Cross-country differences in the reporting of business combinations: An empirical study of purchase price allocations

Abstract: Whether or not the introduction of the common, principles-based IFRS framework in 2005 has led to true harmonization of international accounting practice is a debated topic. An area where there is a potential of differing implementations of the standards is within the reporting of business combinations. This thesis aims to investigate the occurrence of differing cross-country practice with regards to the purchase price allocation performed after an acquisition. The underlying hypothesis states that the implementation of the standards is affected by the pre-IFRS accounting tradition of the country in which the acquirer operates. Using the accounting values of conservatism and transparency to define previous accounting tradition, purchase price allocations made by British, German and Swedish companies are investigated to see if this reasoning holds within the area of business combinations. By performing statistical analyses on a sample of 160 observations, we find that German companies are more conservative but less transparent in their reporting than British companies, in line with their respective previous accounting tradition. The results for Sweden are less clear-cut. In extension, this leads us to question the comparability of earnings and balance sheet valuations across companies from European countries with differing accounting traditions.