Required Adoption of International Accounting Standards by German Companies

• In Event: Auditing/International Accounting/FAR/Forensic and Investigative Accounting

Abstract

This study investigates the mandatory adoption of IFRS in Germany using a sample of firms converging from German GAAP to IFRS for the first time in 2005 when IFRS became mandatory. We analyze the accounting differences between German GAAP and IFRS and how those differences affected key accounting measures in the financial statements. We follow a study that analyzed the effects on key accounting measures for German firms adopting IFRS voluntary. This study found large differences of accounting measurements under IFRS. The mandatory adoption of IFRS in Germany did not result in significant differences in accounting measures between German GAAP and IFRS. We suggest that the relatively small change in accounting measures between German GAAP and IFRS is related to the mandatory adoption process of IFRS in Germany. Firms were forced to apply IFRS which usually results in less commitment to IFRS by the firm. Firms, on the contrary, that adopt a new set of standards on a voluntary basis usually do so because it benefits the firm. As a result the firm is more committed in the convergence process. We find that differences between the two accounting models are most obvious on balance sheet items, which is consistent with the fair value orientation of IFRS. The most important accounting differences we identified include adjustment to P, P, & E, inventory, financial assets, goodwill, provisions pensions and deferred taxes. We find that the changes in accounting measures between German GAAP and IFRS are similar within the different groups identified by size. Despite the inferential statistics not indicating a difference between German GAAP and IFRS accounting measures, the separate measurement of the mean and median indicate a small increase of accounting measures under IFRS which we suggest is consistent with the effect of financial statements shifting from a creditor-oriented accounting model to a shareholder-oriented accounting model.

Authors

• Sarah Wagemann, PricewaterhouseCoopers

• Barbara W. Scofield, Washburn University