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Full IFRS and IFRS for SMEs Adoption by Private Firms

Empirical Evidence on Country Level


Maximilian Saucke

The issuance of the International Financial Reporting Standard for Small and Medium-sized Entities (IFRS for SMEs) in July 2009 has mixed up the bipolar financial reporting landscape between Local Generally Accepted Accounting Principles (GAAPs) and Full IFRS by adding a third dimension to international GAAP choice. The study examines the characteristics and determinants of Full IFRS and IFRS for SMEs adoption by private firms in 110 countries. It finds empirical evidence for the continued existence of local versions of IFRS and the worldwide emergence of a two standard system. The findings also suggest that while Full IFRS adoption was mainly driven by network effects and political pressures, countries adopt the IFRS for SMEs notably due to cost-benefit considerations.
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Which countries have actually adopted Full IFRS and IFRS for SMEs in the field of private firms and why have they done so?

At a first glance, this question does not sound very challenging since the website presents adoption profiles for 130 jurisdictions worldwide. Moreover, the answer to the second part of the question could be given by simply applying common sense. Countries adopt IFRS1 because today’s economic transactions recorded in financial statements have increasingly become international. Raising capital or making business across national borders broadens the group of preparers and users of financial statements across the world. Hence, adopting international accounting standards appears logical. This phenomenon should generally affect all kinds of operations regardless of their legal form or size. However, as in some parts of the world local companies might be, to a certain extent, more globalized than elsewhere, the demand for internationally converged and comparable financial reporting standards is likely to vary among firms and countries alike.

For this reason, not every country in the world has yet adopted IFRS. Even if the majority of domestic companies strive for IFRS adoption, the countries in which they operate might hesitate to give up legislative power to a supranational organization if the expected outcome is unfavorable. Other countries may only abide by such a decision because they have been put under certain pressures.

The largest and most homogeneous demand for global financial accounting2...

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