Impact of IFRS on the accounting numbers of Romanian listed companies

Istrate, Costel Article Impact of IFRS on the accounting numbers of Romanian listed companies Journal of Accounting and Management Information Systems (JAMIS) Provided in Cooperation with: The Bucharest University of Economic Studies Suggested Citation: Istrate, Costel (2014) : Impact of IFRS on the accounting numbers of Romanian listed companies, Journal of Accounting and Management Information Systems (JAMIS), ISSN 2559-6004, Bucharest University of Economic Studies, Bucharest, Vol. 13, Iss. 3, pp. 466-491 This Version is available at: https://hdl.handle.net/10419/310563 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. http://creativecommons.org/licenses/by/4.0/ Accounting and Management Information Systems Vol. 13, No. 3 pp. 466-491, 2014 Impact of IFRS on the accounting numbers of Romanian listed companies Costel Istratea,1 a Alexandru Ioan Cuza University of Iaşi, Romania Abstract: The accession of Romania to EU – in 2007 - confirmed the mandatory application IFRS in the consolidated financial statements of Romanian listed companies. From 2012, the application of IFRS is extended to the separate financial statements of the listed companies. Applying the Gray index of comparability, we attempt to measure the impact of the transition to IFRS on the accounting figures for the comparative year 2011. Our findings (slight increase of equities, decrease in income, ROA, ROE, ROS, increase in leverage) suggests that the impact of IFRS on Romanian companies is not very important and is not always in the same direction as the changes that occurs in countries that belong to the European continental accounting model. Keywords: IFRS impact, Romania, index of comparability, European accounting system, neutrality JEL codes: M41 1. Introduction Romanian listed companies have the obligation to publish separate IFRS financial statements, starting with 2012. This important event give us the opportunity to compare and to analyze 2011 accounting numbers available in both Romanian and international standards. The history of IAS/IFRS in Romania starts in the 1990s. King et al. (2001) and Albu & Albu (2012) argue that the starting point of this phase in the development of Romanian accounting is the year 1996. However, the first normative act that imposes international standards dates back to 19991 (OMF 1 Corresponding author: Costel Istrate, Department of Accounting, Management Information Systems and Statistics, Alexandru Ioan Cuza University of Iaşi, Faculty of Economics and Business Administration, Iaşi, Bd. Carol I, nr. 22, tel. (+40) 232 20 15 99; email: istrat[email protected]o Impact of IFRS on the accounting numbers of Romanian listed companies Vol. 13, No. 3 467 409/1999). The main raisons behind this choice made by Romanian authorities are connected to recommendations issued by international financial bodies (World Bank and International Monetary Fund) that at the time, were financing the economic reforms initiated in Romania. Thus, after almost a decade of accounting practice that was strongly inspired by the French model, Romania tried a radical change (Ionaşcu et al., 2007) and started to familiarize itself with international standards coming from a completely different culture. The initial efforts of a (partial) transition to the IAS should have materialized in financial statements drawn in compliance with the IAS, by a series of Romanian companies, according to a calendar that staged this process up to the year 2005. Albu et al. (2013) argue that the level of compliance to the IAS was low. It was Romania’s candidacy to EU inclusion that gave an impetus to the introduction of international standards for certain Romanian entities (Bunget et al., 2009). The accounting profession in Romania had to make significant efforts to assimilate the accounting practice of French inspiration, which was enforced beginning with 1994. This first transition was prepared for two or three years, which allowed Romanian companies to become familiar with new concepts and rules. The length of this process is comparable – all proportions guarded – to Europe’s own passage to the IFRS. We have invoked these calendars so as to draw a comparison with the 2012 compulsory transition of Romanian listed companies to the IFRS. The first financial year with individual financial statements drawn according to the IFRS is 2012, while the decision was published in June 2012. Thus, the preparation time that companies had in order to pass to the IFRS was extremely short. It is true, however, that the international standards were not absolutely new for Romanian companies: between 2000 and 2005, Romanian entities