Cost–Benefit Analysis of International Financial Reporting Standard and Russian Accounting Standard Integration: What Does Comparability Cost?
Abstract
:1. Introduction
[C]omparability can promote the transmission of information and assist investors and other stakeholders in analyzing, comparing, and predicting a company’s financial status, operating performance, and prospects without needing to conduct research (emphasis added)… [C]omparability enables stakeholders to fully understand a company’s status and to make practical decisions regarding optional projects, thereby increasing the usefulness of accounting information in decision-making and enabling the optimal allocation of resources.(p. 222)
2. Literature Review and Hypothesis Development
2.1. Adoption and Convergence—Effect on local GAAP
Our mission is to develop standards that bring transparency, accountability, and efficiency to financial markets around the world. Our work serves the public interest by fostering trust, growth, and long-term financial stability in the global economy.
- Under RAS, PPE is not impaired, although revaluation to the current replacement cost is allowed. As a result, losses because of impairment will not be recognized under RAS, and NI will be overstated when compared to IFRS. See IAS 36;
- The fair value concept is not applied under RAS;
- The useful life of fixed assets is, under RAS, often in line with the useful life applied for tax purposes;
- Deferred taxes are calculated using the income statement method, although the methodology differs between RAS and IFRS;
- Revenues or expenditures are often recognized in accordance with tax rules. For instance, IAS 18 Revenue Recognition recognizes revenue when the earning process is complete, and benefits are realized or realizable. Under RAS, risk is not considered as it relates to transactions. Rather the key element of revenue recognition is the ownership of goods;
- Complex IFRS topics, such as hedging, pension plans, and joint arrangements, are not covered under RAS. Consolidation and business combination rules are not relevant under RAS because they apply only to standalone financial statements. It is unknown whether firms choose to apply relevant IFRS in these circumstances.
2.2. Quality of Earnings
2.3. Foreign Direct Investment—Information Incorporated into the Book Value and Market Value of the Equity
3. Data and Method
3.1. Data—Sample Construction
3.2. Method
3.2.1. Differences in Accounting Numbers
3.2.2. Differences in Earnings Management
- ΔCA = change in current assets;
- ΔCL = change in current liabilities;
- ΔCash = change in cash and cash equivalents;
- ΔSTD = change in the debt included in current liabilities;
- Dep = depreciation and amortization expenses;
- TA = total assets.
- ΔRevt = change in revenues from year t to year t − 1;
- PPEt = gross property, plant, and equipment in year t scaled by total assets at t − 1;
- TAt−1 = total assets at t − 1;
