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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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2 Theory and hypotheses development


2Theory and hypotheses development

2.1Theoretical foundation

National accounting systems differ from each other for numerous reasons. Legal systems, taxation, and providers of finance are only three of several factors that shape the national financial reporting environment of countries and hence determine their domestic financial reporting systems (Nobes/Parker (2012), p. 27ff.). Yet, these country characteristics cannot per se explain why some countries adopt Full IFRS or IFRS for SMEs whereas others do not. Prior research shows that there is a long list of possible reasons for and against IFRS adoption. In Germany, for example, Full IFRS adoption was mainly driven by the economic needs of domestic listed companies (United Nations (2008), p. 1). In contrast, the national desire to raise local standards to international best practice can be regarded as one important reason why so many less developed countries have adopted Full IFRS during the last decade (United Nations (2008), p. 1). Countries such as Botswana or Nicaragua, which have never developed their own set of accounting standards, are also assumed to be more open to adopt Full IFRS or IFRS for SMEs than countries with a strong national accounting tradition like France (Purvis et al. (1991), p. 28ff.; Kaya/Koch (2013), p. 11). In addition, countries also appear to consider the drawbacks of different accounting systems and institutional effects before deciding on which system to adopt. For example, the unwillingness to lose control of rule-making power is regarded as the primary obstacle to Full IFRS adoption in...

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