of public interest (among which were especially those listed on the stock exchange) applied accounting regulations that were declared harmonized to the IAS (and to the EU directives). Therefore, we can suppose that this period of familiarization with the mechanisms, the language, and the philosophy of international standards have allowed Romanian accountants to acquire the basic knowledge that allowed them to perform the first application of the IFRS for the 2012 financial statements. However, Romania’s historic position and the francophone sources of its accounting regulations after the fall of communism made it difficult for international standards to be assimilated by most Romanian accountants. Nobes (2008) proposes a classification of European countries into two groups. Romania does not feature in this classification, but we can position it in the second group (Class B), together with all the other ex-communist countries; the main characteristic features of this group are: a less important financial market, government regulation and a rather fiscal orientation. Under the circumstances, we could expect the enforcement of the IFRS to have significant consequences on accounting figures. But during the 2012 transition to the IFRS, several factors had to be considered, that probably led to a certain anticipation of some of the IFRS Accounting and Management Information Systems Vol. 13, No. 3 468 specific rules2. We refer here especially to the persistence of certain accounting policies used from 2001 until 2005 and which had to be in compliance with the IAS. At the same time, we have to consider the fact that Romanian accounting standards (RAS) that been applied since 2006, even though they declare themselves in agreement with European directives, comprised quite a few options whose direct origins are IFRS. Săcărin (2014) adds to these explanations a possible lack of agreement in the enforcement of the IFRS. In our analysis, we shall focus only on individual financial statements of listed Romanians entities, which can have an impact on our results. For instance, there is no goodwill; in the case of listed entities that belong to groups, the eliminations ensuing from consolidation could lead to changes in the published accounting figures. In the case of Romania, the impact of the IFRS is equally influenced by the weakness of control mechanisms and by the Ministry of Finance’s attitude as a regulator (Albu et al., 2013). Thus, our paper proceeds by providing a literature review (section 2), followed by the formulation of hypotheses (section 3), the presentation of our methodology and sample (section 4), the results (section 5) and finally, the conclusions and limits of our study (section 6). 2. Literature review Research on the impact of accounting standards is rich. At the same time, the use of Gray’s comparability index is quite frequent. We shall, therefore, structure this literature review section into three parts: the application of Gray’s index in the study of the comparability of accounting information; the impact of the IFRS on accounting figures, especially on the occasion of the compulsory introduction of the IFRS in Europe (in 2005 and after), and the impact of the application of the IAS/IFRS in Romania (see also Istrate, 2013). 2.1 The use of Gray index to measure the comparability of accounting standards Gray (1980) proposes an index of conservatism so as to compare the net income of certain companies from Great Britain, France and Germany with the same income restated by using the criteria of an organization of financial analysts (European Federation of Financial Analysts Societies - EFFAS). The same author returned to the use of the index, in a team project (Weetman & Gray, 1991), that analyzed the differences between the US GAAP and certain national accounting norms (British, Dutch and Swedish) enforced by companies listed in the United States and which have to restate their financial statements so as to be accepted on the American financial markets. Weetman & Gray (1991) analyze data from the financial years 1986, 1987 and 1988 and suggest, apart from Gray’s conservatism index (1980), Impact of IFRS on the accounting numbers of Romanian listed companies Vol. 13, No. 3 469 partial conservatism indexes that measure the impact of certain standards (inventories, deferred taxes, goodwill, extraordinary items, capitalization of interests and the research-development expenses). Later, the two authors (Weetman et. al, 1998) conducted an analysis of the differences between British standards, on the one hand, and the US GAAP and the IAS, on the other hand. Another team to which Gray contributed (Street et al., 2000) used the comparability