Disincentives to Exchange Customized Local GAAP for IFRS

53 Pages Posted: 29 Mar 2023 Last revised: 4 Apr 2023

See all articles by Herita T. Akamah

Herita T. Akamah

University of Nebraska at Lincoln - School of Accountancy

Stephani Mason

DePaul University - School of Accountancy and Management Information Systems (MIS)

Emily Shafron

Texas A&M University - Department of Accounting

Date Written: November 14, 2022

Abstract

The global adoption of International Financial Reporting Standards (IFRS) resulted in the loss of local Generally Accepted Accounting Principles (GAAP). Some local GAAPs were tailored to capture the adopting jurisdictions' economic nuances, which IFRS may not address. One example is our setting, where, unlike IFRS, Canadian GAAP allowed the recognition of regulatory claims (i.e., assets and liabilities). Given this disparity, Canadian regulators granted rate-regulated entities the choice to opt out of Canada’s mandatory adoption of IFRS. Leveraging this unique setting, we test whether the loss of allowances under local GAAP is costly enough to deter companies from adopting IFRS. We find evidence that utilities with a history of capitalizing regulatory assets under Canadian GAAP are significantly less likely to adopt IFRS. This relation is more pronounced when a company has higher regulatory assets recognized under local GAAP, engages with the US capital markets, and has a high perceived cost of raising future capital. However, we find that the future cost of capital is lower for entities that adopt IFRS after historically capitalizing regulatory assets. Our results identify a new cost of adopting IFRS largely unexplored in the literature: the cost of losing jurisdictionally tailored accounting standards not included within IFRS.

Keywords: IFRS adoption, rate-regulated activities, regulatory accounting, local GAAP, Canada

JEL Classification: F6, M41, M48

Suggested Citation

Akamah, Herita T. and Mason, Stephani and Shafron, Emily, Disincentives to Exchange Customized Local GAAP for IFRS (November 14, 2022). Journal of Accounting and Public Policy, Vol. 41, No. 6, 2022, Available at SSRN: https://ssrn.com/abstract=4351779

Herita T. Akamah

University of Nebraska at Lincoln - School of Accountancy ( email )

307 College of Business Administration
Lincoln, NE 68588-0488
United States

Stephani Mason

DePaul University - School of Accountancy and Management Information Systems (MIS) ( email )

Chicago, IL 60604
United States

Emily Shafron (Contact Author)

Texas A&M University - Department of Accounting ( email )

430 Wehner
College Station, TX 77843-4353
United States

HOME PAGE: http://https://mays.tamu.edu/directory/shafron/

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