Transition To IFRS in Greece

Managerial Auditing Journal
Transition to IFRS in Greece: financial statement effects and auditor size

Ioannis Tsalavoutas Lisa Evans
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auditor size", Managerial Auditing Journal, Vol. 25 Iss 8 pp. 814 - 842
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Leopold Bayerlein, Omar Al Farooque, (2012),"Influence of a mandatory IFRS adoption on accounting
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Apostolos A. Ballas, Despina Skoutela, Christos A. Tzovas, (2010),"The relevance of IFRS to an
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MAJ
25,8
Transition to IFRS in Greece:

financial statement effects
and auditor size
814
Ioannis Tsalavoutas and Lisa Evans
Received 7 October 2009

Reviewed 8 April 2010
Accepted 16 May 2010
Division of Accounting and Finance, The University of Stirling, Stirling, UK

Abstract
Purpose The paper aims to explore the impact of the transition to International Financial
Reporting Standards (IFRS) on Greek listed companies financial statements with a focus on net profit,
shareholders equity, gearing and liquidity. It also seeks to examine any differences in the impact
across the sub-samples of companies with Big 4 and non-Big 4 auditors.
Design/methodology/approach In line with recent literature, the paper employs Grays
comparability index. The sample consists of 238 Greek companies, representing 75 per cent of the
companies listed on the Athens Stock Exchange at the end of March 2006.
Findings Implementation of IFRS had a significant impact on financial position and reported
performance as well as on gearing and liquidity ratios. On average, impact on shareholders equity and
net income was positive while impact on gearing and liquidity was negative. Only companies with
non-Big 4 auditors faced significant impact on net profit and liquidity. They also faced a significantly
greater impact on gearing than companies with Big 4 auditors. A large number of companies with
material negative changes is identified, suggesting that transition to IFRS and the fair value option
does not necessarily result in higher shareholders equity figures. Many companies provided
inadequate transitional disclosures. This is significantly related to auditor size.
Practical implications The findings suggest that reporting quality has improved under the new
accounting regime, especially for companies with non-Big 4 auditors.
Originality/value Prior literature indicates that the impact revealed in companies reconciliation
statements can have significant effects on users decision making. On that basis, the study can
stimulate future research and is relevant to standard setters and regulators.
Keywords Accounting, Auditors, Greece, Standards
Paper type Research paper
1. Introduction
European Union Regulation 1606/2002 requires all publicly traded companies to prepare
consolidated financial statements on the basis of International Financial Reporting
Standards (IFRS)[1]. It applies from 1 January 2005. Financial statements prepared in
2004 under national GAAP had to be restated in accordance with IFRS to provide
comparatives. Reconciliation statements explaining how the transition from previous
GAAP to IFRS affected companies financial statements were also required.
Managerial Auditing Journal

Vol. 25 No. 8, 2010
pp. 814-842
q Emerald Group Publishing Limited
0268-6902
DOI 10.1108/02686901011069560
The authors thank the Institute of Chartered Accountants of Scotland for funding this paper.
They gratefully acknowledge helpful comments received from Paul Andre, Salvador Carmona,
Alan Goodacre, David Hatherly, Eddie Jones, Stergios Leventis, Chris Nobes, Mike Smith,
Panayiotis Vroustouris, Pauline Weetman, two anonymous referees, the participants of the
workshop Accounting in Europe (Paris, September 2007) and the seminar participants at the
Division of Accounting and Finance, University of Stirling (October 2007).
Greece has a distinctive culture and financial reporting regime where creative
accounting is common and enforcement of accounting regulation is weak. Greek
GAAP[2] differs significantly from IFRS and several creative accounting practices
tolerated under Greek GAAP are not permitted under IFRS. It was therefore expected
that Greek companies financial statements should be affected considerably by the
transition to the new accounting regime. In addition, prior research suggests that
higher earnings management (i.e. lower accounting quality) and lower audit effort are
associated with non-Big 4 auditors in Greece (Caramanis and Lennox, 2008). We also
expected, therefore, that the financial statements of companies with non-Big 4 auditors
would experience a greater impact on transition to IFRS. Hence, improvement of
financial reporting quality was expected.
Therefore, the present paper examines the transition to IFRS by Greek listed
companies, focusing on the following objectives:
.
We examine the impact of IFRS adoption on companies financial statements (net
profit, equity, gearing and liquidity) for the financial year 2004.
.
We also use audit firm size as a proxy for accounting quality (DeAngelo, 1981;
Watts and Zimmerman, 1986) and we partition our sample across companies with
Big 4 and non-Big 4 auditors to examine any differences in the impact on the above
measures.
Our results can be summarised as follows. The introduction of IFRS had a positive impact
on Greek listed companies shareholders equity and net profit. However, it had a negative
impact on gearing and liquidity. The effects on equity and gearing were statistically
significant for all companies, but the impact on net profit and liquidity is driven by the
impact on companies with non-Big 4 auditors. These companies also faced a greater
impact on gearing than the remaining firms. We interpret this finding as a particular
feature of the Greek market since there is evidence of lower earnings management for
companies with Big 4 auditors. These findings suggest that the introduction of IFRS
improves the quality of the accounting information provided by companies.
Our findings contribute to and are in line with the growing literature on IFRS
implementation in different cultural and regulatory contexts. In particular, our findings
contribute to the literature on international GAAP comparisons by extending the use of
Grays comparability index (Weetman et al., 1998) to key ratios and by contributing to
the discussion of its limitations. By measuring the impact of transition by means of a
commonly applied index, the paper provides a benchmark for comparison with studies
examining the impact of mandatory transition in other countries (Haller et al., 2009;
Cordazzo, 2008; Lopes and Viana, 2008), especially those with stakeholder accounting
regimes such as Germany, France and Italy (Spathis and Georgakopoulou, 2007; Bellas
et al., 2007). Subsequently, we expect our findings to be of interest to investors, analysts,
regulators and enforcers, not only in Greece but also in other jurisdictions undergoing
transition to IFRS in particular those whose reporting regimes portray similar
features. The findings should also be of interest to the International Accounting
Standards Board (IASB).
As a subsidiary contribution and to facilitate a better understanding of the impact
of transition, the paper provides an in-depth comparison of the de jure differences
between Greek GAAP and IFRS. To the best of our knowledge, there is no such recent
comparison available in the English language academic literature.
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The remainder of the paper is organised as follows: Section 2 reviews earlier

literature pertinent to our study. Section 3 provides an overview of the background to
the Greek accounting environment. Section 4 discusses the de jure differences between
IFRS and Greek GAAP and introduces our research hypotheses. Section 5 describes the
data and research methods employed. In Section 6, our findings are discussed in depth
with reference to the research hypotheses, the prior literature and the context to Greek
accounting provided in Sections 3 and 4. Section 7 discusses the limitations of the
study and Section 8 forms the concluding remarks.
2. Literature review
Studies using reconciliation statements
The impact of different national accounting practices on profit measurement was first
quantified by means of a conservatism index (see research methods section) by Gray
(1980). Grays study differed from other studies of harmonisation (Van der Tas, 1988;
Archer et al., 1995) which instead calculate the incidence of accounting differences
(Weetman et al., 1998; Street et al., 2000).
Grays seminal work has been widely replicated and extended, in particular by
studies using companies form 20-F reconciliations to US GAAP (Weetman and Gray,
1990, 1991; Cooke, 1993; Hellman, 1993). Adams et al. (1993) extended the use of the
index also to measuring conservatism in equity (see below)[3]. To emphasise the
indexs use as a measure of comparability (without judging relative conservatism),
Weetman et al. (1998) renamed the index comparability index, terminology which has
been adopted by subsequent studies (Gray et al., 2009; Haller et al., 2009).
Adams et al. (1993) were the first to use the index in comparing national (Finnish)
GAAP with International Accounting Standards (IAS). Such comparisons became the
focus of comparability studies from the late 1990s (Weetman et al., 1998; Adams et al.,
1999; Street et al., 2000; Ucieda Blanco and Garcia Osma, 2004; Haverty, 2006).
The recent transition of European companies to IFRS is now giving rise to studies
attempting to capture the impact of this, making use of the 2004 financial statements,
initially prepared on the basis of national GAAP and restated under IASs as
comparatives for the 2005 financial statements (Bertoni and De Rosa, 2006; Lopes and
Viana, 2008; Cordazzo, 2008; Gray et al., 2009; Haller et al., 2009). Our study follows this
strand of the literature and provides a benchmark for comparison with these studies.
Bertoni and De Rosa (2006) find that Italian GAAP is more conservative than
IFRS, but that this result is not as strong as had been expected. Similarly, Cordazzo
(2008) reports higher net income and shareholders equity under IFRS than under
Italian GAAP for a different sample of Italian companies. Lopes and Viana (2008)
find that the transition to IFRS had led to less conservative reported profits for
Portuguese listed companies. Gray et al. (2009, p. 431) find that companies adopting
IFRS for the first time in Europe in 2005 and that are cross-listed in the USA, there is
a significant gap between IFRS and US GAAP measures of income, thereby,
signifying de facto divergence from US GAAP in regard to income determination.
They also find, inter alia, that UK GAAP yielded significantly lower measures of
equity than US GAAP. Haller et al. (2009) measure the effect of the transition from
German GAAP to IFRS on equity and net income of German companies which had to
adopt IFRS in 2005. They find a significant increase in shareholders equity and in
net income, on average[4].
Prior literature notes a number of limitations of using reconciliation statements, most

