Will Worldwide Adoption Of IFRS Improve Comparability? An Instructional Case Between Two Companies In Two Countries

Abstract

One of the most compelling arguments for US companies to adopt IFRS is to increase comparability between companies and countries worldwide. This instructional case emphasizes to students that even though two companies both follow the same set of accounting rules (IFRS in this case), comparability of financial statements can still be difficult due to accounting choices, judgments, and estimates made by management. In this case, two start-up companies enter the renewable energy industry and begin retailing wind turbines. Students record identical first-year transactions for the two companies, record six additional transactions where each company makes different accounting choices when applying IFRS, prepare a set of financial statements, and calculate ratios. Through these tasks, students can see how accounting choices made by management affect comparability of the financial statements. This case also gives students an opportunity to discuss how culture and the general accounting environment in a country may influence the accounting choices made by management.