- α1, α2, α3 = firm-specific parameters.
3.2.3. Differences in Book-to-Market Ratios
- BtMiRAS = book-to-market ratio per RAS;
- BtMiIFRS = book-to-market ratio per IFRS;
- BiRAS = book value per RAS;
- BiIFRS = book value per IFRS;
- MVi = market value.
4. Results and Discussion
4.1. Impact of Adoption on Financial Comparability
4.2. Impact of Adoption on Earnings Management
4.3. Impact of Adoption on Book-to-Market Values
5. Conclusions and Suggestions for Future Research
Author Contributions
Funding
Data Availability Statement
Acknowledgments
Conflicts of Interest
Appendix A
Accounting Number | Definition |
---|---|
Operating Income | Operating Income − Operating Expenses |
Ordinary Income | Operating Income + Financial Income − Financial Expenses |
Net Income | Ordinary Income − Extraordinary Income − Extraordinary Expenses − Taxes |
Fixed Assets | Intangible Assets + Property, Plant, and Equipment + Long-term Investments + Goodwill |
Inventories | Goods Produced for Sale + Goods in the Process of Production + Materials or Supplies |
Receivables | Receivables + Short-term Investments |
Cash | Cash + Cash Equivalents |
Current Assets | Inventories + Receivables + Cash (as defined above) |
Total Assets | Fixed Assets + Current Assets (as defined above) |
Equity | Funds Contributed by Shareholders + Retained Earnings + Other Reserves + Net Income + Minority Interest + Deferred Income |
Long-term Liabilities | Long-term Creditors + Long-term Provisions |
Short-term Liabilities | Short-term Creditors + Short-term Provisions |
Total Liabilities | Long-term Liabilities + Short-term Liabilities (as defined above) |
Long-term Resources | Equity + Long-term Liabilities (as defined above) |
Ratio | |
ROA_OI | Operating Income/Total Assets (as defined above) |
ROA_Ord | Ordinary Income/Total Assets (as defined above) |
ROE_Ord | Ordinary Income/Equity (as defined above) |
ROE_NI | Net Income/Equity (as defined above) |
Current Ratio | Current Assets/Short-term Liabilities (as defined above) |
Acid Ratio | (Receivables + Cash)/Short-term Liabilities (as defined above) |
Cash Ratio | Cash/Short-term Liabilities (as defined above) |
Solvency | Total Assets/Total Liabilities (as defined above) |
Indebtedness | Total Liabilities/Equity (as defined above) |
1 | Financial institutions in Russia have been using IFRS since 2005, but we do not include any of these firms in our sample. |
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Dataset | Type of Firm | Extent of IFRS Adoption | Number of Firms in Sample | Number of RAS Firm Years | Number of IFRS Firm Years |
---|---|---|---|---|---|
Vol. | Publicly listed firms with consolidated financial statements | Voluntary adopters (used IFRS before 2012) | 56 | 224 | 224 |
Man. | Publicly listed firms with consolidated financial statements | Mandatory adopters (did not use IFRS until after 2011) | 99 | 332 | 176 |
Never | SMEs | Not required | 203 | 780 | 0 |
