Cross-Country Accounting Comparability in Times of Mandatory IFRS Adoption - Do diverging accounting traditions prevail over time?

Abstract: Historically, one important source of disparity harming comparability of accounting information across countries has been the principle of accounting conservatism. One of the main aims of the EU with the mandatory adoption of IFRS in 2005 was to increase the comparability of financial statement information across its membership countries. However, previous research has not found this increase in comparability, but rather that the diverging pre-existing national accounting practices persist, not least when it comes to the degree of accounting conservatism inherent in financial statement information. The purpose of this thesis is to capture the comparability effect of IFRS adoption from an accounting conservatism perspective over time. By studying a longer time period than previous research, this thesis opens up for the possibility that it takes some time for an increase in comparability to occur. We perform a qualitative comparison of IFRS, Swedish GAAP, and U.K. GAAP and execute panel data regressions for Sweden and the U.K., two EU countries with different accounting traditions historically. Our total dataset includes 382 observations over 8 years and 48 companies. These analyses show that cross-country comparability diminished and that Swedish and British accounting became less and less comparable over time after the IFRS adoption, suggesting that an increase in comparability has not taken place across the EU member countries as was the aim with the adoption. Our contributions to literature are threefold. First of all, our findings indicate that institutional factors still create demands that lead accountants across countries to apply the principle of conservatism differently, and that accountants might be able to satisfy these demands better under IFRS than was possible under national GAAP. Secondly, we find that the effect on comparability might be spread over a lengthy period after IFRS adoption. Finally, we argue that the accounting choices within IFRS permit the divergence in the degree of accounting conservatism inherent in financial statements across borders.