index (the term conservatism index is placed between inverted commas) to measure differences between the US GAAP and the IAS, on the basis of reconciliations published by foreign companies listed in the United States. Evraert & Trebucq (2002) analyze the differences between the figures in French accounting standards and the US GAAP for French groups listed in New York, by using Gray’s conservatism index for income, equity and return on equity- ROE - (for the years 1998, 1999 and 2000). Evraert & Trebucq (2002) noticed an average over-evaluation of almost 50% of French ROE in comparison with figures resulting from the use of the US GAAP. Balsari et al. (2009) analyzed the differences between Turkish regulations and the IFRS and, by applying Gray’s comparability index to several financial indicators, they did not identify significant influences of the transition to the IFRS. Gray et al. (2009) continued the series of their studies that analyze the differences between US GAAP and European standards. This time, Europe is considered from the perspective of two sets of accounting standards: for the period 2002 – 2004, Gray et al. (2009) take into account national regulations, while for the period starting in 2005, they use IFRS data. The results reported by Gray et al. (2009) are quite opposite: for the pre-IFRS period, equities in national standards are significantly lower than US GAAP equities, for the entire sample; on the contrary, IFRS-EU income is higher than US GAAP income (2004-2006). Anyway, Gray et al. (2009) noticed a clear demarcation between British standards and the accounting regulations of other European countries in their sample. Gray’s index is applied by Liu (2009) and Liu et al. (2010) who found that, despite a visible raise of the convergence between the US GAAP and the IFRS, during the period 2004-2006 and in 2007, there were still significant divergences between the two sets of accounting standards. 2.2 Impact of the transition to IFRS in Europe There are numerous studies on the effects of the IFRS on financial statements, as well as on the impact on financial markets. In this literature review we shall mainly consider studies on the impact of the IFRS on figures published in financial statements. Aisbitt (2006) noticed that, for the FTSE 100 companies, the modifications of equities took two directions: when comparing the application of the IFRS to the application of UK GAAP, there were increases as well as decreases. Before the actual application of the IFRS, Jermakowicz & Gornik- Tomaszewski (2006) analyzed responses about company expectations concerning the transition to the IFRS: increases of net income and equities. The authors did not Accounting and Management Information Systems Vol. 13, No. 3 470 find a significant correlation between the possible increase in equities/income and the countries’ belonging to the continental group, which is considered more conservative. Hung & Subramanyam (2007) found a confirmation of German companies’ orientation towards conservatisms and income smoothing: the total of fixed assets, equities and IFRS net income significantly surpass the levels calculated according to German standards. Haller et al. (2009) use Gray’s comparability index (a global index, but also partial indexes) to measure the impact of the IFRS on equities and net income of German companies, and found significant differences. For the case of Greece, Tsalavoutas & Evans (2010) found that on average, the passage to the IFRS did not yield significant effects on equities. However, IFRS figures are much higher than figures according to Greek norms, with extremes in both directions. As far as income is concerned, Tsalavoutas & Evans (2010) noticed a significant increase: IFRS figures are higher than figures according to Greek norms. Fifield et al. (2011) studied the transition to the IFRS in Great Britain, Ireland and Italy (they too use Gray’s index, among other measures) and found that IFRS net income is, on average, higher than the income according to former standards. For equities, Fifield et al. (2011) found that impacts are more divergent: there is an increase for Great Britain and Italy and a decrease in the case of Ireland. For Spain, Callao et al. (2007) noticed important differences in the values of certain indicators of asset liquidity and return of assets, return on equities and of income. Fitó et al. (2012) analyzed the case of certain Spanish companies that did not have to apply the IFRS in 2005, but in 2007-2008; then, too, they noticed important differences among financial statement indicators and among performance indicators. Hellman (2011) applied Gray’s index to measure differences between Swedish