The mandatory adoption of IFRS in Europe, non-adoption vs. non-compliance

The average large company comprises many legal entities acting together: a group. Accountants prepare consolidated financial statements for the group, as though it was a single entity. EU regulations require the consolidated statements of companies listed on EU-regulated stock exchanges to apply International Financial Reporting Standards (IFRS). However, academic research shows that many listed companies in Europe do not apply IFRS. Publications in North America suggest that much of this is illegal, including non-compliance by 28% of UK companies. This would constitute a serious failing by companies, auditors and regulators. 

The paper examines the annual reports of listed companies in four countries (Austria, Germany, Portugal and the UK) and shows that there is full compliance with mandatory requirements to use IFRS. There is plenty of non-adoption of IFRS, but it is all legitimate. The reasons for non-adoption include that some companies are not groups so do not prepare consolidated statements, and others are listed on smaller stock exchanges which are not EU-regulated. These reasons explain all the non-adoption in Portugal. 

The previous researchers were misled by using the Worldscope database. It does not distinguish between types of stock exchange, and it contains many errors in various fields. For example, the database often incorrectly records that the company publishes consolidated statements. Also, the database sometimes correctly records that a group applies US accounting rules but fails to record that it also publishes another report applying IFRS.

Click here to go to the paper by Christopher Nobes and Christian Stadler