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Financial Statement Effects of Adopting International Accounting Standards: the Case of Germany


Mingyi Hung


The Hong Kong University of Science and Technology & University of Southern California

K.R. Subramanyam


University of Southern California - Leventhal School of Accounting


Review of Accounting Studies, Forthcoming

Abstract:     
This study investigates the effects of adopting International Accounting Standards (IAS) on financial statements and their value relevance for a sample of German firms during 1998-2002. By implementing an innovative research design we compare accounting numbers reported under German accounting rules (HGB) with those under IAS for the same set of firm-years, and document how IAS adoption changes key financial measures and the value relevance of financial statement information. While HGB is stakeholder-oriented and commonly viewed as a historical cost accounting model that emphasizes income smoothing, IAS is shareholder-oriented and generally perceived as a fair-value accounting model that emphasizes balance sheet valuation. Consistent with these perceptions, we find that total assets and book value of equity, as well as variability of book value and net income, are significantly higher under IAS than HGB. In addition, we find that book value (net income) plays a greater (lesser) valuation role under IAS than under HGB. Finally, we find that while the IAS adjustments to book value are generally value relevant, the adjustments to income are generally value irrelevant. Our evidence provides new insights into the accounting differences between stakeholder-oriented and shareholder-oriented accounting systems and sheds light on the financial statement and valuation implications of adopting IAS in stakeholder-oriented economies, an issue that is particularly important in the upcoming adoption of IAS by the European Community.

Number of Pages in PDF File: 48

JEL Classification: G12, M41, M44, M47

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Date posted: November 24, 2004  

Suggested Citation

Hung, Mingyi and Subramanyam, K.R., Financial Statement Effects of Adopting International Accounting Standards: the Case of Germany. Review of Accounting Studies, Forthcoming. Available at SSRN: http://ssrn.com/abstract=622921 or http://dx.doi.org/10.2139/ssrn.622921

Contact Information

Mingyi Hung (Contact Author)
The Hong Kong University of Science and Technology & University of Southern California ( email )
Hong Kong
K.R. Subramanyam
University of Southern California - Leventhal School of Accounting ( email )
Los Angeles, CA 90089-0441
United States
213-740-5017 (Phone)
213-747-2815 (Fax)
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