standards and the IFRS and noticed an important increase in income and more moderate increases in assets, liabilities and equities. A more comprehensive study on the effects of the transition to the IFRS (Clarkson et al., 2011) takes into account almost 3,500 companies and reaches conclusions that confirm the dichotomy between common law vs. code law accounting systems. The differences noticed between BVPS (book value per share) and EPS (earnings per share) are that common law countries have different profiles in comparison with code law countries. Aubert & Grudnitski (2011) noted important increases in the ROE in several European countries when the IFRS were applied. The difference between the continental accounting model and the Anglo-Saxon model is considered by Callao Gastón et al. (2010) in their study on the impact of the adoption of the IFRS on accounting figures in Spain and Great Britain: they found that the impact was significant in the two countries, with more marked differences in Great Britain. Aharony et al. (2010) calculated a global index of comparability Impact of IFRS on the accounting numbers of Romanian listed companies Vol. 13, No. 3 471 that cumulates the effect of modifications in income and equity when it became compulsory to apply the IFRS in the EU. They also measured divergences between national norms and the IFRS, without being interested in the direction of these modifications. Gray’s comparability index is used by O’Connel & Sullivan (2008) to estimate the impact of the IFRS on the very large companies in seven European countries and found a significant increase of the 2004 income. France was considered a country whose accounting norms were the most divergent in relation to the IFRS (Ding et al., 2007). Under the circumstances, Cormier et al. (2009) estimated that the transition to the IFRS would lead to significant changes in the accounting practice of French companies. Marchal et al. (2007) analyzed the impact of the IFRS for 291 non-financial French groups and found a limited decrease (2%) of equity, even though, for two thirds of the studied population, equity increased. As far as income is concerned, Marchal et al. (2007) found an important increase (38% on average); leverage also registered an increase (16%). Demaria and Dufour (2007) argue that the choice of accounting policies made by companies that apply the IFRS for the first time was not guided by conservatism. In their turn, for SBF 120 companies, Cazavan-Jeny & Jeanjean (2009) found a limited impact (even though it is significant statistically) on several aggregates, among which are income and equity. Boukari & Richard (2007) found a slight decrease of equity due to the passage to the IFRS; on the contrary, net income increased strongly, especially due to the end put to the amortization of the goodwill. Ferreira Silva et al. (2009) identified significant impacts of the passage to the IFRS on the balance sheet and profit and loss account indicators in Portuguese listed companies (increase of assets, equity, debts and income). Teixeira Lopez & Couto Viana (2008) applied Gray’s index on the same Portuguese companies and found that 70% of the cases are in the neutral and pessimist zones (as they were defined by Gray), which means that the IFRS led to accounting practices that were slightly less conservative than Portuguese norms. In Finland, Lantto & Sahlström (2009) mesured the impact of the IFRS on financial ratios and noted that the transition had important effects: a considerable increase in profitability, a more moderate increase of liabilities, a significant decrease of PER. 2.3 On the IAS/IFRS application in Romania Ionaşcu et al. (2014) offer us a very clear picture of the literature on the IFRS adoption in Romania. They found that “the literature discussing this topic is in its incipient stages (…) and mainly consists of studies of perception with a rather few studies providing empirical evidence on the actual consequences of IFRS implementation” (Ionaşcu et al. 2014). The second stage in the compulsory application of the IFRS in Romania started in 2012. Albu et al. (2013) found that Accounting and Management Information Systems Vol. 13, No. 3 472 on the whole, the level of conformity is relatively low in Romania, even though there are significant differences between entities. Săcărin (2014) uses indexes that measure the absolute impact (IFRS value – RAS Value) and the relative impact to calculate the influence of the transition to the IFRS on some financial indicators. He found an increase in equity, a decrease in net income, an important decrease of the return on equity (ROE), a relative stability of solvability and leverage. Săcărin analyzes data at 31 decembre 2011 and at 1 january 2011 and eliminate from his sample the companies in insolvency. Păşcan & Ţurcaş (2012) analyzed the effects on consolidated financial statements during certain Romanian groups’ voluntary transition to the IFRS, at different dates. The sample of Păşcan & Ţurcaş (2012) comprises 14 entities that published consolidated financial statements and found that the passage to the IFRS influenced the net income of these groups in very divergent directions – there are significant differences from one group to another. 