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    How Much Does IFRS Cost? IFRS Adoption and Audit Fees.
    research summary posted September 14, 2015 by Jennifer M Mueller-Phillips, tagged 10.0 Engagement Management, 10.06 Audit Fees and Fee Negotiations, 15.0 International Matters, 15.02 IFRS Changes – Impacts 
    How Much Does IFRS Cost? IFRS Adoption and Audit Fees.
    Practical Implications:

    The authors document and quantify audit fees as a significant cost associated with mandatory adoption of IFRS. The empirical results concerning small firms also inform discussions on the appropriateness of mandated IFRS regulations for small to mid-sized entities. Given the emphasis of auditing in the proposed roadmap for U.S. convergence to IFRS, the results will be of particular importance to U.S. firms, auditors, and regulators. On a broader level, the authors document variation in the costs of IFRS adoption that provides insight into the significant variation in the net benefit observed in previous studies. For instance, the authors find evidence that certain IFRS requirements have higher compliance costs than others, which explains the significant heterogeneity in compliance costs during the adoption of IFRS. 


    De George, E. T., C. B. Ferguson, and N. A. Spear. 2013. How Much Does IFRS Cost? IFRS Adoption and Audit Fees. Accounting Review 88 (2): 429-462.

    audit fees, IFRS, IFRS costs, international harmonization
    Purpose of the Study:

    Regulators and standard setters claim that International Financial Reporting Standards (IFRS) enhance the comparability and quality of financial reporting. However, the true returns to IFRS adoption should be evaluated by trading off the costs of transition and any recurring costs of reporting against the recurring benefits of comparability and increased reporting quality. Given the impending decision and renewed debate surrounding whether the Securities and Exchange Commission (SEC) should mandate the use of IFRS in the U.S. market, understanding the costs of IFRS implementation is of timely importance.

    This study quantifies the directly observable and significant cost of IFRS compliance by examining the fees incurred by firms for the statutory audit of their financial statements. The focus on audit costs is motivated by the fact that the pervasive nature of IFRS adoption is likely to have a profound impact on a firm’s financial reporting costs. Firms currently subject to IFRS have already raised concerns over increasing preparation and certification costs.

    Design/Method/ Approach:

    The sample of 907 firms consists of companies publicly traded on the Australian Stock Exchange (ASX) that adopted IFRS from January 1, 2005, and have sufficient available data from 2002 to 2006. Preceding audit fee data in the pre-IFRS period, auditor information, and IFRS transition information is hand-collected from publicly available annual reports. The authors collect data on the number of local and foreign subsidiaries directly from publicly available reports and other financial information from Aspect Huntley’s Fin Analysis database.

    • The authors estimate a 23 percent increase in the average level of audit fees in the year of IFRS adoption.
    • They find an abnormal increase of 8 percent in the year of IFRS adoption, beyond normal yearly increases in fees.
    • The authors find a positive and significant relation between fee increases and IFRS-exposure.
    • The results are consistent with IFRS transition costs being a function of firm-specific exposure to IFRS and a fixed economy-wide switching cost.
    • IFRS compliance is onerous for small firms.
    • The estimated percentage increase in audit fees associated with IFRS adoption is approximately 1.6 times greater for small firms.
    • Small firms exhibit a significant fixed-cost component to their fee increase in the year of IFRS adoption. This increase is in addition to their incremental fee increase explained by their IFRS adjustments.
    • In contrast, the audit fee increases incurred by large firms are primarily explained by the magnitude of their IFRS adjustments, with no discernible fixed-cost component.
    • A survey of professional auditors at a Big 4 accounting firm shows that auditors believe that certain aspects of the new IFRS reporting requirements require greater auditor effort and expertise to ensure adequate compliance.
    Engagement Management, International Matters
    Audit Fees & Fee Negotiations, IFRS Changes – Impacts