Total Number | 358 | 1336 | 400 |
Country | 2010 | 2011 | 2012 | 2013 | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
GDP ($USB) | Corporate Tax Rate | Tax Revenue as Percentage of GDP | GDP ($USB) | Corporate Tax Rate | Tax Revenue as Percentage of GDP | GDP ($USB) | Corporate Tax Rate | Tax Revenue as Percentage of GDP | GDP ($USB) | Corporate Tax Rate | Tax Revenue as Percentage of GDP | |
US | 15,049 | 39.21 | 8.6 | 15,600 | 39.13 | 9.5 | 16,254 | 39.13 | 9.8 | 16,843 | 39.05 | 10.5 |
China | 6034 | 25 | 10.2 | 7492 | 25 | 10.3 | 8540 | 25 | 10.3 | 9625 | 25 | 9.9 |
Japan | 5759 | 39.54 | n/a | 6233 | 39.54 | n/a | 6272 | 39.54 | n/a | 5212 | 36.99 | n/a |
Germany | 3402 | 30.18 | 11.2 | 3749 | 30.18 | 11.5 | 3529 | 30.18 | 11.6 | 3734 | 30.18 | 11.6 |
France | 2647 | 34.43 | 22 | 2865 | 36.10 | 21.8 | 2685 | 36.10 | 22.5 | 2812 | 38.00 | 23.2 |
UK | 2494 | 29 | 25.3 | 2676 | 26 | 25.8 | 2720 | 24 | 25.1 | 2805 | 23 | 25.1 |
Brazil | 2209 | 34 | 14.2 | 2614 | 34 | 14.9 | 2464 | 34 | 14.3 | 2472 | 34 | 14.1 |
Italy | 2138 | 31.4 | 23.7 | 2295 | 31.4 | 23.6 | 2088 | 31.29 | 24.9 | 2142 | 31.29 | 25.1 |
India | 1708 | 33.99 | 10.4 | 1823 | 32.44 | 10.2 | 1828 | 32.45 | 10.8 | 1857 | 33.99 | 11 |
Russia | 1633 | 20 | 13 | 2047 | 20 | 14 | 2191 | 20 | 13.8 | 2288 | 20 | 12.9 |
Russian Rank | 10 | 10 | 5 | 9 | 10 | 5 | 8 | 10 | 5 | 8 | 10 | 5 |
Panel A: Accounting Numbers (Medians) | ||||||||
2010 | 2011 | 2012 | 2013 | |||||
Variable | IFRS | RAS | IFRS | RAS | IFRS | RAS | IFRS | RAS |
Fixed Assets | 61.5 | 49.4 | 65.8 | 63.7 | 71.8 | 66.4 | 80.7 | 72.8 |
Inventories | 5.01 | 2.06 | 5.75 | 2.31 | 6.48 | 2.85 | 6.74 | 3.95 |
Receivables | 9.83 | 13.2 | 13.9 | 16.9 | 14.7 | 20.2 | 15.0 | 20.3 |
Cash | 3.88 | 3.09 | 5.93 | 3.75 | 5.47 | 4.53 | 3.57 | 2.78 |
Current Assets | 22.5 | 19.5 | 26.8 | 29.9 | 28.8 | 31.6 | 30.9 | 32.1 |
Total Assets | 83.6 | 71.4 | 87.9 | 85.9 | 93.5 | 103 | 104 | 105 |
Equity | 41.3 | 40.9 | 42.6 | 49.2 | 48.2 | 46.9 | 48.4 | 51.0 |
Long-term Liabilities | 22.9 | 16.7 | 29.7 | 23.5 | 26.0 | 18.3 | 33.5 | 26.8 |
Short-term Liabilities | 17.4 | 14.0 | 22.2 | 18.8 | 26.4 | 22.2 | 32.8 | 25.2 |
Total Liabilities | 40.1 | 31.1 | 53.4 | 42.2 | 58.1 | 49.2 | 63.9 | 50.5 |
Long-term Resources | 57.8 | 55.9 | 65.7 | 67.9 | 49.4 | 72.8 | 76.1 | 78.2 |
Operating Income | 11.9 | 9.59 | 11.0 | 12.6 | 11.0 | 11.4 | 16.3 | 12.3 |
Ordinary Income | 6.57 | 4.35 | 6.36 | 4.90 | 6.36 | 5.23 | 5.06 | 3.67 |
Net Income | 4.93 | 3.46 | 6.08 | 3.76 | 5.20 | 3.73 | 3.64 | 2.56 |
Panel B: Financial Ratios (Medians) | ||||||||
Variable | 2010 | 2011 | 2012 | 2013 | ||||
IFRS | RAS | IFRS | RAS | IFRS | RAS | IFRS | RAS | |
Current Ratio | 1.06 | 1.34 | 1.13 | 1.44 | 1.03 | 1.22 | 1.11 | 1.30 |
Acid Test | 0.703 | 0.110 | 0.883 | 1.102 | 0.800 | 0.708 | 0.708 | 1.077 |
Cash Ratio | 0.218 | 0.192 | 0.258 | 0.207 | 0.229 | 0.160 | 0.160 | 0.163 |
