The Costs and Benefits of IFRS Implementation in the UK and Italy

The application of International Financial Reporting Standards (IFRS) to the consolidated financial statements in 2005 was one of the most important event in the life of the EU listed companies. With IFRS continually adapting and changing, an analysis of the IFRS implementation experiences of larger listed companies is useful to assess whether stakeholders from different cultures and legal traditions have different experiences of IFRS implementation. This paper considers a country to be a stakeholder in the international standard setting process; using stakeholder theory (Freeman, 1984; Solomon, 2007), it investigates how the costs and benefits of IFRS implementation have impacted on different national stakeholder groups. In particular, the research addresses whether stakeholders from the UK including Ireland (Anglo-Saxon perspective) and Italy (EU continental perspective), which have different legal traditions and cultures, have different views on the IFRS implementation process. This paper is useful for companies that have not already adopted IFRS. A variety of corporate stakeholders (preparers, users and auditors of annual reports and accounting regulators) from the UK, Ireland and Italy were interviewed using semi-structured interviews between January 2006 and May 2007. The topics selected for discussion during the interviews were informed by a review of the literature and related to the interviewees’ perceptions of: (i) the IFRS implementation process; (ii) the costs of IFRS implementation; and (iii) any associated benefits. The results provide evidence that the experiences of the UK and Italian national stakeholders in the IFRS implementation process differed. Although the IFRS implementation processes adopted by many of the UK and Italian companies appeared to be quite similar, the costs of implementation were not equal. The UK interviewees had incurred far more costs in consulting widely and engaging with the IASB, IFRIC and various trade associations. This may be because the UK and Irish were far more familiar with the conceptual framework of IFRS and therefore felt confident in arguing with standard setters and in making representations to trade associations, such as the banking fraternity, about controversial standards that may have put them at a disadvantage. Alternatively, it would appear that the Italians spent more time and money on understanding the principles of IFRS and assessing how it would affect them. They often looked to their auditors, mainly the Big 4, for advice assuming that the Big 4 already understood the IFRS intricacies because of their regular communication with their international technical offices. The UK interviewees were also less worried than their Italian counterparts about the disclosure of proprietary information. Although the Italian interviewees believed that Italian companies had to make a greater conceptual shift in the implementation of IFRS than the UK stakeholders, they believed that the reputation and signalling effects of IFRS were worth it. However, there was widespread agreement that costs exceeded the benefits of reporting under the new standards. Overall, this research finds evidence that the implementation of international standards varies from country to country which impacts directly on the political process of standard-setting making it more cumbersome and onerous than at a national level. The IASB has to recognise that individual countries have a unique stakeholder perspective which may make standards more difficult to understand or to adjust to than in other countries. Thus, standard setters need to be aware of the costs and benefits of the standards that they set (and support) from a country by country perspective.