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Papers presented at the eighth IASB Research Forum

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04 Nov 2021

The International Accounting Standards Board (IASB) hosted its eighth Research Forum on 3 and 4 November 2021 as a virtual event. The meeting saw the presentation of nine academic papers as well as responses by academics and IASB members.

The first paper Implementation Costs of IFRS 9 for Non-Financial Firms: Evidence from China examined the implementation of the new CAS 22 (equivalent to IFRS 9 Financial Instruments) by Chinese non-financial firms. The authors found that the new accounting standard for financial instruments imposed severe implementation costs on affected firms. They concluded that requirements in the new standard, such as fair value measurement and expected credit loss, present significant implementation challenges for companies and auditors. Overall, the paper concluded that there is evidence that supports the concern that the new accounting standard for financial instruments could be costly for non-financial firms to implement.

The second paper Does IFRS and GRI adoption impact the understandability of corporate reports by Chinese listed companies? examined the level of readability and conciseness of corporate reports and whether IFRS and GRI adoption impacts these aspects of understandability. The authors found that both readability and conciseness of the corporate reports are at a low level and indicate a downward trend over the sample period. They also found that IFRS adoption results in a longer and more readable report, whereas GRI adoption leads to a longer but less readable report.

The third paper Is AASB 6 still fit for purpose? reported on a project completed for the Australian Accounting Standards Board (AASB) as input to the IASB’s project on the extractive industries. The research carried out by the authors showed the primary area of concern related to impairment of exploration and evaluation assets and closure obligations. In addition, the provisioning for site rehabilitation and the difficulties of applying the new leasing standard were noted as accounting challenges. The uncertainty around the future treatment of climate change impacts was also especially noted. Based on the evidence, the paper recommended to proceed with the development of amendments to IFRS 6 Exploration for and Evaluation of Mineral Resources to enhance disclosure requirements.

The fourth paper Do Acquiring Firms Achieve Their Mergers and Acquisitions Objectives?: Evidence from Japan assessed whether acquiring firms achieve the mergers and acquisitions objectives presented in their press releases and financial statements. The study’s findings show that disclosed mergers and acquisitions objectives regarding profitability, efficiency, and growth are usually not realised. The authors also found that describing mergers and acquisitions objectives in financial statements leads to higher short-term stock returns while the stock market adjusts the valuation of firms based on their actual performance in the long run.

The fifth paper The Impact of IFRS Adoption on the Value Relevance of Accounting Information in Saudi Arabia examined the joint and relative value relevance of book value of equity and earnings before and after the mandatory adoption of IFRSs in Saudi Arabia. The study identified a significant and positive change in the relative value relevance of book value of equity after IFRS implementation. The authors also found that profitable firms, firms audited by big4 and large firms exhibit significantly higher joint value relevance compared to their counterparts regardless of the implemented accounting standards.

The sixth paper Decision usefulness of the accounting standard ‘IFRS for SMEs’: Qualitative evidence from Sri Lanka examined the information needs of the users of Sri Lankan small and medium entities' financial statements. The primary users of financial information were identified as banks, the inland revenue department and other government institutions. However, the authors found that the manipulation of financial results, tax orientation, insufficient detail, and out-to-date information mean that the financial statements prepared by Sri Lankan small and medium entities lack decision usefulness. The authors conclude that local standard setters need to pay greater attention to financial reporting by small and medium entities and take steps to make it more credible and relevant to the needs of users.

The seventh paper Is IFRS a “trusted” language for private firm credit decisions? An analysis of country differences in users’ perspectives examined whether creditors trust and use IFRS-based financial statement information for their decision-making in the context of private firm lending. The authors found that (i) IFRS accounting numbers are more trusted than local-GAAP based accounting numbers, (ii) the trust even increases when creditor protection is weak, and (iii) mandatory IFRS adoption in a country influences the trust in the numbers more positively than a voluntary adoption.

The eighth paper What Influences the Implementation of IFRS for SMEs? The Brazilian Case investigated factors influencing the implementation of the IFRS for SMEs in Brazil. The research carried out suggests that inconsistencies and incomprehensibility issues are the main factors preventing implementation. However, further investigation indicated that once participants know the standard, “implementation myths” are mitigated. The authors conclude that regulators should increase the availability of education programs, so accountants feel more secure and boost the standard’s implementation.

The last paper Fixing diluted earnings per share: recognising the dilutive effects of employee stock options proposed changes to the calculation of diluted earnings per share arguing that the existing IAS 33 approach was flawed as it ignores the time value of options and treats equity-settled options differently to cash-settled options. The authors derived an alternative method and then compared this with the IAS 33 calculation using examples based on a simple firm. The authors conclude that their method best describes the change in economic value of the current shareholders and provides a similar result at a diluted earnings per share level for both cash- and equity-settled options. It could also easily be extended to deal with other dilutive instruments.

Participants praised the valuable exchange and the evidence from research provided that is highly relevant to the IASB's current agenda. The evidence on the application of standards also covered geographical areas not usually covered by research or otherwise easily accessible or was of a granularity that normally goes beyond the means of the IASB to gather.

The presented papers as well as recordings of the presentations and contributions by the discussants will shortly be available on the IFRS Foundation website.

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