Solvency | 2.09 | 2.33 | 2.03 | 2.24 | 2.13 | 2.33 | 1.87 | 2.19 |
Indebtedness | 0.870 | 0.718 | 0.848 | 0.758 | 0.740 | 0.753 | 0.924 | 0.878 |
ROA (OI) | 0.123 | 0.129 | 0.122 | 0.145 | 0.121 | 0.121 | 0.108 | 0.112 |
ROA (OrdI) | 0.089 | 0.070 | 0.088 | 0.078 | 0.078 | 0.049 | 0.057 | 0.028 |
ROE (OrdI) | 0.187 | 0.116 | 0.190 | 0.134 | 0.135 | 0.103 | 0.132 | 0.088 |
ROE (NI) | 0.141 | 0.099 | 0.146 | 0.106 | 0.105 | 0.077 | 0.089 | 0.064 |
Panel A: Accounting Numbers | ||||||||
Variable | 2010 | 2011 | 2012 | 2013 | ||||
Statistic Z | Sig. | Statistic Z | Sig. | Statistic Z | Sig. | Statistic Z | Sig. | |
Fixed Assets | 2.937 | 0.003 *** | 2.374 | 0.018 ** | 2.170 | 0.030 ** | 1.917 | 0.055 * |
Inventories | 3.638 | 0.000 *** | 3.108 | 0.002 *** | 3.818 | 0.000 *** | 3.502 | 0.001 *** |
Receivables | −3.540 | 0.000 *** | −4.911 | 0.000 *** | −3.760 | 0.000 *** | −2.659 | 0.008 *** |
Cash | 5.110 | 0.000 *** | 4.784 | 0.000 *** | 5.249 | 0.000 *** | 5.102 | 0.000 *** |
Current Assets | 0.671 | 0.8440 | 1.224 | 0.221 | 1.273 | 0.203 | 0.168 | 0.867 |
Total Assets | 3.249 | 0.001 *** | 2.406 | 0.016 ** | 2.447 | 0.014 ** | 1.868 | 0.062 * |
Equity | 1.032 | 0.302 | 0.012 | 0.990 | 0.791 | 0.429 | 0.139 | 0.890 |
Long-term Liabilities | 3.944 | 0.000 *** | 3.822 | 0.000 *** | 4.723 | 0.000 *** | 3.393 | 0.001 *** |
Short-term Liabilities | 2.765 | 0.006 *** | 2.916 | 0.004 *** | 3.092 | 0.002 *** | 2.977 | 0.003 *** |
Total Liabilities | 4.258 | 0.000 *** | 3.924 | 0.000 *** | 4.030 | 0.000 *** | 3.964 | 0.000 *** |
Long-term Resources | 2.174 | 0.030 ** | 1.399 | 0.162 | 1.737 | 0.082 * | 0.824 | 0.410 |
Operating Income | −0.555 | 0.579 | −0.424 | 0.671 | −0.269 | 0.788 | 0.179 | 0.858 |
Ordinary Income | 3.573 | 0.000 *** | 3.304 | 0.001 *** | 2.223 | 0.026 ** | 1.183 | 0.237 |
Net Income | 3.083 | 0.002 *** | 2.673 | 0.008 *** | 1.705 | 0.088 * | 0.432 | 0.666 |
Panel B: Financial Ratios | ||||||||
Variable | 2010 | 2011 | 2012 | 2013 | ||||
Statistic Z | Sig. | Statistic Z | Sig. | Statistic Z | Sig. | Statistic Z | Sig. | |
Current Ratio | −3.165 | 0.002 *** | −3.679 | 0.000 *** | −3.181 | 0.002 *** | −3.016 | 0.003 *** |
Acid Test | −4.136 | 0.000 *** | −4.038 | 0.000 *** | −4.103 | 0.000 *** | −4.127 | 0.000 *** |
Cash Ratio | 1.468 | 0.142 | 2.202 | 0.028 ** | 2.439 | 0.015 ** | 2.651 | 0.008 *** |
Solvency | 2.806 | 0.005 *** | −2.822 | 0.005 *** | −2.610 | 0.009 *** | −2.706 | 0.007 *** |
Indebtedness | 1.207 | 0.227 | 0.848 | 0.396 | −0.547 | 0.585 | 0.057 | 0.955 |
ROA (OI) | −1.273 | 0.203 | −1.028 | 0.304 | −0.530 | 0.596 | −0.419 | 0.675 |
ROA (OrdI) | 1.680 | 0.093 * | 1.476 | 0.140 | 0.995 | 0.320 | 0.352 | 0.725 |
ROE (OrdI) | 2.537 | 0.011 * | 1.411 | 0.158 | −1.020 | 0.308 | 0.620 | 0.535 |
ROE (NI) | 2.137 | 0.033 | 1.131 | 0.258 | −1.419 | 0.156 | 0.057 | 0.955 |
Panel A: Accounting Numbers (Medians) | ||||||||
Variable | 2010 | 2011 | 2012 | 2013 | ||||
IFRS | RAS | IFRS | RAS | IFRS | RAS | IFRS | RAS | |
