The Impact of Mandatory Conversion to IFRS on the Net Income of FTSEurofirst 80 Firms

Journal of Applied Research in Accounting and Finance (JARAF), Vol. 3, No. 2, p. 17, 2008

15 Pages Posted: 11 Mar 2009

See all articles by Vincent O'Connell

Vincent O'Connell

University of Amsterdam Business School

Katie Sullivan

PriceWaterhouseCoopers LLP

Date Written: February 19, 2009

Abstract

Since the start of 2005 all European Union (EU) firms trading in a regulated market are required to adopt International Financial Reporting Standards (IFRS) for their consolidated financial accounts. Many more countries will - soon or later - follow suit and adopt IFRS for all listed firms. Nonetheless, the process of conversion from domestic standards to IFRS can often cause confusion for both preparers and user groups. This study investigates the impact of the mandatory conversion to IFRS on the Net Income of some of the largest firms in the EU - specifically, the constituents of the FTSEurofirst 80 index. The sample for the present work comprises those 37 constituents of the FTSEurofirst 80 index which: (i) are first time adopters of IFRS and (ii) had, at the sample selection date, voluntarily revealed their 2004 annual Net Income figures under both national standards and IFRS. Our results show that the conversion to IFRS leads to a statistically significant increase in 2004 Net Income and for nearly 75% of sample firms we find that the increase is material at the 5% level. Additional analysis reveals that IFRS 3 (Business Combinations) dwarfs all other international standards in terms of driving the observed differences between reported Net Income under domestic GAAP and IFRS for our sample firms.

Keywords: IFRS, European Union, net income

JEL Classification: G15, M41, M44, M47

Suggested Citation

O'Connell, Vincent and Sullivan, Katie, The Impact of Mandatory Conversion to IFRS on the Net Income of FTSEurofirst 80 Firms (February 19, 2009). Journal of Applied Research in Accounting and Finance (JARAF), Vol. 3, No. 2, p. 17, 2008, Available at SSRN: https://ssrn.com/abstract=1346133

Vincent O'Connell (Contact Author)

University of Amsterdam Business School ( email )

Plantage Muidergracht 12
Amsterdam, 1018TV
Netherlands

Katie Sullivan

PriceWaterhouseCoopers LLP ( email )

1301 Avenue of the Americas
New York, NY 10019
United States

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