The Consequences of Applying International Accounting Standards (IAS) to the Financial Statements of Greek Companies

Abstract

The aim of the present study is to investigate the repercussions of the much-discussed accounting changeover from the Greek Accounting Standards (GAS) to the International Accounting Standards (IAS) in relation to the published financial statements of Greek companies. From an analytical point of view, this study seeks to identify the repercussions of applying the IAS to various accounting magnitudes and indicators as well as how capable accounting information is in explaining the share prices (value relevance) for the 2004 administrative year, one year before the mandatory application of the new standards. In the present analysis the accounting information examined concerns Book Value of equity and Net Income after Taxes. The motivating factor for the realization of this analysis involves the different philosophy and orientation regarding the two accounting systems in question. Specifically, the accounting standards in Greece from 1980 and onwards followed the French-German model, which had as its main objective the protection of creditors and tax transparency, applying exclusively the method of historical cost. In contrast, being similar to American models (i.e. US GAAP), the IAS focus mainly on the protection of investors and introduce the principle of fair value. The results of the analysis show that tangible assets, fixed assets, and total liabilities record considerably higher prices under the new accounting standards. Furthermore, the application of the IAS shows notable differences of the values of balance-sheet magnitudes in comparison to those under the GAS for the majority of companies examined. Finally, it was recorded that, in opposition to the net income after taxes, the book value appears to play a more significant role under the new standards, compared to that under the GAS. There is also evidence that the adjustments of GAS to net income improve incremental value relevance, while the adjustments of the GAS to book value certainly do not improve it.

Keywords: International Accounting Standards (IAS), Greek Accounting Standards (GAS), Value relevance, Incremental value relevance, Accounting Standards, Fair value