research@hec - Issue #9 - (Page VII)

IFRS: Key Ideas: business organizations. The Revolution That Never Was (at least not yet!) improved the quality of corporate financial information. • The adoption of International Financial Reporting Standards (IFRS) has not • Reporting standards are not enough to ensure good financial governance in M In 2005, all of Europe’s listed companies gradually adopted the same financial reporting system for their consolidated accounts—the International Financial Reporting Standards (IFRS). This major change is a consequence of trade globalization, which has made standardizing financial account presentation a necessity. Theoretically, all companies have now adopted the same reporting “language,” but the question is, do they now actually speak the same language? International accounting expert Thomas Jeanjean has carried out two studies on the changes engendered by the application of the IFRS in a large sample of French and foreign companies. The studies show that the IFRS promise of higher quality financial information has yet to be kept. While the IFRS have made financial statements worldwide far easier to read, they do not account for differences in countries’ uses of reporting. In the UK, for instance, the primary purpose of financial reporting is to inform financial market investors. In contrast, in Germany, it is geared toward reassuring banks about organizational solvability. All countries thus do not have the same financial reporting “traditions” or objectives, and these divergences explain why the great IFRS revolution has not occurred! IFRS HISTORY The European Union functions according to the principle of free circulation of people, goods, and capital. To be fully effective, this freedom requires any EU company’s financial accounts be understandable to all. The EU had been grappling with this issue for nearly two decades, when overseas scandals in the early years of the millennium (Enron, WorldCom, etc.) accelerated the financial information standardization process. In 2002, the persistent difficulty of finding common ground for reporting standards drove member countries to adopt norms defined by the International Accounting Standards Board*, the private organization that created the IFRS in the 1970s. The IFRS had already been authorized in certain European countries, and it was decided to generalize their application throughout the EU as of 2005. BUSINESS IMPLICATIONS OF THE IFRS Prior to the 2005 adoption of the IFRS, financial reporting standards varied considerably from one country to another, and they were often quite different from those defined by the IFRS. To facilitate the transition from existing reporting systems to the IFRS, regulators required companies to publish a complete set of 2004 Thomas Jeanjean BIOGRAPHY Thomas Jeanjean holds a PhD in accounting from the University of Paris Dauphine. He joined the HEC Paris department of accounting and management control in 2003 and has been an associate professor since September 2008. His research interests include international accounting issues, R&D reporting, and financial information quality. June-July 2009 • research@hec VII

Table of Contents for the Digital Edition of research@hec - Issue #9

Cover & Contents
Organization, Business, and Society
Inter-Stock Market Competition and Market Liquidity
Sales Force Compensation: TheWeight of Net
IFRS: The Revolution That NeverWas (at least not yet!)

research@hec - Issue #9