3. Hypotheses Romania can be ranked as belonging to the European continental accounting model – a code law country, whose accounting rules are strongly influenced by principles originating in European countries such as France. Such arguments can be found in Feleagă (1995), Ionaşcu et al. (2007), and Istrate (2012). Albu et al. (2013) noted that the application of the IFRS in Romania is a complex and interesting process; the Romanian experience, in this case, was influenced by the fact that the IFRS must be introduced in code law countries. In general, the modification of accounting figures occasioned by the compulsory application of the IFRS in Europe, in code law countries, has led to an increase in income and equities (Table no. 1), which seems to confirm that accounting practice in these countries is more conservative (Cuzdriorean et al. 2012). In order to identify code law countries, we resort to the classification used by Clarkson et al. (2011), from which we eliminate certain countries (Danemark, Netherlands, Norway), and limit ourselves to countries from Nobes’ group B (2008). In Table no. 1, we noticed that on average, the IFRS lead to an increase of net income and equities in companies belonging to the European continental model and which fall under the code law tradition. This allows us to formulate the first two hypotheses: H1: The application of the IFRS in Romania led to an increase in equities for the comparative year. H2: The application of the IFRS in Romania led to an increase in net income for the comparative year. Impact of IFRS on the accounting numbers of Romanian listed companies Vol. 13, No. 3 473 Table 1. Impact of IFRS on some financial numbers, for 2004 Country Authors Indicators Average sense of the modification Percentage of cases with +/- + - Belgium Clarkson et al., 2011 EPS + 56,9 43,1 BVPS + 72,2 27,8 Finland Clarkson et al., 2011 EPS + 66,3 33,7 BVPS + 75,2 19,8 France Boukari & Richard, 2007 Net income + 76,00 24,00 Equities - 58,00 42,00 Clarkson et al., 2011 EPS + 69,2 25,4 BVPS + 68,6 31,4 Germany Haller et al., 2009 Net income + Equities + Clarkson et al., 2011 EPS + 58,4 37,8 BVPS + 74,6 25,4 Greece Clarkson et al., 2011 EPS - 50,7 47,2 BVPS + 63,2 36,8 Italy Clarkson et al., 2011 EPS + 70,0 27,5 BVPS + 75,8 24,2 Cordazzo, 2013 Net income + Equities - ROE + Portugal Ferreira Silva et al., 2009 Net income + Equities + Clarkson et al., 2011 EPS + 75,0 25,0 BVPS - 50,0 50,0 Spain Callao et al., 2010 Net income + Equities + Leverage + Clarkson et al., 2011 EPS - 47,7 48,6 BVPS + 46,8 53,2 Sweden Clarkson et al., 2011 EPS + 74,2 12,0 BVPS + 82,9 17,1 Average code law countries Clarkson et al., 2011 EPS + 64,4 29,6 BVPS + 67,7 32,2 A financial indicator that combines equities and income is return on equities (ROE). Studies on the effects of the passage to the IFRS in countries that we take as our reference have found that the increase in income is more important than the average increase in equities (Marchal, 2007; Boukari & Richard, 2007; Tsalavoutas & Evans, 2010; Hellman, 2011; Aubert & Grudnitski, 2011; Ferreira Silva et al., 2009). Under the circumstances, we propose the following hypothesis: Accounting and Management Information Systems Vol. 13, No. 3 480 however, a slight decrease in the net income, except in the case of BVB I companies that register a very small increase. Concerning the number of companies according to the comparability interval, the tendency towards a decrease in income is confirmed, even though there is a majority of companies that are situated within an interval of neutrality; the percentage of companies whose income decreases is higher than the percentage of companies that register an increase, except for BVB I. In this case, an increase in income features in 50% of the observations. Table no. 6. Number of entities by IC interval –net income Total BVB I BVB II/III Panel 1 – Total sample IC ≤ 0,95 (IFRS > RAS) 12 3 9 0,95 < IC ≤ 1,05 – neutrality 39 12 27 IC > 1,05 (IFRS < RAS) 17 3 14 Total 68 18 50 Panel 2 – Total sample– IC <1 or IC > 1 Percentage of entities with IC < 1 32,35 50,00 26,00 Percentage of entities with IC > 1 41,18 