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The Cross-Country Comparability of IFRS Earnings and Book Values: Evidence from France and Germany

56 Pages Posted: 5 Jan 2012  

Qing Liao

University of Wisconsin - Madison

Thorsten Sellhorn

Ludwig-Maximilians-Universitaet (LMU) Munich

Hollis Ashbaugh Skaife

Graduate School of Management, UC-Davis

Date Written: September 1, 2011

Abstract

Beginning in 2005, the EU began requiring consolidated financial reports of publicly traded firms to be prepared in accordance with EU-endorsed International Financial Reporting Standards (IFRS) in an effort to increase the comparability of financial information across EU Member States. While some expect IFRS reporting to increase the comparability of financial information across the EU, others argue that comparability is unlikely because IFRS implementation will vary conditional on national institutions and culture. We investigate the cross-country comparability of IFRS earnings and book values of French and German firms because these two EU states have well-developed equity markets and use the same currency while having social-economic and cultural differences that can affect managers’ IFRS implementation choices. Our results indicate that French and German IFRS earnings and book values are comparable in the year subsequent to IFRS adoption, but become less comparable in the years that follow. We document differences in accounting estimates, recognition of special items, and other equity reserves between French and German firms, which help explain the decrease in comparability over time. Our study adds to the growing literature on the financial statement effects of mandatory IFRS reporting and points to possible reasons for a sustained lack of cross-country comparability of financial information under a common accounting regime.

Keywords: international financial reporting, IFRS, comparability, valuation usefulness

JEL Classification: G12, G14, G38, K22, M41, M42, M48

Suggested Citation

Liao, Qing and Sellhorn, Thorsten and Skaife, Hollis Ashbaugh, The Cross-Country Comparability of IFRS Earnings and Book Values: Evidence from France and Germany (September 1, 2011). Journal of International Accounting Research, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1979341

Qing Liao

University of Wisconsin - Madison ( email )

716 Langdon Street
Madison, WI 53706-1481
United States

Thorsten Sellhorn

Ludwig-Maximilians-Universitaet (LMU) Munich ( email )

Ludwigstr. 28 RG IV
Munich, Bavaria 80539
Germany
+49(0)89-21806264 (Phone)
+49(0)89-21806327 (Fax)

HOME PAGE: http://www.rwp.bwl.uni-muenchen.de/personen/professoren/sellhorn/index.html

Hollis Ashbaugh Skaife (Contact Author)

Graduate School of Management, UC-Davis ( email )

Graduate School of Management
1 Shields Ave
Davis, CA 95616
United States

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