بررسی سیستم های حسابداری دوگانه در اروپا

After adoption of International Financial Reporting Standards (IFRS) for consolidated financial statements by European-listed companies, a number of European countries still require the use of local standards in the preparation of legal entity financial statements. This study investigates whether this requirement can be explained by a low demand for high-quality financial reporting and an orientation of accounting toward the fulfilment of regulatory needs in these countries. Specifically, using accounting quality as an indicator of the focus of accounting on capital providers' needs, we compare accounting quality between countries permitting and prohibiting the use of IFRS in individual financial statements. Consistent with our expectations, we find that countries requiring the use of local standards in the preparation of legal entity financial statements exhibit a significantly lower level of accounting quality, both prior to and after IFRS adoption. We interpret these results as evidence that these countries have local standards more oriented toward the satisfaction of regulatory needs, rather than investors' needs. Furthermore, since differences in accounting quality persist after the implementation of IFRS, results suggest that firms in these countries face a lower demand for high-quality financial reporting.

Diversity in accounting practices has been shown to deter cross-country investment decisions due to the increase in information asymmetries and information costs it entails (e.g., Ahearne, Griever, & Warnock, 2004). Accordingly, harmonization of accounting practices is assumed to reduce barriers to cross-country investments (e.g., Bradshaw, Bushee, & Miller, 2004). Convergence of accounting standards is expected to improve confidence in publicly traded companies, fostering the development of capital markets and thereby promoting economic growth (Hope, Justin, & Kang, 2006). With this aim, in the last decade of the 20th century, the European Union (EU, hereafter) established a new strategy regarding accounting harmonization that crystallized in the requirement of European-listed companies to prepare, since 2005, their consolidated accounts in accordance with International Financial Reporting Standards (IFRS)1 (Regulation EC 1606/2002). The mandatory adoption of IFRS in the EU represents one of the largest regulatory experiments ever undertaken (Christensen, Lee, & Walker, 2007). It is based on the assumption that accounting harmonization is a necessary requirement for the globalization of capital markets, as it improves comparability of financial statements.2 This new regulation has affected approximately 7000 EU-listed companies (CESR, 2007). Regarding legal entity financial statements, however, Regulation EC 1606/2002 allows European Member States to either allow or require companies to follow domestic standards. This is particularly striking, as the European Commission expressed in 1995 (COM 95 (508): 4) that: “3.3. [T]he most urgent problem is that concerning European companies with an international vocation. The accounts prepared by those companies in accordance with their national legislation, based on the Accounting Directives, are no longer acceptable for international capital market purposes. These companies are therefore obliged to prepare two sets of accounts, one set which is in conformity with the Accounting Directives and another set which is required by the international capital markets. This situation is not satisfactory. It is costly and the provision of different figures in different environments is confusing to investors and to the public at large.” In addition to the problems of cost and confusion, the Commission also acknowledged that the coexistence of different reporting frameworks deters effective supervision and enforcement of financial reporting requirements of publicly traded companies. This, in turn, harms investors' confidence in listed firms, thus hampering cross-border trade and putting EU securities markets globally at a severe competitive disadvantage. In spite of the views expressed by the European Commission, about half of the Member States forming the EU at the time Regulation EC 1606/2002 was passed opted for requiring the application of local standards in the preparation of legal entity statements3 (see Table 1). In this study, we name them partial adopters, since two accounting systems still coexist in these countries: consolidated financial statements are prepared in accordance with IFRS, while legal entity financial statements follow domestic standards. 4 The rest of countries (full adopters, hereafter) permit the use of IFRS in all company statements.This study investigates whether the decision to retain local standards for legal entity financial statements in EU Member States is associated with differences in the roles played by accounting information and, as a consequence, with dissimilarities in the demand for high-quality financial reporting across European countries. We argue that countries in which the preservation of the regulatory function traditionally played by accounting is important have retained local standards for legal entities because IFRS, due to its focus on the information needs of capital providers (Whittington, 2005), will not fulfill this requirement.5 As an indicator of the orientation of the accounting system toward the needs of capital providers, we use accounting quality, measured in this study as the explanatory power of accounting measures for stock prices and one-year-ahead operating cash flows.6 Both measures of accounting quality reflect the usefulness of accounting information for investors and creditors. Hence, we assume that higher levels of accounting quality are indicative of the orientation of accounting toward the satisfaction of capital providers' needs, whereas lower levels of financial reporting quality indicate that accounting is fulfilling other roles. To carry out our analyses, we exploit the advantage of the information prepared for the first-adoption of IFRS in Europe. European-listed companies starting to apply IFRS in 2005 were required to restate their prior-year (2004) financial statements to IFRS. As a result, two sets of financial statements are available for 2004: (1) those prepared in accordance with local accounting standards and included in the 2004 annual report and (2) those restated to IFRS and released jointly with the 2005 financial statements. This allows us to compare accounting numbers prepared under IFRS and domestic standards for the same set of companies and the same year. This approach ensures that differences observed between financial measures are exclusively due to differences in accounting standards, since everything else is held constant. It also eliminates the problem of controlling for the change in the firms' incentives to improve financial reporting faced by researchers in previous studies (e.g., Barth, Landsman, & Lang, 2008). In our design, identical economic reality is recorded by firms using two different sets of accounting standards. Moreover, the fact that our analyses refer to the same time period (2004) ensures that differences observed in the explanatory power of accounting measures are not due to changes in the economic environment. Hence, firm, country, or even economic factors that might affect corporate accounting quality are held constant in our study. Using a sample of European non-financial companies we show that, before the application of IFRS, our measures of accounting quality (i.e., the explanatory power of earnings and equity book value for stock prices and the ability of earnings to explain future cash flows) are significantly higher for firms in the group of full adopters. These results are consistent with the argument that companies in these countries face a stronger demand for high-quality information and that local accounting standards were already designed to cover this demand. IFRS adoption decreases (increases) the explanatory power of earnings and equity book value for stock prices in the group of full (partial) adopters, although differences are not statistically significant. With regard to the ability of earnings to explain future cash flows, it significantly increases in both groups of countries.7 Furthermore, we observe that changes in accounting quality are larger in the group of partial adopters. Taken together, results for stock prices and future cash flows provide weak evidence of an increase in accounting quality after IFRS adoption. However, what is clearly shown is that the effect of IFRS implementation on accounting quality is different for firms in the group of full and partial adopters. Hence, results suggest that full and partial adopter countries differ in the primary aim of their domestic standards. Finally, we observe that, despite the changes motivated by IFRS adoption, accounting quality is still significantly lower in countries prohibiting the use of IFRS in legal entity financial statements. We interpret these results as further evidence that the demand for high-quality financial reporting is lower in this group of countries. Overall, this study provides evidence consistent with the hypothesis that firms in countries that retained the use of local standards in legal entity financial statements face a lower demand for high-quality financial reporting. Results suggest that, rather than the information requirements of capital providers, local standards in these countries satisfy other needs (e.g., regulatory needs, such as the computation of income taxes). Since IFRS are primarily aimed at fulfilling the information demands of investors and creditors, countries wishing to maintain the regulatory role played by accounting opted for requiring the application of their local standards in the preparation of legal entity financial statements. Additionally, this study contributes to prior research by providing evidence of the differences in accounting quality between European countries that still existed in 2004, in spite of the harmonization efforts carried out inside the European Union over the last decades. Moreover, we show that implementation of IFRS reduces these differences, but it does not completely remove them. Consistent with prior research (e.g., Ball, Robin, & Wu, 2003), we find that adoption of IFRS by itself is not sufficient to achieve a high level of accounting quality. The rest of the paper is organized as follows. Section 2 reviews the literature and develops the hypotheses. Section 3 lays out our research design. Section 4 reports the results of our analyses. Finally, the discussion of the results and conclusions are offered in Section 5.

