IFRS Adoption in Canada: An Empirical Analysis of the Impact on Financial Statements

International Financial Reporting Standards (IFRS) has become the new dominant set of accounting standards; however the transition to the new regime may be fairly disruptive for users of financial statements as comparability and trend analysis may be impaired. The objective of this study is to impart evidence of the impact of IFRS adoption in Canada on financial statement figures and ratios of publicly-traded companies. The analysis is based on the comparison of accounting figures and financial ratios computed under IFRS and pre-changeover Canadian GAAP (CGAAP) for the same period using a sample of 150 Canadian companies listed on the Toronto Stock Exchange which mandatory adopted IFRS in 2011. Empirical tests are conducted to identify the main areas of differences and investigate specific effects related to company’s industry affiliation and auditor. The results of the analysis indicate that at the aggregate level IFRS adoption does not significantly change the central values that describe the financial position and performance of Canadian companies reported in financial statements. However, differences between individual IFRS and CGAAP values can be large, particularly in the balance sheet, and are not randomly distributed across industries. Moreover, the volatility of financial statement figures is higher in IFRS than in CGAAP. The study concludes that databases built from aggregated accounting information may generally be consistent in IFRS and CGAAP whereas cash flows may be relied on to avoid the subjectivity inherent to accounting adjustments.