Table A.1. Key differences between the GGAP and IFRSs
Greek Accounting Plan IAS/IFRS
Tangible Assets Historic or production cost / The cost value does not include acquisition expenses/
Revaluation is compulsory every four years and the rates are determined by the Ministry of Finance
Fair values / The cost of value includes acquisition expenses/ Revaluation permitted/ Evaluation from specialists (IAS 16)
Goodwill Negative goodwill is not reported/
Positive goodwill is capitalised and subsequently amortised within a five year period
Negative goodwill is included in the first period’s income/ Positive goodwill is subject to tests of impairement
Depreciation High and low rates (legislation) Adjustments to reflect their useful life (IAS 16) Tangible Assets Re-evaluated according to certain rates
(legislation)
Current prices - Evaluation from specialists (IAS 16)
Leasing Capitalisation of financial leases is not permitted
Financial leases appear in the financial statements of the lessee if certain criteria are met/ Operational leases in the financial statements of the lessor (IAS 17)
Research &
Development
Certain expenses are capitalised Research is recorded as an expense, while development, only under certain conditions (IAS 38)
Establishment expenses
Recorded in the B/Sheet (depreciated for 5 years)
Recorded in the I/Statement
Inventory costing methods
LIFO, FIFO, WA Benchmark treatment: WA, FIFO, alternatively LIFO
(IAS 2)
Extraordinary Items
Wide meaning (sales of assets, provisions etc.)
Only losses of profits from extraordinary events (IAS 8)
Deferred Taxes Only Current Income tax Recorded in the I/Statement, take into account future liabilities or prepaid taxes (IAS 12)
Provisions Recognised only on the basis of tax rules Recognised when there is a present obligation that can be reliably estimated and an outflow of resources will be required to settle (IAS 37) Foreign Currency Non-monetary items are translated using the
exchange rate at the date of the transaction
Non-monetary items valued at cost are translated using the exchange rate at the date of the transaction/ Non-monetary items valued at fair value are translated using the exchange rate ate the date when the fair value was determined
Minority interests Appear only in the Consolidated B/Sheet Appear in a separate item of liabilities (other from equity)
Retirement benefit costs
Employee retirement benefits determined based on the provisions of the Greek Commercial Law and the Labour Contract between the company and the employees.
The retirement benefits under IAS 19 have been determined by actuarial device.
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Appendix 3: Review of the international accounting literature on the economic impact of IFRSs on financial reports.
Impact Main Research Projects and Findings Eliminating
barriers to cross- border investing
• Effect of IFRSs’ adoption on bias, accuracy and disagreement in analysts’ forecasts and the quality of foreign analysts’ information (Hodgdon et al., 2008; Panaretou et al., 2011; Tan et al., 2011; Horton et al., 2012; Preiato et al., 2013). Findings suggest that, at least in specific settings, there is an observed improvement in the accuracy of analysts’
forecasts (Karamanou & Nishiotis, 2009).
• Research evidence supports that there are capital-market benefits following mandatory IFRSs adoption. US mutual funds increased cross-border equity investments (DeFond et al., 2011; see also Yu, 2010) and so did individual (Brüggemann et al., 2013) and institutional investors (Florou & Pope, 2012).
Accounting &
disclosure
‘quality’
• Higher quality financial statements are rated based on the quality of the disclosures by companies (Daske & Gebhardt, 2006) or on measures of accounting quality. Studies use different proxies and samples to examine the quality of IFRSs financial statements.
• Accounting quality is determined by factors such as less income smoothing and accruals adjustments in the net income calculation by companies (Chen et al., 2010; Ahmed et al., 2013) the use of conservative accounting practices, the degree of earnings management (Barth et al., 2008; Aussenegg et al., 2008), earnings’ time series persistence and their ability to predict future cash flows (Atwood et al., 2011).
• Studies on the quality of IFRSs’ financial reporting arrive at different conclusions and are context-specific; the negative impact of IFRSs on properties of accounting numbers (see Ahmed et al., 2013; Callao & Jarne, 2010) is also reflected on earning management studies (Van Tendeloo & Vanstraelen, 2005; Jeanjean & Stolowy, 2008; Capkun et al., 2011; Gebhardt & Novotny-Farkas, 2011).
Comparability • Comparability is related to the ability of users of accounting information to draw conclusions about similarities and differences both between entities (in different countries) and for the same entity over time (Kvaal & Nobes 2012; Cascino & Gassen 2012).
• Glaum et al. (2010) and Verriest et al., (2013) provide evidence of extensive non-compliance with IFRSs disclosure requirements in the adoption year of IFRSs.
• Alternative approaches assess the extent to which accounting numbers pre- and post- IFRSs can be compared to a reasonable benchmark, such as accounting numbers under US GAAP (Barth et al., 2012) or stock prices (Clarkson et al., 2011). While
• Improved comparability of financial statements is argued to be a potential benefit of IFRSs adoption (Clarkson et al., 2011; Barth et al., 2012; Yip & Young, 2012).
