The Effects of IFRS 15 Mandatory Adoption on Financial Statements

The purpose of this study is to investigate whether the first-time mandatory transition from old to the new International Financial Reporting Standards (IFRS 15) “Revenue from contracts with customers”, led to main changes in the accounting methods that affected significantly the financial statements. To carry out our research, we performed a content analysis of narratives, disclosed by 22 EU listed groups that belong to two specific industries, namely, telecommunication and construction sectors, for the year 2018. We followed a double coding procedure to extract cross groups and cross sectors matrices. We find that the switch to IFRS 15 drives main changes in top five areas of valuation methods and in two aspects of presentation methods. The identified main changes are distributed differently among all the sampled groups. However, these changes led to a material effect on the consolidated financial statements only in 31.8% of the studied groups. The main implication concerns the users of the financial statements analyzing historical data prior to 2018 from EU groups. Indeed, our study sheds light on whether the switch to the new revenue recognition standard led to a significant effect on financial statements and consequently profit recognition and related underlying trends. We are not aware of any prior empirical research which considers the effects of the IFRS 15 first-time implementation from a preparer’s perspective by analyzing the narrative sections of the annual reports that explain the materiality that the IFRS 15 adoption has on the financial statements