Fixed Assets | 3.131 | 3.298 | 3.816 | 2.598 | 1.192 | 2.796 | ||
Inventories | 0.795 | 0.924 | 1.070 | 0.701 | 0.136 | 0.469 | ||
Receivables | 1.964 | 2.505 | 1.692 | 2.211 | 0.311 | 2.129 | ||
Cash | 0.104 | 0.098 | 0.221 | 0.074 | 0.302 | 0.074 | ||
Current Assets | 3.721 | 4.407 | 4.298 | 3.569 | 1.035 | 2.865 | ||
Total Assets | 8.269 | 9.328 | 11.496 | 6.411 | 2.464 | 6.143 | ||
Equity | 2.131 | 2.517 | 2.447 | 2.209 | 0.149 | 2.350 | ||
Long-term Liabilities | 0.671 | 0.745 | 1.417 | 0.864 | 0.184 | 0.752 | ||
Short-term Liabilities | 2.335 | 3.266 | 3.177 | 2.444 | 0.862 | 2.268 | ||
Total Liabilities | 3.959 | 4.226 | 5.898 | 4.139 | 1.409 | 3.171 | ||
Long-term Resources | 4.225 | 4.586 | 4.991 | 4.311 | 0.886 | 3.770 | ||
Operating Income | 1.382 | 1.489 | 1.110 | 1.316 | 1.354 | 0.958 | ||
Ordinary Income | 0.365 | 0.307 | 0.316 | 0.194 | 0.266 | 0.165 | ||
Net Income | 0.270 | 0.230 | 0.273 | 0.166 | 0.228 | 0.148 | ||
Panel B: Financial Ratios (Medians) | ||||||||
Variable | 2010 | 2011 | 2012 | 2013 | ||||
IFRS | RAS | IFRS | RAS | IFRS | RAS | IFRS | RAS | |
Current Ratio | 1.342 | 1.250 | 0.975 | 1.225 | 0.696 | 1.238 | ||
Acid Test | 0.998 | 0.954 | 0.646 | 0.909 | 0.328 | 0.992 | ||
Cash Ratio | 0.041 | 0.041 | 0.80 | 0.039 | 0.016 | 0.030 | ||
Solvency | 1.698 | 1.721 | 1.639 | 1.514 | 1.103 | 1.568 | ||
Indebtedness | 1.500 | 1.126 | 0.779 | 1.235 | 0.237 | 1.388 | ||
ROA (OI) | 0.161 | 0.138 | 0.111 | 0.144 | 0.045 | 0.132 | ||
ROA (OrdI) | 0.060 | 0.059 | 0.039 | 0.042 | 0.016 | 0.031 | ||
ROE (OrdI) | 0.139 | 0.145 | 0.099 | 0.104 | 0.023 | 0.080 | ||
ROE (NI) | 0.012 | 0.111 | 0.076 | 0.091 | 0.012 | 0.066 |
Panel A: Accounting Numbers (Medians) | ||||
Variable | 2010 | 2011 | 2012 | 2013 |
RAS | RAS | RAS | RAS | |
Fixed Assets | 0.162 | 0.179 | 0.163 | 0.214 |
Inventories | 0.023 | 0.023 | 0.017 | 0.019 |
Receivables | 0.098 | 0.094 | 0.094 | 0.955 |
Cash | 0.0044 | 0.0067 | 0.0048 | 0.0050 |
Current Assets | 0.170 | 0.228 | 0.174 | 0.190 |
Total Assets | 0.492 | 0.478 | 0.451 | 0.424 |
Equity | 0.127 | 0.148 | 0.123 | 0.135 |
Long-term Liabilities | 0.0070 | 0.0088 | 0.0074 | 0.0115 |
Short-term Liabilities | 0.183 | 0.169 | 0.153 | 0.153 |
Total Liabilities | 0.212 | 0.260 | 0.209 | 0.261 |
Long-term Resources | 0.212 | 0.193 | 0.221 | 0.255 |
Operating Income | 0.058 | 0.063 | 0.065 | 0.055 |
Ordinary Income | 0.030 | 0.028 | 0.024 | 0.024 |
Net Income | 0.022 | 0.018 | 0.019 | 0.017 |
Panel B: Financial Ratios (Medians) | ||||
Variable | 2010 | 2011 | 2012 | 2013 |
RAS | RAS | RAS | RAS | |
Current Ratio | 1.236 | 1.229 | 1.369 | 1.360 |
Acid Test | 0.949 | 0.885 | 0.934 | 0.982 |
Cash Ratio | 0.049 | 0.049 | 0.044 | 0.046 |
Solvency | 2.054 | 1.938 | 1.922 | 1.788 |
Indebtedness | 0.414 | 0.622 | 0.706 | 0.809 |
ROA (OI) | 0.160 | 0.161 | 0.158 | 0.145 |
ROA (OrdI) | 0.072 | 0.064 | 0.053 | 0.055 |
ROE (OrdI) | 0.132 | 0.129 | 0.119 | 0.130 |