notably poor compliance with disclosure requirements and inconsistent and incomplete
presentation of reconciliations (Weetman and Gray, 1990, 1991; Adams et al., 1993, 1999;
Street et al., 2000; Ucieda Blanco and Garcia Osma, 2004; Aisbitt, 2006). Street et al. (2000)
also note that auditors do not always report on incomplete compliance with IAS. Further,
in some prior studies the small size of populations or samples meant that a case study or
pilot study approach had to be adopted (Weetman and Gray, 1991; Cooke, 1993; Hellman,
1993; Whittington, 2000), i.e. findings could not be tested for statistical significance. One
issue relates to the timing of studies: changes to national accounting regulations make
comparison of earlier studies with later ones problematic. There is also a risk that the
results reflect short-term timing differences, which may reverse in later accounting
periods (Street et al., 2000; Norton, 1995). The relevance of these and other limitations to
our study are discussed in more detail in Section 7.
3. The distinctive Greek accounting environment
The Greek state has been criticised for patronage and pursing sectional, rather than
societal interests (Ballas et al., 1998). It presents a low-trust society, whose citizens
portray ambivalent behaviour: a pursuit of state favour as well as attempts to cheat the
system (Ballas et al., 1998). This is detrimental to self-regulation of accounting, or trust
in the true and fair view of financial statements. Instead, it requires state regulation
and extensive rules, with increased monitoring costs (Ballas et al., 1998). This system
fosters an excessive adherence to prescribed forms [. . .] without regard to inner
significance (Ballas et al., 1998, p. 279).
High taxes and the close link between taxation and accounting rules result in tax
avoidance and evasion as well as creative accounting and earnings management
practices (Baralexis, 2004), which are well documented in the literature (Polychroniadis,
2002; Spathis, 2002; Spathis et al., 2002; Leuz et al., 2003; Baralexis, 2004; Caramanis and
Spathis, 2006; Burgstahler et al., 2006; Ghicas et al., 2008). Although overstatement is
more common, understatement also occurs (Baralexis, 2004).
Ownership concentration is high and owners are directly involved in companies
management. They are therefore able to monitor and motivate staff without the need
for incentive schemes; there is therefore also less need for financial statements as a
means of communication with owners (Tzovas, 2006). (Greek GAAP therefore has
fewer disclosure requirements than does IFRS.) As a result, ownership concentration
contributes to the adoption of an aggressive tax-reducing strategy, since their
ownership status does not appear to generate significant non-tax costs (Tzovas, 2006,
p. 374; Venieris, 1999). The demand for accounting income is strongly influenced by the
payout preferences of various stakeholder groups, who prefer less volatile earnings,
thus creating greater scope for income smoothing (Spathis and Georgakopoulou, 2007,
with reference to Ball et al. (2000) and Guenther and Young (2000).
Management performance is poor with losses common, leading to a need to raise
funds (especially working capital) from the debt-orientated capital market (Baralexis,
2004, p. 443, with reference to the Federation of Greek Manufacturing (1999)). Banks
are the main capital provider for Greek companies (Venieris, 1999; Tzovas, 2006).
Features of bank lending are inter alia the importance of collateral, personal
relationships, political intervention and social criteria[5] (Ballas, 1994; Ballas et al.,
1998; Baralexis, 2004). Debt financing leads to conservatism and an emphasis on
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historical costs: This has torpedoed many attempts to modernise accounting policies,
especially in the area of disclosure (Ballas, 1994, p. 114). Auditing is not considered
effective (Kontoyannis, 2005) and qualified audit reports are very common (Grant
Thornton, 2007), but constitute no effective sanction.
The Greek legal system belongs to the civil (or Roman) law family. Accounting and
commercial law have been strongly influenced by French precedents (Ballas, 1994;
Ballas et al., 1998); they include, for example, a General Accounting Plan closely based
on the French Plan Comptable General (Ballas, 1994; Venieris, 1999). French-style
civil-law countries, where ownership concentration is common, typically provide the
weakest legal protection for creditors and shareholders and the poorest enforcement of
legislation (La Porta et al., 1998). In spite of some improvement (Grant Thornton and
Athens University of Economics and Business (AUEB 2005, 2006), companies
frequently comply with the form but not the substance of corporate governance rules
(Ballas et al., 1998, above).
The Athens Stock Exchange (ASE) has been considered a developed market since
2000 (Mandikidis, 2000), in spite of a collapse in 2000-2003. ASEs major indices are:
Main index, FTSE 20, FTSE Mid 40 and Small Cap 80. At the end of 2006,
317 companies were listed with a total market capitalisation of e158 billion[6]. Foreign
investors held 52.31 per cent of the market capitalisation of FTSE 20, 39.80 per cent of
FTSE 40, and 15.63 per cent of Small Cap 80 companies (Central Security Depository,
2006). This indicates that foreign investors follow mainly large Greek firms. In
November 2005, ASE was aligned with the International Classification Benchmark
(ICB[7]) and since 2 January 2006 Greek listed companies are disaggregated across
17 super-sectors (henceforth: sectors). This allows comparison of the Greek sectors
with the corresponding ones in international stock exchanges. The capital market is
regulated and supervised Hellenic Capital Market Commission (HCMC).
Law 3301/2004 introduced Regulation 1606/2002 to all Greek listed companies
accounts, including individual company accounts[8]. The transition to IFRS has been
characterised as a complex and potentially problematic process, made more so by a
lack of preparedness of companies and accountants (Spathis and Georgakopoulou,
2007, with reference to Floropoulos (2006), Grant Thornton and AUEB (2003)) survey.
This, together with inefficiencies in auditing, raised concerns for companies
compliance with IFRS requirements.
Companies financial/fiscal years end either on 30 June or 31 December (PD 186/92,
Art. 26). Legislation (Law 2190/20 and PD 360/85) also contains detailed regulation on
the publication of full and summarised financial statements. Following preparers and
auditors requests, this was amended in 2006. The effect was that full financial
statements had to be published within three months of the balance sheet date. Thus, at
the end of March 2006, the first sets of annual financial statements of most Greek listed
companies prepared in accordance with IFRS became available.
4. Differences between GAAP and IFRS and research hypotheses
Differences between Greek GAAP and IFRS
The Greek accounting framework differs substantially from IFRS and has been
characterised as a stakeholder-oriented, tax-driven (Spathis and Georgakopoulou,
2007), and conservative (Ballas, 1994) (but see below). According to Ding et al. (2007),
Greece is the country (of 30 examined) with the highest number of issues absent from
local GAAP but covered by IAS (absence score). Additionally, Greece is the tenth
most diverged country (of 28) with regard to differences between national rules and
IASs (Ding et al., 2007; Spathis and Georgakopoulou, 2007)[9].
According to Ding et al. (2005) divergence is closely related to culture and, as
argued above, Greece has a distinctive culture. Ding et al. (2007) also identify a positive
association between ownership concentration and absence. Ownership concentration
is a particular feature of the Greek market. Ding et al. (2007) also find a negative
association between divergence and the importance of the equity market which, as
discussed in the previous section, is low in Greece.
Appendix 1, Table AI shows the main differences between IFRS and Greek GAAP
as at the time of transition, i.e. 2005[10]. The appendix shows that Greek GAAP does
not recognise the concepts of deferred tax, assets held for sale, investment properties,
biological assets and biological produce. It also does not use the fair value model.
Depreciation and amortisation rates for assets are not calculated on the basis of
expected useful lives, but rather specified by the government. Revaluation, of land and
property only, occurs every four years and also refers to government indices. Start-up
costs and interest during the construction period of properties are capitalised together
with acquisition costs. Government grants are recognised within equity. Proposed
dividends are recognised as liabilities. An option permitted pension deficits to be
recognised only where they relate to employees who will retire during the following
year. Financial instruments are carried at cost and there are no specific requirements
for hedge accounting. Greek GAAP permits the pooling of interests method of
consolidation and treats joint ventures as jointly controlled operations. Subsidiaries
engaged in different activities may be excluded from consolidation, and the definition
of investments in associates does not explicitly refer to the concept of significant
influence (in cases of less than 20 per cent interest).
Implementation of IFRS and the curtailment of certain creative accounting practices
Greek GAAP permits certain accounting treatments, which could be exploited as
creative accounting. It was expected that seven IFRS in particular would curtail these
practices and, as a result, their implementation would improve the quality of
accounting information. These practices include recognition of start-up costs as
intangible assets, which enabled companies to avoid a reduction in profit and to
overstate net assets. A lack of a clear distinction between research and development
expenses permitted companies also to capitalise research expenses. IAS 38 prevents
these treatments, leading to a negative impact on shareholders equity.
Recognising pension liabilities only in relation to employees due to retire during the
following year allowed companies to report higher net assets. Under Greek GAAP
companies also did not need to explicitly disclose liabilities recognised. Adoption of
IAS 19, which requires recognition of defined benefit liabilities for all employees in
service would reduce net assets and require more comprehensive disclosures.
Greek GAAP also permits much leeway in the recognition of provisions. In practice
that means that they are often only recognised where this leads to tax advantages. IAS
37 contains more specific recognition criteria of provisions and would therefore have a
negative impact on net assets. Similarly, IAS 39 contains specific measurement criteria
for of loans and receivables. In addition, Greek GAAP has no requirement relating to
hedge accounting. These differences were expected to have a negative impact on net
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assets. Further, under Greek GAAP companies may acquire up to 10 per cent of own
shares and recognise these as assets, usually leading to an impact on market prices[11].
This was done frequently in practice. Thus, the requirement of IAS 32 for deduction of
own shares from shareholders equity was expected to reduce net assets.
IAS 36 requires companies to assess assets for impairment, and lays down explicit
rules and guidance on how to do so and how any impairments are to be accounted for.
Greek GAAP is less explicit and in practice Greek companies rarely recognised
impairments.
Further, unlike IAS 2, Greek GAAP permits the use of LIFO (last-in, first out), which
is frequently used in practice. IAS 2 also explicitly requires companies to value
inventories at the lower of cost and net realisable value and recognise any impairment,
while under Greek GAAP, changes in the value of inventories were disclosed in the
notes but not recognised. Finally, IAS 18 introduced different requirements for revenue
recognition of goods sold and explicit requirements for revenues relating to the
provision of services. (The latter are absent from Greek GAAP.) The necessary
adjustments were expected to affect net assets negatively by reducing the value of
current assets (inventories and receivables).
H1: IFRS impact on financial position and reported performance
Considering the discussion above, it can be expected that the reconciliation statements
required as part of IFRS implementation would reveal significant differences between
the book value of equity and net profit produced under the two different regimes.
Although it is expected that the differences will be significant, it is difficult to predict
the sign of the net changes. This is because some of the accounting practices under
Greek GAAP were more, but others were in fact less conservative than IFRS-based
practices. Accordingly, our first research hypothesis is formed as:
H1. The financial position and reported performance of Greek listed companies
have been significantly affected by the transition to IFRS.
H2: IFRS impact on gearing and liquidity
Bartov and Kim (2004, p. 354) suggest that the level of accruals may indicate the
integrity of the reported book value. Managers may:
[. . .] inflate accounting income, and thus book values, by inflating accruals [i.e. engaging in
earnings management]. Thus, low (high) accruals may indicate conservative (aggressive)
accounting, which means that the book value is higher (lower) than it appears.
Leuz et al. (2003, p. 525) state that:

[. . .] outsider economies with relatively dispersed ownership, strong investor protection, and
large stock markets exhibit lower levels of earnings management than insider countries with
relatively concentrated ownership, weak investor protection, and less developed stock markets.
They classify Greece (along with Austria) as the country with the highest earnings
management. Ding et al. (2007) find that absence creates opportunities for earnings
management. Considering that Greece has a very high absence score (see above), the
finding of Leuz et al. (2003) is not surprising.
The areas of earnings management identified above would also have an impact on
key ratios such as gearing and liquidity. (This is also supported by Butler et al. (2004)
who find a positive association between abnormal accruals and liquidity.) Therefore,
implementation of IFRS, which do not allow for the same accounting practices would
have a significant impact on these ratios.
These issues are particularly relevant to the Greek context and the transition to
IFRS since banks are major providers of finance (Venieris, 1999; Tzovas, 2006) and
these ratios affect contractual obligations and debt covenants (Ormrod and Taylor,
2004). Further, Baralexis (2004) finds that credit finance is the most important motive
for companies to overstate profits. Accordingly, our second research hypothesis is
formed as:
H2. Key ratios such as liquidity and gearing[12] have been affected significantly
by the transition to IFRS.
H3: IFRS impact and audit quality
DeAngelo (1981) and Watts and Zimmerman (1986) suggest that big audit firms may
provide audits of higher quality than small audit firms since the former are more
independent. Several empirical studies use a dichotomous variable (e.g. Big 4 vs
non-Big 4) to proxy for differences in audit quality. Prior literature suggests that this
proxy does indeed capture differences in audit quality.
On that basis, the audit firm proxy has been used by Caramanis and Lennox (2008)
to examine earnings management and audit quality in Greece[13]. They demonstrate
that the Big 5 audit firms work more hours than the non-Big 5 firms. They therefore
use audit hours as a proxy for audit effort and find that abnormal accruals are more
likely to be positive when audit hours are lower and that the magnitude of
income-increasing abnormal accruals is greater when audit hours are lower
(Caramanis and Lennox, 2008, p. 117). These results suggest that low audit effort (i.e. a
non-Big 5 auditor) is associated with earnings management (Caramanis and Lennox,
2008, p. 117). (Leventis and Caramanis (2005) also provide evidence that audit effort in
Greece is correlated with audit firm size.)
Based on these findings and the prior literature relating to creative accounting
under Greek GAAP, it is expected that the impact from the transition to IFRS is
significant and significantly greater for companies with non-Big 4 auditors than for
firms with Big 4 auditors, since the latter are less likely to apply creative accounting
practices. Accordingly, the third research hypothesis is formed as follows:
H3. The impact on shareholders equity, net profit, liquidity and gearing was
significant and significantly greater for companies with non-Big 4 audit firms
than for companies with Big 4 auditors.
5. Research methods and data
Research methods
To address the research objectives outlined above, we follow recent literature (Gray
et al., 2009; Haller et al., 2009) and use Grays comparability index (Weetman et al.,
1998). Hellman (1993), Whittington (2000) and Bertoni and De Rosa (2006) have also
employed the index to explore differences in return on equity. We expand on previous
studies by exploring the impact of IFRS recognition and measurement requirements on
gearing and liquidity. Where Greek reported equity (or other) is compared to that
reported under IFRS, the index is expressed by the formula:
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EquityIFRS 2 EquityGR
jEquityIFRS j
In parallel, to previous studies, a value larger than 1.0 implies that equity under Greek
GAAP is higher than equity under IFRS, a value lower than 1.0 implies that equity
under Greek GAAP is lower than equity under IFRS and an index value of 1.0 is
neutral. We calculate average index values as the sum of all companies indices divided
by the number of companies under examination.
One limitation of the index is that it reports extreme values where equity under
IFRS approaches zero and equity under Greek GAAP is a relatively large amount
(Weetman et al., 1998; Street et al., 2000). However, the fact that the formula reports
changes comparable to those used under the accounting concept of materiality
outweighs the presence of such outliers (Weetman et al., 1998; Street et al., 2000)[14].
We follow the prior studies in using as the denominator the yardstick or
benchmark of the adjusted equity (or other), i.e. the equity (or other) as reconciled to
IFRS, because we assume that IFRS are of higher quality than Greek GAAP (Ding et al.,
2007, Section 4), and because application of IFRS is now required by EU and
subsequently Greek law. Therefore, an international investor would view any
differences between Greek GAAP and IFRS as departures from IFRS rather than
departures from Greek GAAP. This implies that an investor could theoretically
compare companies from different European countries on the basis of IFRS reported
Figures (but within the limitations identified inter alia by Ball (2006), Zeff (2007) and
Soderstrom and Sun (2007). Using IFRS as denominator further facilitates comparison
with other studies focusing on other countries.
Although there is no agreed threshold of materiality, most researchers provide their
results based on two bands of materiality thresholds: 5 and 10 per cent (Weetman and
Gray, 1990, 1991; Weetman et al., 1998; Adams et al., 1999; Street et al., 2000). In
addition, because we expect to find changes of considerable magnitude, and to avoid
loss of what we consider relevant information, we also provide information based on
the 20 per cent band. In line with prior studies and auditors perceptions of materiality,
we consider changes of less than 5 per cent as not material, and changes of more than
10 per cent as material, with a grey area between 5 and 10 per cent.
To avoid distortion through extreme values, we exclude cases where the comparability
index were more than one-and-a half of the boxplot length (Fielding and Gilbert, 2004,
p. 125; Pallant, 2005, p. 61). For all tests, we examine the normality of the distribution of our
samples by employing the Kolmogorow-Smirnov statistic. Since we find no normally
distributed variables (see below), we test the significance of the impact measured by the
use of Grays comparability index focusing on the median, instead of the mean values, with
one sample t-test for median as applied by Minitab. To examine the differences in the
impact measured across the sub-samples and the book-to-market ratios across the
sub-samples, we employ the Mann-Whitney U-test, which is appropriate for independent
samples. Regarding the differences in the book-to-market ratios within the sub-samples
for the two different periods, we employ the Wilcoxon Signed Rank test, which is
appropriate for repeated measures (Pallant, 2005).
Data
In contrast to previous (comparability) studies based on (sometimes) small samples, the
present research investigated the majority of available Greek listed companies
accounts, thus avoiding sampling bias. 43 companies belonging to the banking,