This study investigates whether the decision made by a number of European countries to retain the use of local standards for legal entity financial statements after IFRS adoption is explained by the orientation of their accounting systems toward the satisfaction of regulatory needs. Specifically, we compare accounting quality between those countries permitting (full adopters) and prohibiting (partial adopters) the use of IFRS in legal entity financial statements both prior to and after IFRS adoption. Accounting quality (i.e., explanatory power of accounting measures for stock prices and future cash flows) is used in this study as an indicator of the orientation of accounting systems toward the needs of capital providers. We find that accounting quality is significantly higher for firms in the group of full adopters, both prior to and after IFRS adoption. We interpret these results as evidence that accounting systems are primarily oriented toward the needs of investors and creditors in full-adopter countries but serve other purposes (e.g., computation of income taxes) in partial-adopter countries. Furthermore, since IFRS are designed toward the information needs of capital providers, they may not fulfill regulatory requirements, which still represent a major objective of financial reporting in partial-adopter countries. This can explain why partial adopters decided to retain their local standards for the preparation of legal entity financial statements. By doing so, the information needs of capital providers of listed companies are covered by IFRS consolidated financial statements, while legal entity financial statements, prepared in accordance with local standards, continue to fulfill the regulatory needs. Additionally, our study contributes to prior research by providing evidence on the differences in accounting quality existing across European countries. Prior research documents the differences in accounting quality across countries soon after the implementation of the European Directives (e.g., Alford et al., 1993 and Joos and Lang, 1994). Our study adds to this body of research by showing that significant differences still persisted in 2004, despite the effort taken inside the EU to harmonize accounting. Furthermore, we show that adoption of IFRS reduced these differences, but it did not completely remove them, since accounting quality in 2005 was still significantly higher after IFRS implementation for firms in the group of full adopters. Choices made by firms within IFRS are likely to be affected by firms' incentives to issue high-quality information. As a consequence, firms operating in financial environments where they have lower incentives to produce high-quality financial reporting are likely to choose those alternatives that are more compatible with their local GAAP. Therefore, firms in these countries do not achieve the same level of accounting quality as those operating in the group of full adopters. These results add to prior evidence by showing that the set of accounting standards is not the only factor that shapes accounting quality (Ball et al., 2003). In our study, the same set of accounting standards (IFRS) applied in relatively similar countries (EU Member States) leads to significant differences in accounting quality. Hence, adoption of IFRS by itself is not sufficient to achieve a high level of accounting quality in all countries. Regulation EC 1606/2002 already recognizes that a proper and rigorous enforcement regime is essential to protect investors and improve confidence in capital markets. Acknowledging this, the EU is making important efforts to strengthen IFRS enforcement (by monitoring compliance and taking appropriate measures in cases of infringements). Nonetheless, our results suggest that, even with stricter enforcement, accounting quality may vary across countries because of differences in firms' incentives to issue high-quality information, which are influenced, for example, by their dependence on the equity market for their financing.