IFRS or UK GAAP? Corporate groups' choice for parents' financial statements

This research investigates UK listed companies’ choices between IFRS and UK GAAP for parents’ financial statements which are crucial in legal systems. It aims to discover key factors influencing accounting choices of UK listed firms which were required to adopt IFRS for consolidated accounts but could select IFRS or UK GAAP for individual accounts, from the perspective of corporate groups. The results show that sampled corporate groups which were more complex tended to use UK GAAP for parents’ individual accounts. It is also found that a new proxy for organizational complexity, i.e., the number of affiliated firms, has a stronger impact on companies’ accounting choice for parents’ financial statements than traditional proxies. Furthermore, the choices of firms in different industries were distinct. While more manufacturers chose to adopt UK GAAP, the majority of financial institutes preferred to comply with IFRS. The results also indicate that foreign stock exchange which often affects firms’ accounting choices was not associated with companies’ decisions for parents’ financial statements. This finding reflects different functions of individual and consolidated accounts. This research advances our understanding of corporate groups and accounting choices and contributes to relevant literature. It also provides important information for policy makers on whether IFRS should be mandatorily adopted by all firms for all types of accounts.