27,78 46,00 Panel 3 – Sample non-financial activities (without banks) IC ≤ 0,95 (IFRS > RAS) 11 2 9 0,95 < IC ≤ 1,05 – neutrality 37 10 27 IC > 1,05 (IFRS < RAS) 17 3 14 Total 65 15 50 The H2 hypothesis is not confirmed: on average, the restatement of the net income occasioned by the transition to the IFRS does not lead to an increase. On the contrary, it is only BVB I companies that register increases (half of them), but this tendency is compensated by strong decreases in other companies from the same category. Our results can only partially be compared to those from other studies, mainly because we work on individual financial statements, while the other authors generally focus on consolidated financial statements. This observation is very important in the case of the net income, because the goodwill is absent from our figures – in fact, one of the important sources of difference between the IFRS income and the income of former GAAP was the elimination of the amortization of the goodwill (Lantto & Sahlström, 2009). 5.3 Impact on operating income In order to complete the analysis of the impact of the IFRS on income, we shall calculate the IC for the operating income (Table no. 7). The conclusions are still Impact of IFRS on the accounting numbers of Romanian listed companies Vol. 13, No. 3 481 clearer than for the net income: restatements due to the IFRS have led to the decrease of the operating income, both before and after the elimination of outliers. Table 7. Averages of IC – operating income Total BVB I BVB II/III Sample – non-financial activities (without banks) Total average 1,2114 n=65 1,1389 n=15 1,2332 n=50 Average after the elimination of outliers 1,0290 n=52 1,0174 n=11 1,0355 n=40 This tendency is confirmed by the number of entities that are situated above an IC=1: their percentage is largely higher than the ones of observations IC < 1 (Table no. 8). There, also, most entities are situated within the interval of neutrality (0.95 < IC < 1.05). Table 8- Number of entities by IC interval – operating income Total BVB I BVB II/III Panel 1 – Sample – non-financial activities (without banks) – IC <1 ou IC > 1 Percentage of entities with IC < 1 26,15 20,00 28,00 Percentage of entities with IC > 1 53,85 60,00 52,00 Panel 2 – Sample – non-financial activities (without banks) IC ≤ 0,95 (IFRS > RAS) 11 3 8 0,95 < IC ≤ 1,05 – neutrality 33 7 26 IC > 1,05 (IFRS < RAS) 21 5 16 Total 65 15 50 5.4 Impact on some financial ratios Table 9. Averages of IC – ROE Total BVB I BVB II/III Panel 1 – Total sample Total average 1,6432 n=68 1,4714 n=18 1,7051 n=50 Average after the elimination of outliers 1,0279 n=52 1,0540 n=15 1,0040 n=46 Panel 2 – Sample non-financial activities (without banks)) Total average 1,6845 n=65 1,6159 n=15 1,7051 n=50 Average after the elimination of outliers 1,0323 n=50 1,1052 n=14 1,0040 n=46 Accounting and Management Information Systems Vol. 13, No. 3 482 The hypotheses concerning the impact of the IFRS on equity and on income were partially confirmed and only for equity. One can therefore expect the direction of the modification of some profitability ratios to be the same as in the case of the net income. In the Table no 9, the average comparability indexes show a significant decrease in ROE due to the passage to the IFRS, which invalidates the H3 hypothesis. Table 10. Number of entities by IC interval – ROE Total BVB I BVB II/III Panel 1 – Total sample IC ≤ 0,95 (IFRS > RAS) 17 4 13 0,95 < IC ≤ 1,05 – neutrality 23 4 19 IC > 1,05 (IFRS < RAS) 28 10 18 Total 68 18 50 Panel 2 – Total sample– IC <1 or IC > 1 Percentage of entities with IC < 1 35,29 33,33 36,00 Percentage of entities with IC > 1 54,41 55,56 54,00 Panel 3 – Sample non-financial activities (without banks) IC ≤ 0,95 (IFRS > RAS) 15 2 13 0,95 < IC ≤ 1,05 – neutrality 23 4 19 IC > 1,05 (IFRS < RAS) 27 9 18 Total 65 15 50 In the case of the previous indicators (equity and net income), most entities are situated within the neutrality interval; on the contrary, in the case of ROE, the decrease of this indicator is translated by the fact that most entities are situated within the interval IC > 1.05. Table 11. Averages of IC – ROA Total BVB I BVB II/III Panel 1 – Total sample Total average 1,3292 n=68 1,0076 n=18 1,4449 n=50 Average after the elimination of outliers 1,0273 n=55 1,0301 n=13 1,0323 n=41 Panel 2 – Sample non-financial activities (without banks) Total average 1,3558 n=68 1,0588 n=15 1,4449 n=50 Average after the elimination of outliers 1,0333 n=52 1,0370 n=11 1,0323 n=41 Impact of IFRS on the accounting numbers of Romanian listed companies Vol. 13, No. 3 483 In order to consider, indirectly, the impact of the IFRS on the entities’ total assets, we calculated