insurance and financial services sector were excluded (due to their specific accounting
and reporting requirements). We also excluded 20 companies whose shares were
suspended from trading or were under supervision by the HCMC, five early adopters of
IFRS and 11 companies with a 30 June balance sheet date (because, at the time of data
collection, their financial statements were not yet available)[15]. Thus, from a
population of 317 listed companies at the end of March 2006 (including those under
suspension/supervision), 238 companies were utilised in this study. This sample
consists of 193 companies publishing consolidated accounts and 45 publishing
individual accounts[16]. Table I provides descriptive statistics with reference to our
sample regarding 2005. Appendix 2, Table AII shows the disaggregation of these
companies across the relevant ASE sectors classification.
As is apparent from Table I, our sample consists mainly of small companies. Given
the collective importance of small and medium-sized listed companies in Greece and
the anticipated impact of transition in particular on these companies (Kontoyannis,
2005), we hope our results to be particularly relevant.
We acquired from the ASE the 2005 and 2006 market values as well as the publication
dates of the financial statements. We also acquired from ASE the 2004 financial
statements (under Greek GAAP) in electronic format. The file contained all line items of
the statements for each listed company. We then downloaded from the ASE web site the
2005 financial statements. From these, we captured by hand and transferred to a
spreadsheet for analysis the comparative figures referring to the 2004 accounts under
the IFRS, together with the adjustments from the reconciliation statements.
Transition to
IFRS in Greece
823
Quality of transitional information

Reconciliation statements were not presented uniformly. Therefore, we followed the
approach of Aisbitt (2006) and we created three categories for evaluating the quality of
companies transitional disclosures:
(1) detailed, for companies which provided both reconciliation statements and
additional, narrative disclosures explaining the transition to IFRS;
(2) adequate, for companies which provided reconciliation statements both for
earnings and shareholders equity but did not provide additional narrative
disclosures; and
Values in e millions
Mean
SD
Minimum
Lower
quartile
Median
Upper
quartile
Maximum
Market
capitalisationa
Sales
Shareholders equity
Net profit
291
206
116
13
1,042
542
340
48
2
0.4
210
267
15
22
16
20.08
41
55
33
1.5
145
175
87
6
10,017
5,475
4,513
458
Notes: n 238; amarket capitalisation as at one month after the publication of the 2005 annual
results; data are for 237 companies as one company was not traded one month after the announcement
of its annual financial results; financial data are based on IFRS 2005 figures; e1 US$1.2597 and
e1 0.6930 (28 April 2006 2 FT)
Table I.
Data descriptive statistics
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25,8
824
(3) inadequate, for companies which did not provide reconciliation statements or
which provided inadequate reconciliations and narratives (i.e. which did not
enable the users to evaluate the impact caused by individual standards).
Although we do not form a specific research hypothesis, we explore the potential
relationship between the level of transitional disclosures and auditing firm by
employing a x 2-test.
6. Results and discussion

