The adoption of international financial accounting standards in Italy (IAS/IFRS): effects on the management strategies of economic groups and business combinations

The adoption of IAS/IFRS in the process of drafting consolidated financial statements of Italian holdings listed on the Stock Exchange caused important changes. In fact, different accounting rules may produce significant changes in representations of values in financial statements and in disclosure in the notes, especially for consolidated ones. In particular, these new rules may caused relevant differences in management and organization strategies, in economic and financial communications policies, and on accounting information systems. In this paper we present a study of the main effects on the process of drafting consolidated financial statements and in the accounting representation of business combinations. First, we carried out an empirical analysis on consolidated financial statements of 191 Italian holdings, listed on Milan Stock Exchange and active in manufacturing and services sectors. Then, we selected a sample of 50 enterprises. In particular, we analyze the consolidated financial statements for 2005 and the “transition to IAS/IFRS” documents included in interim financial reports for 2005; on this smaller sample, direct interview with CFO are made with the aim of analyzing how they consider the effects of the adoption of IAS/IFRS on management decisions. In particular, important implications for the groups have been assessed for the definition of the consolidation area, goodwill, representation of minority interests, and intragroup transactions. New accounting rules may cause remarkable changes on values included in consolidated financial statements, with consequences on the stakeholders’ judgement, but also on strategic choices made by managers of the groups. Regarding business combinations, the analysis based on consolidated financial statements for year 2005 is particularly important to understand the first evidences related to the new way of accounting introduced by IFRS 3. The impacts of the introduction of IFRS 3 for Italian enterprises is very relevant, considering the fact that in Italy there isn’t a national accounting standard for business combinations, and this has produced very different behaviours in the representation of similar business combinations. This study represents the final step of a research supported by the Italian Ministry of Education, University and Research, started in 2003 and finished in the first months of 2006.