TY - JOUR

T1 - Does transition to IFRS substantially affect key financial ratios in shareholder-oriented common law regimes?

T2 - Evidence from the UK

AU - Lueg, Rainer

AU - Punda, Pawel

AU - Burkert, Michael

PY - 2014

Y1 - 2014

N2 - This paper provides evidence of how a transition to IFRS affects key financial ratios and the pertinent financial statement items. Building on Lantto and Sahlström's (2009) evidence from creditor-oriented code law regimes, we examine the impact of IFRS transition on listed companies in the shareholder-oriented common law regime of the UK. The study contributes two insights: First - despite their similarities - conversion from the UK General Accepted Accounting Principles (GAAP) to IFRS leads to substantial differences in key financial ratios. These even surpass differences reported by companies in creditor-oriented code law regimes. We find that medians of profitability ratios increased substantially: Operating Income Margin (OPM) increased by 10.8%, Return on Equity (ROE) by 27.0%, and Return on Invested Capital (ROIC) by 14.4%. The Current Ratio (CR) and Price-to-Earnings (P/E) Ratio also exhibit significant but less drastic changes of 4.2% and - 2.9%, respectively. Second, differences in shareholder-oriented common law regimes have the same causes as in creditor-oriented code law regimes, i.e., an increase in Operating Income, Net Income, Current Liabilities and Invested Capital, as well as a decrease in Shareholder Equity.

AB - This paper provides evidence of how a transition to IFRS affects key financial ratios and the pertinent financial statement items. Building on Lantto and Sahlström's (2009) evidence from creditor-oriented code law regimes, we examine the impact of IFRS transition on listed companies in the shareholder-oriented common law regime of the UK. The study contributes two insights: First - despite their similarities - conversion from the UK General Accepted Accounting Principles (GAAP) to IFRS leads to substantial differences in key financial ratios. These even surpass differences reported by companies in creditor-oriented code law regimes. We find that medians of profitability ratios increased substantially: Operating Income Margin (OPM) increased by 10.8%, Return on Equity (ROE) by 27.0%, and Return on Invested Capital (ROIC) by 14.4%. The Current Ratio (CR) and Price-to-Earnings (P/E) Ratio also exhibit significant but less drastic changes of 4.2% and - 2.9%, respectively. Second, differences in shareholder-oriented common law regimes have the same causes as in creditor-oriented code law regimes, i.e., an increase in Operating Income, Net Income, Current Liabilities and Invested Capital, as well as a decrease in Shareholder Equity.

KW - Code law

KW - Common law

KW - IFRS

KW - Ratio

KW - Reconciliation

KW - Transition

KW - UK GAAP

KW - Management studies

UR - http://www.scopus.com/inward/record.url?scp=84901631396&partnerID=8YFLogxK

U2 - 10.1016/j.adiac.2014.03.002

DO - 10.1016/j.adiac.2014.03.002

M3 - Journal articles

AN - SCOPUS:84901631396

VL - 30

SP - 241

EP - 250

JO - Advances in Accounting

JF - Advances in Accounting

SN - 0882-6110

IS - 1

ER -