Relative Effects of IFRS Adoption and IFRS Convergence on Financial Statement Comparability

One of the primary objectives of both adoption of International Financial Reporting Standards (IFRS) and convergence between IFRS and U.S. Generally Accepted Accounting Principles (U.S. GAAP) is to increase financial statement comparability. Using a unique setting in Germany, we compare the effectiveness of these two approaches in achieving this desired outcome. Our empirical tests show that both adoption and convergence lead to an increase in comparability after the new enforcement regulation in 2005. However, difference-in-differences tests show that adoption does not lead to a significant incremental increase in comparability beyond convergence. The findings of this study should be of interest to regulators and standard-setters as they assess alternative methods of aligning domestic standards with IFRS.