Abstract
The application of IFRS has caused a broad variety of examinations in literature. Numerous research studies in this context refer to accounting quality, comparability of financial reports and whether fair-value accounting is superior to historical-cost principles or not. All these issues have in common that hidden reserves, as the difference between historical book values and their fair value counterpart, play an important role in these fields. Nevertheless, there is currently no detailed examination showing empirical data about hidden reserves. Using information from 456 Purchase Price Allocations, we are the first to show which balance sheet items mainly comprise hidden reserves and to what extent. Our results show that hidden reserves exist in all balance sheet items, even in positions which are not supposed to contain reserves. We also find fewer hidden reserves than we expected in provisions but higher portions in inventories, for example. Moreover, we provide details of which factors seem to influence the extent of hidden reserves. We contribute to the existing literature by adding empirical evidence to the theoretical discussions of faithfulness and comparability of financial statements
GERNOT BRÄHLER, SEBASTIAN SCHMIDT. (2014) Hidden Reserves Under IFRS – Empirical Insights , International Review of Management and Business Research, Volume 3, Issue 2.
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