• Other studies question whether IFRSs adoption alone facilitates the comparability of financial statements across countries (Jeanjean & Stolowy, 2008; Garcia Osma & Pope, 2011; Liao et al., 2012; Lang et al., 2010; Ahmed et al., 2013). Studies provide mixed evidence.
Usefulness’ and
‘value relevance’
• Studies compare the ‘usefulness’ or ‘value relevance’ of domestic accounting standards and IFRSs to investors, namely the ability of accounting data to reflect contemporaneous market prices and returns.
• Aharony et al., (2010) find, for instance, that the equity value relevance of three important accounting items under IFRSs increases following the introduction of IFRS.
• Studies typically compare certain properties of the returns- earnings relation, or use an Ohlson-type model that relates stock price to book value of equity (BVE) earnings and other information unrecognised in the accounts (Hung & Subramanyam, 2007; Goodwin et al., 2008; Gjerde et al., 2008; Devalle et al., 2010; Barth et al., 2012).
• Results are mixed, with improvements reported in some countries (Horton & Serafeim, 2010; Ismail et al., 2013) but not in others (see Agostino et al., 2011). Jarva & Lantto (2012) find a marginal improvement of value relevance for IFRSs in relation to the Finnish accounting standards. In Greece the setting for IFRSs is not favourable with minor benefits in terms of value relevance (Karampinis & Hevas, 2011).
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Impact Main Research Projects and Findings Market
efficiency, liquidity and the cost of equity capital
• Evidence on the impact of IFRSs on capital markets based on the assumption that higher quality standards are committed to greater disclosures and transparency in their information relationship with investors and that stock could be priced more efficiently in financial markets. Some researchers have interpreted that to indicate that companies’
stock price should change more frequently while others have supported that greater efficiency implies that the stock’s market volatility would be driven more by information about the company itself.
• These studies broadly involve measures, such as the information content of earnings announcements (Landsman, et al., 2012; see also Wang & Welker, 2011), stock return synchronicity (see Wang & Yu, 2013; Beuselinck et al., 2010), bid–ask spreads (see Katselas, 2011; Mueller et al., 2011), credit ratings (Wu & Zhang, 2009) or the impact on the cost of capital (Hail & Leuz, 2007; Shi & Kim, 2007; Karamanou & Nishiotis 2009). Beuselinck et al. 2010 show that disclosures in financial statements under IFRSs appear to have improved the efficiency of stock prices by reducing the extent to which the market is surprised by future disclosures.
• The results provide some evidence that the adoption of IFRSs has the potential to yield capital market effects, even though the effects are more visible in certain countries with stronger legal enforcement legal systems.
Measuring the usefulness of fair value
• Fair values are promoted as a remedy for the inequities of the reporting model for some financial instruments while more recently it has been implemented for the measurement of non-financial items. It is considered to be supportive for the function of stewardship and for the decrease of principal-agent conflicts and agency costs (Barlev &
Haddad, 2003).
• Fair value is argued to improve transparency, comparability, and the timeliness of accounting information (Schipper, 2005). In contrast to the Historic Cost Accounting, IFRSs require that assets and liabilities are reported on the balance sheet at prices that would be concluded at (current) market transactions at the measurement date; and the increases or decreases in the real or hypothesised market prices are recognised as part of the profits or losses in income statements.
Earnings Management
• The impact of IFRSs adoption on reporting practices is likely to be limited if a firm’s institutional environment and firm-level incentives remain unchanged (e.g., Ball, 2006;
Soderstrom & Sun, 2007; Hail et al., 2010).
• Impact of IFRSs on the quality financial reporting using variables including earnings management to detect possible manipulation of a firm’s financial statements (e.g. Barth et al., 2008; Callao & Jarne, 2010).
• Studies suggest that managers’ incentives dominate standards in determining accounting quality (see for example, Van Tendeloo & Vanstraelen, 2005; Wüstemann &
Kierzek, 2007; Casino & Gassen, 2009).
• More flexible rules provide greater scope for choice and involve a higher degree of implicit subjectivity in the application of criteria allow managers a wide field to exercise their discretion and earnings manipulation and income smoothing (Iatridis & Joseph, 2005; Jeanjean & Stolowy, 2008; Carmona & Trombetta, 2008; Callao & Jarne, 2010), which they may do in their own interest in the absence of effective control mechanisms. However, even rigid accounting rules can lead to increased earnings management since earnings management can involve the manipulation of real-life transactions in order to obtain the desired profit (Ewert & Wagenhofer, 2005). Bhattacharya et al. (2003) provide evidence that Greek firms are the most engaged in earnings management among companies from 34 countries which agree with the evidence provided by Koumanakos (2007). A further cause of creative accounting is poor enforcement and poor creditor and investor protection, common in French-style civil law countries, which include Greece (Ballas & Tzovas, 2010; Chalevas & Tzovas, 2010).
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