronic sources that are readily available on the student portal of London School of Business and Finance, University of Wales. The source employed is reliable as they originate form an academic standing.

Secondary data may be defined as "data that have already been collected for some other purpose, perhaps processed and subsequently stored" (Saunders, et al 2007). All these techniques are a reflection of the method of triangulation to gain extra validity and reliability with the data and results (Bryman & Bell 2007). "Secondary data analysis in general, involves the study of data that others have gathered either qualitatively or quantitatively" (Bryman & Bell 2007). It has an advantage of facilitating the comparative element to be included into the research design. It also adds quality to the data as it has undergone rigorous and strict procedures before publication (Bryman & Bell 2007).

Primary research is a source of information that will be collected from the primary sources of information, the primary data collection and the analysis of the data that will be collected is believed to add validity to the research. Although the data collection process is time and money consuming process but it brings various benefits associated with it to the research table.

The researcher for the purpose of this research has conducted primary research and in doing so he has collected data from both the primary sources in the form of survey and unstructured interviews. The primary data collected was then analysed and evaluated to form constructive results to associate with the reviewed literature.

Thus the primary research has played a very significant role in the course if this research, the data collected has added significant value and validity in the conclusion drawing process.

Primary Data is "data observed, experienced or recorded closest to the event" and it is important as primary data "are the nearest, one, can get to the truth, although distortions inevitably occur as the proximity of the event decreases (Walliman 2005, pg 197). The drawback with using primary research is the time and cost involved in the travel and interview periods. Nevertheless it is data collected first hand hence is more reliable than secondary data (Bryman & Bell 2007).

Data analysis:

The different analysis methods that the researcher proposes to employ are as follows:

Content analysis of financial statements

Analysis of reconciliation between statements IFRS and the national GAAP of the three countries.

Conducting interviews with multiple stakeholders on adoption of IFRS including interviews with a few auditors, analysts and regulators.

With the help of this data analysis approach conducted on the basis of the research finding from both primary and secondary sources the researcher feels the research objectives would be addressed and achieved with great success. This particular analysis approach would reflect on the different levels of agreement, convergence and issues faced in the three countries UK, Germany and Italy during the adoption and implementation of IFRS.






Overview of the theoretical framework of the research area, analysing key literature in the form of practices, models, concepts and practices


Structuring the critical analysis of the reviewed literature


Finalizing the appropriate methodology and sketching the data collection and analysis techniques and tools.

1 - 17

Presenting the findings in the first draft of the research, reflecting data analysis from both primary and secondary sources, and discussing with the tutor for feedback and improvement.

17 - 30

Final research compilation, presentation and conclusion and recommendation drawing process, with the identification of the scope of further research.

Note: This a proposed time line and plan and is subject to change as per the research advancements and objectives achievement.


It is an inevitable and globally accepted fact that there is a need for standardization of international accounting practices, procedures and format, this conversion from a traditional GAAP approach would not add to the global understanding of the standards but would also bring along numerous benefits of capital gains. With the help of this proposed research the research would aim to establish the understanding of IFRS in UK, Germany and Italy the degree of convergence with the local GAAP and thus commenting and analysing the overall impact of IFRS on the financial reporting standards of these countries.