Quality of transitional information
Table II shows that 42 out of the 238 companies in the sample (17.6 per cent) provided
inadequate reconciliation disclosures. Five of these provided reconciliation statements,
which did not allow identification of the individual standards effects, and the
remaining 37 did not provide reconciliation statements for either shareholders equity
or net income. This also provides an illustration of the ineffectiveness of auditing: not
one audit opinion contained a qualification regarding non-compliance with the
requirements of IFRS 1.
These inadequate disclosures support findings by Ballas (1994) and Tsakumis
(2007) who argue that Greece represents a high conservatism and high secrecy society,
and the insufficient enforcement supporting findings by La Porta et al. (1998) (see
above). In fact, Avlonitis (2007), director of the HCMCs Listed companies supervision
division, acknowledged companies non-compliance with IFRS measurement and/or
disclosure requirements. However, the HCMCs approach taken was not to impose
strict fines on the basis that this was a transition period.
As Table II shows, there is a statistically significant relationship between the
quality of companies transitional disclosures and audit firm size (at 1 per cent level).
Arguably, this may be a result of the fact that Big 4 firms could attract experienced
employees from their foreign operations to assist in the transition process.
Nevertheless, the high level of non-disclosure identified is surprising and raises
concerns about enforcement and the role of regulators and auditors in IFRS
implementation. The Grant Thornton (2006) and HCMC (2006) non-academic studies
reach similar conclusions with regard to Greece. It is interesting also to note that
similar issues were identified by Lopes and Viana (2008) for Portugal as well as by
Cordazzo (2008) for Italy. Both studies identified companies, which would fall under the
category of inadequate disclosures as this is defined here: 8 per cent for Italy and
20 per cent for Portugal.
The following sections examine the findings relating to each research hypothesis.
Where relevant, references to prior literature and to the observations on the Greek
Detailed
Auditing firm
Table II.
Transitional information
and auditing firms
Big 4
Non-Big 4
16
56
Transitional information
Adequate
34
90
Inadequate
2
40
Notes: n 238; Pearson x 2: 9.441, 2df, Asymp. Sig. (two-sided) 0.009; 0 cells (0.0 per cent) have
expected count less than 5; the minimum expected count is 9.18
accounting context and framework (Sections 3 and 4) are discussed. The analysis
focuses on median index values because the outcome of the Kolmogorov-Smirnov
Statistic suggests normal distribution cannot be assumed.
Impact on financial position, performance, financial indicators (H1 and H2) and audit
quality (H3)
Table III presents the distributions of the effect on financial position and performance
as measured with reference to equity, earnings, gearing and liquidity (H1 and H2),
across our bands of materiality. It also shows descriptive statistics and the results of
the significance test employed. In the same table, we also provide evidence relating to
H3 (i.e. partitions with reference to audit firm).
Profit after tax was not available for 50 companies under Greek GAAP. Therefore,
impact on earnings is only examined for the 188 companies, which did provide this
information in 2004.
The median index of 0.97 (significant at 10 per cent) reveals that more companies
(119) shareholders equity was affected positively by the transition to IFRS than
negatively (93). Similarly, the mean index value shows that, on average, shareholders
equity under Greek GAAP was 1 per cent lower than under IFRS (not significant). (Note
that the thresholds of materiality do not coincide with those of statistical significance.)
Based on these findings we accept H1, with regard to Shareholders equity.
There is a broad range of index values. A total of 62 companies faced a material
negative and 70 a material positive impact. A total of 85 companies were affected by
more than 20 per cent. The fact that a similar number of companies were affected
negatively and positively is in line with the suggestion that it was difficult to predict
the sign of the overall impact, since not all the accounting practices under Greek GAAP
were more conservative than IFRS-based practices.
Our findings are in line with the findings of Haller et al. (2009) for Germany, Lopes
and Viana (2008) for Portugal, and of Cordazzo (2008) and Bertoni and De Rosa (2006)
for Italy (which, according to Ding et al. (2007) is also characterised by high absence
and high divergence). All studies found that the number of companies positively
affected was higher than those negatively affected by the transition to IFRS.
More specifically, our analysis shows that the majority of the Greek companies
maintained the cost model after transition to IFRS but used the option of IFRS 1 to use
fair value as deemed cost[17]. This, along with the reversal of dividends (IAS 10), was
the main driving factor for the positive impact on equity, offsetting the negative effect
from other standards on the transition date. The large number of companies facing a
material negative change suggests that:
.
overstated shareholders equity reduced after the introduction of specific
standards which curtailed creative accounting practices in many firms; and
.
Greek GAAP is not necessarily more conservative than IFRS with reference to
shareholders equity per se as the absence of requirements relating to the
recognition of liabilities in Greek GAAP (Ding et al., 2007; see also Appendix 1,
Table AI) results in fewer liabilities recognised.
This effectively gives rise to higher net assets.
Thus, as expected, we find[18] that IAS 2, IAS 18, IAS 19, IAS 36, IAS 37, IAS 38
and IAS 32/39 all cause a non-material but significant negative impact. It is noted that
Transition to
IFRS in Greece
825
Table III.
Impact on 238 companies
shareholders equity,
gearing and liquidity
and on 188 companies
net profit
21
72
6
9
2
14
5
14
8
35
49
167
0.96
1.01
0.28
0.24
0.39
0.39
1.65
1.67
0.97
0.98
W 4,913
93
15
16
19
43
217
0.99
0.25
0.37
1.67
0.97 *
90
5
28
0
119
5
28
23
23
16
14
4
6
4
42
28
29
20
23
1
17
3
0
3
66
6
35
13
5
13
191
2
162
16
5
8
33
1
26
4
1
2
158
1
136
12
4
6
83
12
11
21
27
24
Full
sample
17
5
4
5
3
5
65
7
6
16
24
19
Big 4 Non-Big-4
Liquidity
55
15
40
38
17
21
128
25
99
11
2
9
8
3
5
31
5
26
5
2
3
6
4
2
21
5
16
12
2
10
6
1
5
32
7
25
27
9
18
18
9
9
44
8
32
156
39
112
231
51
180
223
47
171
0.88
0.92
0.91
0.58
0.80
0.52
1.06
1.04
1.05
0.46
0.50
0.40
0.42
0.38
0.41
0.17
0.16
0.16
2 0.39
0.04 20.08
0.00
0.00
0.00
0.62
0.76
0.62
2.16
2.38
2.07
1.84
1.60
1.84
1.51
1.37
1.51
0.96 * * * 0.89
0.96 * *
0.56 * * * 0.80 * *
0.50 * * *
1.02 * * * 1.01
1.03 * * *
W 2,853
W 7,787 * * *
W 4,984
94
7
57
16
5
16
Full
sample
Notes: Significance at *10, * *5, and * * *1 per cent, respectively; anumber of companies excluding outliers; cases were identified as outliers if they were
more than one-and-a-half of the boxplot of index values length; btwo-tailed, one sample t-test for median (m 1) as calculated with Minitab; gearing: total
long-term liabilities/net assets; liquidity: current assets/current liabilities; cone-tailed test
,80% of IFRSs
81-90% of IFRSs
91-95% of IFRSs
96-99% of IFRSs
GR , IFRSs index less
than 1
Index 1 no change
GR . IFRSs index more
than 1
101-104% of IFRSs
105-109% of IFRSs
110-119% of IFRSs
.120% of IFRSs
Counta
Mean
SD
Minimum
Maximum
Medianb
Mann-Whitney testc
Big 4
NonBig-4
Comparability index
Gearing
Non-BigFull
Big 4
4
sample
Big 4 Non-Big-4
Net profit
826
Greek GAAP
Full
sample
Equity
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25,8
their provisions prevent the use of the previous creative accounting methods identified
by Polychroniadis (2002), Baralexis (2004), Spathis (2002), Spathis et al. (2002) and
Caramanis and Spathis (2006), such as insufficient bad debt and pension provisions,
insufficient depreciation and impairment charges, capitalisation of expenses, and
valuation of inventories at cost (rather than lower of cost and market). As a result, the
implementation of most of these standards has a negative effect on all (IAS 2 and 36),
virtually all (IAS 37 and IAS 38) or the large majority (IAS 18, IAS 19, IAS 32/39) of
companies to which they are relevant. It can therefore be argued that the quality of
Greek financial reporting under IFRS has been improved.
With regard to net profit, Table III shows that the overall impact was positive, with
a mean index of 0.88. The median value of 0.96 (significant at 1 per cent level) supports
this finding, as does the fact that 94 companies faced a positive change. For the
majority of these (73) this change was material ($ 10 per cent). In total of 39 companies
faced material negative impact. These findings lead us to accept H1 with regard to net
profit.
These findings suggest that there is, in aggregate, significant difference between the
de facto application of Greek GAAP and IFRS. They are also in line with our and
Kontoyannis (2005) expectations that the transition to IFRS would lead to material
changes in companies reported performance. Similarly, Lopes and Viana (2008) and
Bertoni and De Rosa (2006) report that the change to IFRS led to less conservative
accounting practices in Portugal and Italy with regard to profit, although (there) the
aggregate difference is smaller. It is also noted that positive impact on earnings is also
identified in Germany by Haller et al. (2009).
Further, in line with our expectations, gearing and liquidity have also been affected
significantly by the transition to IFRS (H2)[19] The median index value of 0.56 for
gearing is significant at 1 per cent level and the average index value is 0.58. Again a
broad range of index values is revealed. 212 companies (89 per cent) faced a material
change in their gearing ratio. For 191 companies gearing under Greek GAAP was
lower.
Our findings with regard to the liquidity ratio are similar. The ratio under
Greek GAAP was on average 6 per cent higher than that under IFRS. The median was
significantly higher by 2 per cent (H2). It was higher for 128 and lower for
83 companies. Fewer companies (108) faced material effects; however almost half of
these (55) faced a change of more than 20 per cent. These findings lead us to accept
H2 with regard to both ratios.
The fact that for the majority of companies transition to IFRS led to higher gearing
and lower liquidity ratios might be expected to be an important issue for Greek
companies which are largely debt-financed, since as pointed out by Aisbitt (2006), such
changes to companies financial positions may have an impact on contractual
obligations. However, in Greece [. . .] a consequence of the close relationship between
banks and companies is such that a violation of a debt covenant may not have serious
consequences for a firm (Tzovas, 2006, p. 375). Lending decisions are not based only
on financial criteria, but also on other qualitative characteristics of the firm.
H3 is supported with reference to net profit, gearing and liquidity (i.e. the two
specific categories of the balance sheet related to earnings management) but not for
shareholders equity. More specifically, for earnings we find a significant non-material
impact for companies with a non-Big 4 auditor, but a not significant material impact
Transition to
IFRS in Greece
827
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for companies with a Big 4 auditor. However, the difference in the impact revealed
across the two sub-samples is not significant. These findings are in line with our
expectation that the earnings of companies with non-Big 4 were creatively adjusted by
accounting practices not permitted under IFRS, while for companies with a Big 4
auditor this was not the case or was the case to a lesser extent. In a similar vein, we find
that for companies with non-Big 4 auditors the impact on liquidity was significant
while this was not the case for companies with Big 4 auditors. However, the median
index values of the two sub-samples are not significantly different. Further, although
gearing for both groups of companies was affected materially the impact on companies
with non-Big 4 auditors was significantly greater. This confirms our expectations.
7. Limitations
The limitations arising from poor compliance with disclosure requirements and
inconsistent and incomplete presentation of reconciliations identified by prior
literature (Weetman and Gray, 1990, 1991; Adams et al., 1993, 1999; Street et al., 2000;
Ucieda Blanco and Garcia Osma, 2004; Aisbitt, 2006) also apply to the present study.
Furthermore, there is a risk that the results reflect short-term timing differences,
which may reverse in later accounting periods (Street et al., 2000; Norton, 1995). The
studies examining compulsory transition to IFRS in the EU can only make use of the
2004 financial statements and thus cannot assess the impact of timing differences (cf.
also Bertoni and De Rosa, 2006). Furthermore, this period may not reflect a typical
economic environment and typical accounting policies (cf. Norton, 1995). Since the EU
Regulation was passed in 2002, the latter makes it likely that at least some companies
accounting policy choices were influenced by anticipation of the change.
An additional problem for studies using prior period comparatives is the risk of
noise being introduced by prior period adjustments (Ucieda Blanco and Garcia Osma,
2004), or by non-specific (big bath) adjustments which may not relate to IFRS
transition at all (Lopes and Viana, 2008). In this study, we identified 121 companies
which provided adjustments under the category Other (i.e. not referring to the
adoption of a particular standard). This may have contained several adjustments
netted off. Although such adjustments may cause a material change to shareholders
equity, it is impossible for a user of the financial statements to capture or assess these
adjustments.
Further, de jure rules may differ from de facto accounting practice (Hellman, 1993;
Norton, 1995). This needs to be taken into account when differences in de jure
accounting regulation are examined and discussed in order to explain or contextualise
empirical (comparison index) findings. Given the problems of creative accounting and
weak enforcement outlined above, it is quite likely that some distortion is introduced
by this in the Greek case (cf. Avlonitis, 2007)[20].
8. Conclusions
In this paper, we examine the impact of transition to IFRS on the financial statements
of Greek listed companies. Given the substantial de jure differences between Greek
