Michael Chatham

Is Compliance with International Accounting Standards Beneficial? Michael Chatham

This study provides evidence regarding the benefits of complying with International Accounting Standards (IAS), now known as International Financial Reporting Standards (IFRS). Companies expend considerable resources on financial reporting. These resources may or may not be recouped through benefits such as lower costs of capital. Using three proxies for information asymmetry, which has been shown to impact a firm's cost of capital, this study shows that the extent of compliance with IAS apparently does not impact these proxies. A related investigation of the factors associated with IAS compliance for this sample of companies suggests that compliance seems to be related primarily to the country of domicile. Firms from Switzerland comply with IAS to a greater degree than firms from France and Sweden. When an auditor confirms the use of IAS, it is also a strong indicator of relatively higher levels of IAS compliance. Overall, however, the results of this study place in question the motives for a firm to incur additional financial reporting costs in an attempt to comply with IAS.