ROA (by applying the comparability index formula to the total assets, we noticed a very slight modification, in the sense of an increase). The figures presented in Table no. 11 show a significant decrease of ROA, which confirms our H4 hypothesis. Table 12. Number of entities by IC interval – ROA Total BVB I BVB II/III Panel 1 – Panel 1 – Total sample IC ≤ 0,95 (IFRS > RAS) 12 3 9 0,95 < IC ≤ 1,05 – neutrality 34 10 24 IC > 1,05 (IFRS < RAS) 22 5 17 Total 68 18 50 Panel 2 – Total sample– IC <1 or IC > 1 Percentage of entities with IC < 1 38,24 44,44 36,00 Percentage of entities with IC > 1 50,00 50,00 50,00 Panel 3 – Sample non-financial activities (without banks) IC ≤ 0,95 (IFRS > RAS) 11 2 9 0,95 < IC ≤ 1,05 – neutrality 32 8 24 IC > 1,05 (IFRS < RAS) 22 5 17 Total 65 15 50 The impact of the IFRS on ROA leads, however, to the grouping of entities in the neutrality interval, with a tendency toward the decrease (table 12). Table 13. Averages of IC – ROS Total BVB I BVB II/III Echantillon activités non-financières (sans les banques) Total average 1,2360 n=65 1,2659 n=15 1,2270 n=50 Average after the elimination of outliers 1,0279 n=51 1,0146 n=11 1,0295 n=40 We have not suggested any hypothesis on the sense of the impact of the IFRS on ROS. Calculations (Table no. 13) allow one to notice a certain similarity with the results noticed for the other profitability ratios: The decrease is significant. The number of entities for which return on sales diminishes is higher than 50% (Table 14). Accounting and Management Information Systems Vol. 13, No. 3 484 Table 14- Number of entities by IC interval – ROS Total BVB I BVB II/III Panel 1 - Panel 1 –Sample non-financial activities IC ≤ 0,95 (IFRS > RAS) 13 3 10 0,95 < IC ≤ 1,05 – neutrality 30 7 23 IC > 1,05 (IFRS < RAS) 22 5 17 Total 65 15 50 Panel 2 – Sample non-financial activities – IC <1 or IC > 1 Percentage of entities with IC < 1 26,15 20,00 28,00 Percentage of entities with IC > 1 53,85 60,00 52,00 5.5 Impact on leverage For BVB I companies, leverage is only slightly influenced by the transition to the IFRS, with a minor increase, neverthess. On the contrary, in the case of BVB II/III companies, there is a significant increase in leverage (Table no. 15). These results confirm our H5 hypothesis. Table 15. Averages of IC – leverage Total BVB I BVB II/III Panel 1 – Total sample Total average 0,8736 n=68 0,9965 n=18 0,8294 n=50 Average after the elimination of outliers 0,9794 n=55 1,0013 n=15 0,9797 n=38 Panel 2 – Sample non-financial activities (without banks) Total average 0,8670 n=65 0,9926 n=15 0,8294 n=50 Average after the elimination of outliers 0,9773 n=52 0,9710 n=14 0,9797 n=38 Even though most observations are situated witin an interval of neutrality, there are still more companies for which leverage increases than for which it decreases (Table no. 16). 5.6 Statistical tests The results of the application of Student tests for 6 of our 7 variables confirm that the impact of IFRS ranks the majority of Romanian listed companies in the intervals of neutrality. Only for 2 variables (operating income and return on assets), the Student test identify some statistical significant differences. Impact of IFRS on the accounting numbers of Romanian listed companies Vol. 13, No. 3 485 Table 16. Number of entities by IC interval – leverage Total BVB I BVB II/III Panel 1 – Total sample IC ≤ 0,95 (IFRS > RAS) 25 5 20 0,95 < IC ≤ 1,05 – neutrality 36 9 27 IC > 1,05 (IFRS < RAS) 7 4 3 Total 68 18 50 Panel 2 – Sample non-financial activities – IC <1 or IC > 1 Percentage of entities with IC < 1 57,35 50,00 60,00 Percentage of entities with IC > 1 30,88 44,44 26,00 Panel 3 – Echantillon activités non-financières (sans les banques) IC ≤ 0,95 (IFRS > RAS) 25 5 20 0,95 < IC ≤ 1,05 – neutrality 33 6 27 IC > 1,05 (IFRS < RAS) 7 4 3 Total 65 15 50 6. Conclusions The generalised enforcement of the IFRS in Europe started with the obligation of the listed groups to establish IFRS consolidated financial statements. Some EU countries extended the application of the IFRS to individual financial statements. In Romania – an EU member since 2007 – the IFRS became compulsory in the separate financial statements of listed entities beginning with the financial year 2012. This obligation represents for us a good occasion to apply, to the case of Romania, the instruments that have already been used to study the impact of the IFRS on accounting figures. In fact, the European transition to the IFRS, in 2005, generated a rich literature on the effects of international standards and on the comparability of these with former national GAAP. We aim to measure the impact of the IFRS on the accounting figures of Romanian listed companies: