Cross-border listed firms’ IFRS-based financial reports: Are they comparable?

Abstract

Variations in the enforcement of International Financial Reporting Standards (IFRS) across legal jurisdictions create skepticism about the degree of financial statement comparability (hereafter, “comparability”) of cross-border-listed (CBL) firms. This study tested whether IFRS financial reports of CBL firms domiciled in different legal environments are comparable. We examined the effects of differences in the legal enforcement of jurisdictions on comparability. We assessed comparability using an output-based method on a sample of CBL firms domiciled in 42 countries. The results do not provide evidence of comparability in the IFRS-based financial reports of different legal environments. The results also indicate that differences in legal enforcement are negatively associated with comparability. We also find evidence that the use of Big Four (Big 4) auditing services by CBL firms provides better comparability than the use of non-Big 4 services. These results suggest that CBL firms supplement country-level deficiencies in mandatory regulatory enforcement with voluntary firm-level structures such as auditor choice.