European countries are adopting IFRS

By Anna Jordan

European countries are adopting IFRSThe routines of adoption have been the conservative and the formats to be prescribed in detail in valuation of assets. The differences under IFRS and GAAP have been seen in the example of Telofonica Company, as its balance sheet showed two different figures in valuation of assets.

The financial statement prepared under IFRS showed higher result of assets compared to GAAP mainly because the IFRS lets the companies revalue their assets.

Moreover, the strict control of compliance with the Directives (Fourth and Seventh) when using IFRS has also been mentioned as one of the main factors to be taken into consideration.

Furthermore, according to one of the respondents, the requirement under the Fourth Directive that annual accounts should present a true and fair view of a company’s assets, liabilities, financial position has also been mentioned as a key factor while adopting IFRS.

The findings regarding the adoption of IFRS by EU listed companies are that majority of EU listed companies have adopted the IFRS for more than just for consolidation purposes and their answers have been categorised below according to their level of importance:

  • The process of adoption is complex, burdensome and at the sae time expensive
  • Companies do not think that they can lower the cost of capital even if they apply IFRS
  • Key challenges as mentioned during the interview are lack of guidance while converting and implementing IFRS, lack of uniform interpretation even though IFRS tends to be more flexible and informative
  • And majority of EU companies would not adopt IFRS if it was not required by EU regulation.

Moreover, conversion to IFRS will also improve the shareholder orientation in countries such as France and Germany as they used to emphasize on tax regulations and stakeholder orientation, therefore, these country’s investors benefit greatly due to them being as top priority by IFRS.

Category: Finance