equity, net income and operating income, some profitability ratios (ROE, ROA, ROS) and leverage of the comparative year 2011, for which official figures are available in 2011 according to RAS, and IFRS comparative figures are available in financial statements for 2012. The instrument that we have chosen to measure this impact is Gray’s comparability index (1980), also known under its original name as conservatism index. Our sample is made up of Romanian companies listed on the Bucharest Stock Exchange – a total of 68 entities that have transitioned to the IFRS. In our study, we consider Romania to be a code law country that belongs to the European continental accounting system. Thus, we have formulated hypotheses suggesting that the direction of the modification of accounting figures following the application of the IFRS is the same as in other European countries that belong to the continental accounting system and that are Accounting and Management Information Systems Vol. 13, No. 3 486 grouped by Nobes (2008) in his B class (a less important financial market, governmental regulation, strong influence of taxation). Thus, there are nine countries for which the literature provides us with comparative data (Belgium, Finland, France, Germany, Greece, Italy, Portugal, Spain, and Sweden). In our sample, figures do not come from consolidated financial statements, which can create problems when comparing them with the studies that we used as a model. The results of our study demonstrate that the first hypothesis (H1 – increase in equity due to the IFRS) is partially confirmed. Most entities are situated within the interval of neutrality, with outliers that make the average for the entire sample to reflect an increase. The second hypothesis (H2 – increase in net income) is clearly refuted for the entire sample – the 2011 IFRS income is, on average, inferior to the 2011 RAS income, which can seem surprising. Several explanations can be proposed: • individual financial statements do not include the goodwill which, through the elimination of its amortization, has contributed to the increase of group net income, noticed by literature; • accounting policies imposed/allowed by the IFRS are more conservative than accounting policies in RAS, where the enforcement of these policies is done rigorously. In this case, the Romanian accounting system before the IFRS represents a particular form of the European continental accounting system, from which it distances itself in certain characteristic features; • there are weaknesses in the enforcement of the IFRS. For the 68 entities included in the study, the reports of financial auditors feature the following opinions: 36 - unqualified, 10 – unqualified but with observations, 19 - qualified, 1 – impossible to express an opinion, and 2 - adverse opinions. The conclusions on the direction of the modification of the net income due to the introduction of the IFRS are confirmed by the analysis of the operating income which also undergoes a significant average decrease. The analysis of the partial confirmation and the non-confirmation of hypotheses H1 and, respectively H2, must take into account the fact that, for most entities in our sample, the modification is situated within the interval of neutrality, which means that the IFRS had a limited impact. This situation allows us to consider that Romanian companies probably chose to enforce the IFRS in a way that distances them as little as possible from Romanian accounting standards3. At the same time, the level of compliance of Romanian companies with the IFRS can be lower than in other European countries. The H3 hypothesis is not confirmed either. ROE diminishes significantly and, unlike other indicators, most entities are not within the interval of neutrality anymore, but within the one that shows the decrease in profitability. A hypothesis that is confirmed, even though most entities are situated within the interval of Impact of IFRS on the accounting numbers of Romanian listed companies Vol. 13, No. 3 487 neutrality, is the decrease of ROA (H4), which can be easily explained by the decrease of the net income and the very slight modification of total assets. Finally, the leverage of Romanian listed entities increases, which confirms our H5 hypothesis. The analysis of the transition of Romanian listed companies to the IFRS would be more comprehensive if we were to analyze the precise reasons behind the differences between RAS and by IFRS, by calculating, possibly, partial comparability indexes. Similarly, it would be interesting to compare the situation in Romania to that in other ex-communist European countries. 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