GAAP and IFRS (Ding et al., 2007), we assumed that Greek companies financial
position and results would have been affected considerably.
Our first objective was to identify and evaluate the impact and materiality of IFRS
adoption on companies financial position, performance and key ratios. Based on prior
evidence regarding the relationship between audit effort and earnings management
with auditor type in Greece, our second objective was to test the potentially different
findings across sub-samples of companies with Big 4 and non-Big 4 auditors.
We found that implementation of IFRS did indeed have a significant impact on the
financial position and reported performance as well as on gearing and liquidity ratios,
of Greek listed companies. On average, impact on shareholders equity and net income
was positive (immaterial and material, respectively). With regard to gearing and
liquidity, the impact was negative (material and immaterial, respectively, on average).
Only companies with non-Big 4 auditors faced significant impact on net profit and
liquidity on transition to IFRS. They also faced a significantly greater impact on
gearing than companies with Big 4 auditors. However, the large number of companies
materially affected with reference to all measures examined is somewhat surprising.
With respect to equity, the findings do not support the notion that Greek GAAP is
more conservative than IFRS as applied (de facto) in this context of transition. A large
number of companies with material negative changes are identified and explanations
support this finding.
While expecting a level of non-compliance with disclosure requirements in the
Greek context (e.g. low trust society, low importance of the true and fair view, high
ownership concentration), the high level of non-compliance with IFRS 1 requirements
is still surprising. This appears to be related to the type of audit firm. It also supports
previous research suggesting low enforcement in Greece (La Porta et al., 1998;
Baralexis, 2004), as well as Balls (2006) and Nobes (2006) concerns in relation to
uneven implementation of IFRS across different jurisdictions.
Mandatory adoption of IFRS and its effect on Greek companies financial statements
as identified by our study may have important implications for the Greek economy. For
example, the fact that for the majority of companies transition to IFRS led to higher
gearing and lower liquidity ratios might have an impact on contractual obligations
(Aisbitt, 2006). Further, there is evidence that information revealed in companies
reconciliations statements can affect significantly market participants perceptions
about the quality of companies financial statements. Hence, following such significant
impact on companies financial statements, significant stock market reactions and
changes to value relevance of accounting information might be expected. Future
research could shed light on these issues.
Additionally, using quantitative measures is an essential first step in investigating
the impact of transition from one accounting regime to another, however, it is unlikely
to be sufficient on its own. Some of the particular features of Greek GAAP and of the
Greek socio-economic context may also exist in other countries to some extent,
especially in continental Europe (e.g. patronage, low trust and formalism). These
require detailed regulation and monitoring, and may make a principles-based
accounting system difficult to implement in practice because it is alien to local culture.
It would be interesting to investigate the impact of such features in more depth by
conducting qualitative research, but this is outside the scope of the present paper.
Notes
1. International Accounting Standards (IASs) were issued by the International Accounting
Standards Committee. Since 2001, the IASB has been issuing IFRS but many IASs are still in
place.
Transition to
IFRS in Greece
829
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830
2. By Greek GAAP, we mean codified accounting rules, in particular Law 2190/20 and
Presidential Decree (PD) 186/92 (Tax Law-known also as Code of Books and Records) and
pronouncements of the Committee of Accounting Standardisation and Auditing (ELTE).
This is a narrow definition of GAAP. The term GAAP in other jurisdictions may refer also
to professional pronouncement or non-promulgated guidance or practices (Evans, 2004).
3. Traditional definitions of conservatism imply understatement of book values and earnings
figures, however, differences in earnings figures are temporary and will eventually reverse
(Garca Lara and Mora, 2004 but see Weetman (2006) for an example of perpetual
conservatism). Garca Lara and Mora (2004) therefore distinguish between balance sheet
conservatism and earnings conservatism, the former implying understatement of the book
value of equity, the latter a desire to require a higher degree of verification for recognition of
good news than for bad news.
4. We have identified an unpublished study by Bellas et al. (2007) which is based on a sample of
83 ASE listed companies and provides limited descriptive statistics which suggest that fixed
assets, tangible assets and total liabilities are significantly higher, and that there was greater
variability for most balance sheet measures under IFRSs than under Greek GAAP. The study
notes also an impact of IFRS implementation on ratios, however, provides only limited
discussion and analysis of these results. The study of Bellas et al. (2007) does not examine any
relationship of its respective findings with audit firm size. Further, it does not explain or
discuss the differences between the two accounting frameworks nor it excludes or discusses
outliers, which means that results may be distorted by a small number of exceptional cases.
Finally, Bellas et al. (2007) differ from ours in their methodology for capturing the impact of
IFRS. This means their findings cannot be compared with academic studies exploring the
impact of transition in other European countries with reference to Grays comparability index.
5. Such as number of employees (Bellas et al., 2007).
6. e1 US$1.3187 and e1 0.6738 (31 December 2006-FT).
7. ICB distinguishes between four levels of classification consisting of ten industries, 18
super-sectors, 39 sectors and 104 sub-sectors. The Greek sectors are comparable to 17 of the
ICB sectors (ASE, 2005).
8. Similar arrangements also apply in Italy, the Czech Republic, Estonia, Lithuania, Malta,
Slovakia and Slovenia (Bertoni and De Rosa, 2006). For Greece, this was the case because
IFRS are considered to be higher quality standards and thus would improve comparability
of information provided by companies.
9. Nobes (2009) inter alia underscores one limitation of the Ding et al.s (2007) study. The
authors use data referring to the de jure differences between IAS and national GAAP as if
these lead also to de facto differences. However, this may not be necessarily the case in some
countries because some issues may be anyway irrelevant. Nobes (2009) also criticises the
distinction between the categories of absence and divergence that Ding et al. (2007) form
on the basis of the Nobes (2001) study. Although Ding et al. (2009) respond to this criticism,
these comments need to be considered when discussion about the substantial differences
between Greek GAAP and IFRS is made in this study.
10. We thank Panayiotis Vroustouris and Mike Smith for constructive comments on the content
of this Appendix.
11. This effect is explicitly suggested by Company Law 2190/20 (Article 16, paragraph 5).
12. We define gearing as total long-term liabilities/net assets and liquidity as current
assets/current liabilities.
13. This proxy has also been used by Owusu-Ansah and Leventis (2006) and Leventis et al.
(2005) in research on timeliness of reporting and audit report lag by Greek companies.
14. Alternatively, we could have captured the impact by adding all companies shareholders
equity (or other) under both frameworks and then calculating an average index for each case
of reference (whole sample, industry etc). However, we are not trying to measure the average
change to the aggregate values of shareholders equity (or other) of all companies (which was
the approach followed by the three prior Greek studies). Instead, we measure the average
percentage change of companies transition to IFRS, treating each company equally,
independent of size, thus, avoiding the distorting effect of the few large companies (see data
section).
15. Additionally, the present study is part of a larger project examining compliance with
disclosure requirements. Companies with a later reporting date may have learned from the
disclosures provided by companies reporting earlier. We therefore excluded these companies
to avoid bias.
16. We have performed our analyses for companies provided individual accounts separately
from those provided consolidated financial statements. The overall results are not
qualitatively different. We thank an anonymous referee for pointing this out.
17. Because of a long tradition of keeping assets at historical cost, Greece (and other Continental
European countries) was not expected to adopt immediately the fair value model for asset
valuation (Nobes, 2006) (we are grateful to David Alexander for pointing this out). We find
indeed that companies continue using the cost model but it appears that they used the option
provided by IFRS 1 for offsetting the negative effect from other standards on the transition
date. (We are also grateful to Monica Veneziani for confirming that in Italy companies also
maintained the cost model, since mechanisms for regular fair valuations are not yet
established.)
18. The results discussed in this paragraph are not tabulated but are available on request. It is
noted that because of inconsistencies in presentation and lack of sufficient disclosures within
the income statement reconciliations (confirmed also by the studies of HCMC (2006) and
Grant Thornton (2006)), we were unable to examine the impact of individual standards with
regard to net profit.
19. Caution is required when interpreting the gearing comparability index. A lower than 1.0
index value means that gearing under Greek GAAP was lower, so we see a negative impact,
which is the opposite interpretation to other measures. In general, the results for financial
indicators have to be treated cautiously as ratios may be close to 0 and a relatively small
change, in absolute figures, results in a large percentage change.
20. For studies post IAS 1 (revised), the prohibition to claim compliance with IASs/IFRS unless
companies comply completely could be expected to bring some improvement (Street et al.,
2000) (see also Glaum and Street (2003) for further references), as should compulsory
adoption of IASs/IFRS.
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IFRS in Greece
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25,8
834
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Transition to
IFRS in Greece
835
MAJ
25,8
836
Further reading
Ballas, A.A. (1998), The creation of the auditing profession in Greece, Accounting,
Organizations and Society, Vol. 23 No. 8, pp. 716-36.
Becker, C., Defond, M., Jiambalvo, J. and Subramanyam, K. (1998), The effect of audit quality on
earnings management, Contemporary Accounting Research, Vol. 15, pp. 1-24.
Callao, S., Jarne, J. and Lainez, J. (2007), Adoption of IFRS in Spain: effect on the comparability
and relevance of financial reporting, Journal of International Accounting, Auditing and
Taxation, Vol. 16, pp. 148-78.
Caramanis, C. (2002), The interplay between professional groups, the state and supranational
agents: Pax Americana in the age of globalisation, Accounting, Organizations and Society,
Vol. 27, pp. 379-408.
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Country_Classification
Hofstede, G. (1980), Cultures Consequences: International Differences in Work-related Values,
Sage, London.
Larson, R.K. and Street, D.L. (2004), Convergence with IFRS in an expanding Europe: progress
and obstacles identified by large accounting firms survey, Journal of International
Accounting Auditing and Taxation, Vol. 13, pp. 89-119.
Papas, A. (1993), Group accounting in Greece, in Gray, S.J., Coenenberg, A. and Gordon, P. (Eds),
International Group Accounting: Issues in European Harmonisation, 2nd ed., Routledge,
London, pp. 121-34.
Inventories shall be measured item by item at lower of cost and net realizable value (item
by item lower value rule)
The cost of inventories can be determined by all possible methods (including LIFO)
The use of the retail method is not permitted
The use of different cost formulas for inventories of different nature or use is not permitted
and in no case is the grouping of similar or associated goods permitted (this applies also to
the case of material and other supplies)
In no case may borrowing costs are included in the cost of inventories, even if they need
time to mature
Write-downs of inventories are not recognised but disclosed in the notes
Dividends declared after the balance sheet date shall be recognised as a liability. Only if
these dividends are declared for the purpose of an increase in capital shall they be
recognised in equity (D.L. 148/1967, Art. 3)
Costs and revenues on construction contracts are not necessarily recognised on a stage of
completion basis
The concept of deferred tax does not exist and accordingly there is no distinction between
current and deferred tax
Previous periods losses cannot be carried forward and are not recognised for tax benefits
There is no distinction between different classifications of assets such as held for sale,
biological assets or investment properties
Only in respect of properties: acquisition costs and interest incurred during the
construction period are capitalised as assets under the heading expenses of perennial
depreciation. As a general rule these should either be expensed in the period incurred or
amortised in equal tranches over a maximum period of five years
Fixed assets are recognised at cost and revaluation is not permitted unless a special law is
applicable. This is tax law 2065/1992, which introduced a system of revaluation for land
and buildings only. It allows revaluation every four years in accordance with indices
provided by the ministry of finance. The increase in value is recognised within equity as
the company issues free shares to the shareholders
The depreciation is based on indices set by the Ministry of Finance (most recently in P.D.
299/2003). These are not in line with the assets useful lives
(continued)
IAS 2 inventories
Paragraphs: 9, 25, 17, 21, 29, 32, 34
IAS 16 property, plant and equipment