ROE (NI) | 0.097 | 0.091 | 0.093 | 0.095 |
Panel A: RAS Compared to IFRS (Wilcoxon) | |||
2011 | 2012 | 2013 | |
Difference | 0.259 *** | 0.032 | 0.013 |
Z Statistic | 3.067 | 1.305 | 0.276 |
Panel B: IFRS (Wilcoxon) Firms That Have Always Used IFRS throughout the Period | |||
2011 vs. 2012 | 2012 vs. 2013 | 2011 vs. 2013 | |
Difference | 0.027 | −0.041 | −0.014 |
Z Statistic | 1.517 | −1.175 | −0.212 |
Panel C: RAS (Wilcoxon) Firms That Have Always Used IFRS throughout the Period | |||
2011 vs. 2012 | 2012 vs. 2013 | 2011 vs. 2013 | |
Difference | 0.253 *** | −0.021 | 0.232 *** |
Z Statistic | 2.977 | −0.260 | 4.952 |
Panel A: Medians | |||
Variable | 2011 | 2012 | 2013 |
DAcc IFRS | −0.0454 | 0.0114 | −0.0368 |
DAcc RAS | −0.0261 | −0.0299 | 0.0137 |
DAcc Never-IFRS | 0.0463 | −0.0051 | −0.1771 |
Panel B: IFRS (Wilcoxon) Voluntary and Mandatory Adopters | |||
2011 vs. 2012 | 2012 vs. 2013 | 2011 vs. 2013 | |
Difference | 0.0568 * | −0.0482 ** | 0.0086 |
Z Statistic | 1.864 | −2.229 | 0.440 |
Panel C: RAS (Wilcoxon) Voluntary and Mandatory Adopters | |||
2011 vs. 2012 | 2012 vs. 2013 | 2011 vs. 2013 | |
Difference | −0.0038 | 0.0436 *** | 0.0398 *** |
Z Statistic | −0.004 | 2.784 | 4.540 |
Panel D: Never-IFRS (Wilcoxon) | |||
2011 vs. 2012 | 2012 vs. 2013 | 2011 vs. 2013 | |
Difference | −0.0514 | −0.1720 *** | −0.2234 *** |
Z Statistic | −1.503 | −7.384 | −8.481 |
Variable | 2011 | 2012 | 2013 |
---|---|---|---|
BtM IFRS | 0.0015 | 0.0017 | 0.0023 |
BtM RAS | 0.0010 | 0.0015 | 0.0021 |
Difference | 0.000453 *** | 0.000208 ** | 0.000155 ** |
Z Statistic | 2.990 | 2.269 | 2.254 |
Variable | 2011 | 2012 | 2013 |
---|---|---|---|
VAR IFRS | 0.1486 | 0.1075 | 0.1283 |
VAR Market | 0.3838 | 0.2186 | 0.2997 |
Difference | −0.2352 *** | −0.1111 *** | −0.1713 *** |
Z Statistic | −4.134 | −1.903 | −5.475 |
Variable | 2011 | 2012 | 2013 |
---|---|---|---|
VAR RAS | 0.1299 | 0.2099 | 0.0942 |
VAR Market | 0.3838 | 0.2186 | 0.2997 |
Difference | −0.2540 *** | −0.00867 *** | −0.2054 *** |
Z Statistic | −7.321 | −2.732 | −7.278 |
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Turner, E.H.; Wheatley, C.M. Cost–Benefit Analysis of International Financial Reporting Standard and Russian Accounting Standard Integration: What Does Comparability Cost? J. Risk Financial Manag. 2024, 17, 287. https://doi.org/10.3390/jrfm17070287
Turner EH, Wheatley CM. Cost–Benefit Analysis of International Financial Reporting Standard and Russian Accounting Standard Integration: What Does Comparability Cost? Journal of Risk and Financial Management. 2024; 17(7):287. https://doi.org/10.3390/jrfm17070287
Chicago/Turabian StyleTurner, Elizabeth H., and Clark M. Wheatley. 2024. "Cost–Benefit Analysis of International Financial Reporting Standard and Russian Accounting Standard Integration: What Does Comparability Cost?" Journal of Risk and Financial Management 17, no. 7: 287. https://doi.org/10.3390/jrfm17070287