How Much Does IFRS Cost? IFRS Adoption and Audit Fees

50 Pages Posted: 12 Jun 2013  

Emmanuel T. De George

London Business School

Colin Ferguson

University of Melbourne - Faculty of Business and Economics (Deceased)

Nasser Spear

University of Melbourne - Department of Accounting and Business Information Systems

Date Written: August 1, 2012

Abstract

This study provides evidence of a directly observable and significant cost of International Financial Reporting Standards (IFRS) adoption, by examining the fees incurred by firms for the statutory audit of their financial statements at the time of transition. Using a comprehensive dataset of all publicly traded Australian companies, we quantify an economy-wide increase in the mean level of audit costs of 23 percent in the year of IFRS transition. We estimate an abnormal IFRS-related increase in audit costs in excess of 8 percent, beyond the normal yearly fee increases in the pre-IFRS period. Further analysis provides evidence that small firms incur disproportionately higher IFRS-related audit fees. We then survey auditors to construct a firm-specific measure of IFRS audit complexity. Empirical findings suggest that firms with greater exposure to audit complexity exhibit greater increases in compliance costs for the transition to IFRS. Given the renewed debate about whether the Securities and Exchange Commission (SEC) should mandate IFRS for U.S. firms, our results are of timely importance.

Keywords: IFRS, audit fees, international harmonization, IFRS costs

Suggested Citation

De George, Emmanuel T. and Ferguson, Colin and Spear, Nasser, How Much Does IFRS Cost? IFRS Adoption and Audit Fees (August 1, 2012). Accounting Review, Vol. 88, No. 2, 2013. Available at SSRN: https://ssrn.com/abstract=2276960

Emmanuel T. De George (Contact Author)

London Business School ( email )

Regent's Park
London, NW1 4SA
United Kingdom
+44 (0)20 7000 8118 (Phone)
+44 (0)20 7000 7001 (Fax)

Colin Ferguson

University of Melbourne - Faculty of Business and Economics (Deceased)

Nasser Spear

University of Melbourne - Department of Accounting and Business Information Systems ( email )

Victoria
Parkville, Victoria 3010 3010
Australia

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