Paragraphs: 16, 29, 39, 50, 51
IAS 11 construction contracts

Paragraph: 22
IAS 12 income taxes
Paragraphs: 5 and 15
IAS 10 events after the balance sheet date

Greek GAAP
IFRS
Appendix 1
Transition to
IFRS in Greece
837
Table AI.
Summary of key
accounting differences
between IFRSs and Greek
GAAP as at 31 December
2005
IAS 21 the effects of changes in foreign exchange

rates
Paragraph: 28
IAS 20 accounting for government grants and

disclosure of government assistance
IAS 19 retirement benefits

Paragraphs: 64, 93 and 93A
IAS 18 revenue
standards objective
(continued)
There is no distinction between finance leases and operating leases. All leases are treated
as operating leases
* *However, Law 3229/04 (Art. 13), provides companies with the option to adopt IAS 17
and thus recognise also finance leases
Revenue recognition is driven by tax considerations. Revenue is recognised as soon as
services or products have been invoiced which usually takes place after the delivery of
goods or services. However, very limited guidance is provided with regard to revenues
from services
The effective interest method is not used for recognising revenue arising from interest
Under Greek Law there is no concept of a defined benefit plan. A company has the
obligation to pay a lump-sum to the employees who are made redundant or retire. The
amount of that sum depends on the employee length of service, the way of leaving the
company (redundancy or retirement) and salary upon that date. In the case of retirement,
the amount of benefit is equal to the 40 per cent of the amount in the case of redundancy.
These benefits fall within the defined benefit schemes under IAS 19. Such liabilities fall
into the definition of provisions under Greek law and should be recognised in the balance
sheet. However, in practice most companies follow the requirements of a tax law and
recognise these liabilities only in relation to employees due to retire during the year after
the period end
Government grants shall not be recognised until there is reasonable assurance that the
grants will be received. However, a companys compliance with the conditions attaching to
the grant is not considered
Government grants are recognised directly within shareholders equity. They may not be
offset against the cost of assets
The recognition of non-monetary items at fair value is not permitted
IAS 17 leases
Paragraphs: 8, 20 and 33
Table AI.
Greek GAAP
838
IFRS
MAJ
25,8
IAS 31 interests in joint ventures

