Financial Analysis - The Ultimate Impact of IFRS

Implications: 1.  Countries adopting IFRS are not always adopting the same standards.  If you look closely, the term "as adopted' is being used a lot (e.g., China).  What that means is countries are adopting IFRS in principle, but are differing on interpretation and actual application/practice. 2.  The end result is the need for financial analysts to become more educated and dig deeper into financial statements.  The idea that we will have one set of standards, simplifying analysis, is false.  Analysts must begin to appreciate how each country is "adopting" IFRS.   3.  Accountants must likewise be sensitive to the "as adopted" challenge.  This goes beyond understanding and dealing with different approaches in different countries.  It also deals with investor expectations and the legal structure within and between countries.  Unless accountants grasp changing investor expectations, they will find themselves in a legal nightmare. 

Analysis: The drive for one consistent, comprehendible set of accounting standards is a noble and desirable quest.  However we live in a diverse world with differing cultural norms (e.g., view of wealth, access to legal systems, etc.).  Culture and resulting values ultimately drive things like accounting standards.  We may say we will have a consistent set of standards with IFRS.  However if we look closely, the "as adopted" phrase shows we will still have a lot of inconsistencies and differing approaches.

What this means is that we will always have differing accounting standards as long as we have differing cultures around the world.  As we become more of a global, one culture population, we become more homogeneous in values.  This homogeneity permits us to move to one set of accounting standards.  However we are moving.  We are not there.  Thus countries are adopting IFRS in principle, but are diverging in interpretation and practice (e.g., pensions).

The bottom line is this will not simplify the work of financial analyst or accountants.  For the foreseeable future, analysts must remain dedicated to education.  Also for the foreseeable future, accountants must remain sensitive to the expectations of investors/analysts and the legal systems in which they operate.  What that means is more disclosure by accountants, and more appreciation/sensitivity by analysts.