Topic Who The Fuck Cares Flashcards
(11 cards)
What are ‘overt options’ in IFRS?
Explicit choices permitted in standards that create visible national patterns, such as inventory valuation and PPE treatment.
Examples include: UK using FIFO for inventory, while France uses weighted average.
What are examples of overt options in IFRS?
1) Inventory valuation (UK: FIFO, France: weighted average) 2) PPE and investment property (UK: more fair value, Continental: cost model) 3) Cash flow statement presentation (UK: interest as operating, Continental: as financing) 4) Income statement format (UK: function of expense, France: nature of expense) 5) Balance sheet format (UK: net assets focus, Continental: total assets).
Research by Kvaal & Nobes (2010) confirmed these national patterns.
What are ‘covert options’ in IFRS?
Judgment areas not intended as choices but allowing different interpretations, such as materiality determinations and impairment indicators.
These create less visible differences in practice.
What causes national variations in IFRS implementation?
1) Path dependency 2) National enforcement mechanisms 3) Tax influence 4) Different auditor approaches 5) Cultural attitudes.
These factors create persistent national ‘dialects’ of IFRS practice.
Why do IFRS implementation differences matter for users?
They potentially undermine the comparability objective of IFRS adoption, affecting financial ratios and cross-border investments.
Differences allow adaptation to institutional environments and acknowledge variations in user needs.
What evidence exists for national patterns in IFRS implementation?
Kvaal & Nobes (2010) studied 232 IFRS policy choices across several countries, finding clear national patterns.
Nobes (2011) confirmed these patterns follow previous classification groups.
How has the IASB responded to national IFRS implementation differences?
The IASB has responded by: 1) Establishing the IFRS Interpretations Committee to address inconsistent practices, 2) Conducting post-implementation reviews to identify problematic options, 3) Gradually reducing options in standards revisions, and 4) Enhancing disclosure requirements for policy choices. However, complete elimination of national variations would require either more detailed rules or coordinated international enforcement.
How do enforcement differences affect IFRS implementation?
Different enforcement bodies interpret IFRS differently, leading to systematic differences in application. For example, the UK’s FRC historically took a principles-based approach, while France’s AMF sometimes provided advance clearance. Research indicates that stronger enforcement correlates with more conservative application and better compliance.
What are specific examples illustrating national IFRS patterns?
Examples include: IAS 19 - UK companies use higher discount rates than German companies; IAS 36 - French companies recognize impairments more readily than UK companies; IAS 38 - UK companies capitalize development costs more than German companies; IAS 40 - UK uses fair value model while Continental Europe uses cost model. These reflect pre-IFRS national traditions.
What role do auditors play in creating national IFRS variations?
Auditors from the same Big 4 firms apply IFRS differently across countries due to local traditions and enforcement expectations. Audit firms have country-specific methodology guidance, and partner rotation within countries perpetuates national approaches. Research shows more conservative application in countries with higher auditor liability.
How have companies’ IFRS implementation choices evolved since adoption?
Since initial adoption in 2005, companies showed strong national patterns, continuing previous practices. Some convergence has occurred, but fundamental national differences persist. Policy changes are infrequent due to disclosure requirements and the desire for year-to-year comparability. Convergence is more likely in multinational companies with cross-border listings.