Paragraph: 30
IAS 36 impairment of assets
Paragraphs: 6, 8, 9, 10, and 18
IAS 28 investments in associates

IAS 27 consolidated and separate financial

statements
Paragraph: 20
IAS 23 borrowing costs

Paragraphs: 11, 17 and 24
IFRS
Exchange differences arising on the settlement, or on translating of loans or credits in
respect of the acquisition of properties at rates different from those at which they were
translated on initial recognition during the period or in previous financial statements, can
be recognised as assets under the heading expenses of perennial depreciation. Non
realisable gains from exchange differences of current receivables are recognised within
equity. Gains on foreign currency monetary balances are deferred until settlement
Borrowing costs directly attributable to the acquisition, construction or production of a
property are either expensed in the period incurred or capitalised separately as assets
under the heading expenses of perennial depreciation and amortised over a maximum
period of five years
To the extent that funds are borrowed generally but then used for the purpose of obtaining
a qualifying asset, no amount of borrowing costs is eligible for capitalisation. The
construction period starts when the loan is received and borrowing costs are not
determined based on the value of the capital invested but rather the interest of the loan
associated with the construction of the qualifying asset is capitalised. Capitalisation of
borrowing costs in relation to inventories is not permitted
A subsidiary must be excluded from consolidation if its business activities are so
dissimilar from those of the other entities within the group so that the true and fair view of
the financial statements might be distorted
* *Law 3487/06 does not allow this treatment anymore
Investments in associates are accounted for using the equity method but the carrying
amount does not include any goodwill arising. It is recognised separately in the
consolidated statements as intangible asset and is either expensed in the period incurred
or amortised in equal tranches over a maximum period of five years
The investor shall hold at least 20 per cent of the investment to account for it as an
associate
Greek Law remains silent in this respect and interests in joint ventures are carried at cost
(their treatment is as that of jointly controlled operations under IAS 31)
While Greek Law requires a company to recognise impairments of assets there is no
explicit requirement to assess annually whether there is an indication of impairment.
Additionally, the concepts of value in use, recoverable amount and the assets useful life
are not referred to in this context
(continued)
Greek GAAP
Transition to
IFRS in Greece
839
Table AI.
Table AI.
IAS 32 financial instruments: disclosure and

presentation
Paragraph: 33
IAS 38 intangible assets

Paragraphs: 8, 11, 13, 17, 54, 57, 72 and 88
Where an asset is considered to be permanently impaired, the impairment is recognised so

that the assets value is shown at the lower of cost and fair value. The impairment can be
reversed. The reversal is optional and is treated as exceptional revenue
Greek Law does not explicitly distinguish between provisions and contingent liabilities. In
general it requires companies to recognise liabilities for any risk which can be defined but
does not specify recognition criteria. This allows plenty of room for subjectivity when
deciding whether or not to recognise provisions (see for example pension liabilities).
Usually, companies recognise provisions relating to tax issues
Although the definition of an intangible asset is similar to that of IAS 38, there are no
specific recognition criteria. Intangible assets are recognised at cost. Additionally, start-up
costs, capital expenditure, etc. should either be expensed in the period incurred or
capitalised as intangibles under the heading expenses of perennial depreciation and
amortised in equal tranches over a maximum period of five years (see above)
Licenses and research and development expenses can also be recognised as intangible
assets. In particularly, licenses of mobile telecommunications are amortised over a period
of 20 years and research and development expenses are amortised over a period of three
years
The law does not explicitly distinguish between research and development phases and
permits capitalisation of both
The law does not consider the concept of intangible assets with indefinite useful lives
Goodwill arising on an acquisition should either be expensed in the period incurred or
amortised in equal tranches over a maximum period of five years
Greek law permits listed companies to hold up to 10 per cent of their shares in issue with
the purpose of enhancing the market value of their shares (Law 2190/20, Article 16,
paragraph 5). Own shares are carried at cost as held-to-maturity investments
Greek Law allows only for two types of financial instruments which are similar but not
identical to those referred to in IAS 39: (a) held-to-maturity investments and (b) availablefor-sale financial assets, which are recognised at cost
(continued)
Greek GAAP
840
IAS 37 provisions, contingent liabilities and

contingent assets
IFRS
MAJ
25,8
The effective interest method is not considered for subsequent measurement of loans and
receivables
The law does not specify any recognition and measurement requirements for hedge
accounting
Greek Law does not recognise the concept of investment property. Although a distinction
between operating and non-operating properties exists, the latter are recognised as
such only if they have not been used or they are not currently in use. Accordingly,
properties held to earn rentals are considered as operating
As there is no separate classification of properties and investment properties the cost
model is applied to all
There is not explicit guidance regarding biological assets and agricultural produce under
Greek Law
Greek Law permits both the pooling of interests and the purchase method for business
combinations. However, in most cases business combinations are based on the legal form
rather than on whether an acquirer can be identified. Accordingly, companies follow the
pooling of interest method and subsequently, goodwill rarely is recognised. Recognition of
negative goodwill is permitted and is recognised in consolidated shareholders equity as
difference arising on consolidation
IAS 39 financial instruments: recognition and

measurement
Paragraphs: 9, 46, 71
Sources: Nobes (2001); Sakellis (2005); Company Law 2190/20
IAS 41 agriculture
Paragraphs: 5, 10, and 13
IFRS 3 business combinations
Paragraph: 1, 54 and 56
IAS 40 investment property

Paragraph: 30
Greek GAAP
IFRS
Transition to
IFRS in Greece
841
Table AI.
MAJ
25,8
Appendix 2
Sectors
842
Table AII.
Distribution of companies
across ASE sectors
classification
Total number of companies
Media
Travel and leisure
Healthcare
Retail
Personal and household goods
Technology
Constructions and materials
Food and beverages
Basic resources
Telecoms
Oil and gas
Industrial goods and services
Chemicals
Utilities
Total
14
16
8
13
39
22
32
31
17
3
2
27
11
4
238
Corresponding author
Ioannis Tsalavoutas can be contacted at: Ioannis.Tsalavoutas@stir.ac.uk
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Transition to IFRS in Greece: financial statement effects and auditor size

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Transition to IFRS in Greece:

Ioannis Tsalavoutas and Lisa Evans

Received 7 October 2009

Division of Accounting and Finance, The University of Stirling, Stirling, UK

Managerial Auditing Journal

The remainder of the paper is organised as follows: Section 2 reviews earlier

Prior literature notes a number of limitations of using reconciliation statements, most

Leuz et al. (2003, p. 525) state that:

accounts, thus avoiding sampling bias. 43 companies belonging to the banking,

Quality of transitional information

6. Results and discussion

Central Security Depository (2006), Statistical Bulletin, available at: www.hcsd.gr/files/en/nfo/

Haller, A., Ernstberger, J. and Froschhammer, M. (2009), Implications of the mandatory

IAS 16 property, plant and equipment

IAS 11 construction contracts

IAS 10 events after the balance sheet date

IAS 21 the effects of changes in foreign exchange

IAS 20 accounting for government grants and

IAS 19 retirement benefits

IAS 31 interests in joint ventures

IAS 28 investments in associates

IAS 27 consolidated and separate financial

IAS 23 borrowing costs

IAS 32 financial instruments: disclosure and

IAS 38 intangible assets

Where an asset is considered to be permanently impaired, the impairment is recognised so

IAS 37 provisions, contingent liabilities and

IAS 39 financial instruments: recognition and

Sources: Nobes (2001); Sakellis (2005); Company Law 2190/20

IAS 40 investment property

Total number of companies

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