Introduction

The standardization of the principles under which financial information is prepared and disseminated results from financial globalization, characterized by free trade agreements, the total opening of borders, and access to international capital markets. Consequently, a strategic commitment of the business community is to speak the same financial language, hence the relevance of adopting the International Financial Reporting Standards -IFRS.

The globalization of business and the new international financial architecture accelerated the adoption of IFRS in many countries (^{Salazar, 2013}), in addition to the support for the International Accounting Standards Board -ASB by regional and national accounting regulations issuers and Big 4 auditing firms (^{Carneiro, Rodrigues, & Craig, 2017}).

In the context of emerging economies, accounting measures and regulations are designed to help them develop their knowledge of a specific subject in their social and physical environment (^{Chua, 1986}) in order to mediate their needs with those of their environment and influence their decision-making behavior (^{Gaffikin, 2006}). Accordingly, adopting a new system, whether regulatory or voluntary, constitutes a change in accounting practice, subject to various factors and approaches that compel or drive change (^{Al-Htaybat, 2017}).

These requirements motivated much of the global village to initiate convergence processes. Table 1 shows the total number of jurisdictions in the world that require IFRS, grouped by 5 regions (Europe, Africa, Middle East, Asia-Oceania, and the Americas), with Europe and Africa, respectively, having the highest number of countries with IFRS requirements and the highest percentages of countries that require the standard concerning the total number of jurisdictions per region. Regarding IFRS for SMEs, 86 jurisdictions permit or require them, 11 are currently considering their application, and in 70, they are not used or are under consideration (^{IFRS, 2022}). In Colombia, they have been required since 2015.

Accordingly, the accelerated process of IFRS adoption around the world, often originated intending to obtain legitimacy (^{Aboagye-Otchere & Agbeibor, 2012}), raises questions about the effect on local economies (^{Milanés, Albarrán, & Pérez, 2011}), mainly on the financial situation of companies. Regarding this, ^{De George, Li, and Shivakumar (2016)} state that the introduction of IFRS seems to have had a substantial effect on the financial statements reported by companies. Therefore, studying the impact of IFRS implementation is useful, as it can be used to assess whether its implementation improves the quality of the information disclosed or changes the information that explains the risk (^{Boz, Menéndez, Orgaz, & Prior, 2015}).

In Colombia, Decree 3022 of 2013 regulated the process of implementation of IFRS for SMEs, establishing the schedule for the application of the technical regulatory framework for Group 2 financial information preparers¹, which established 2015 as the transition period². Thus, national entities had to account for their operations under two regulatory accounting frameworks: the local one, based on Decrees 2649 and 2650 of 1993, and under the new technical regulatory framework (IFRS for SMEs) issued in July 2009.

Based on the above approaches, the present research originated, which examined the impact of the implementation of IFRS on the financial indicators of Colombian SMEs during the convergence process in 2015. Its relevant aspect is that the analysis was carried out for the same economic-financial reality, measured and valued with two different accounting regulatory frameworks. The work is part of a broader project that seeks to examine the impact of the implementation of IFRS (both Full and SMEs) on the financial situation of Colombian companies in the years before and after the application of this accounting standard.

The document consists of a review of the relevant literature where different aspects of implementing IFRS are studied, including the determining factors in the effects originated by this process in different countries. Subsequently, the methodology used is explained, along with an explanation of the indicators calculated and the descriptive statistics of the data used. The results are then presented, followed by a discussion and conclusions.

Review of the literature

Accounting regulations have varied from country to country due to differences in the economic and social forces that have interacted in the past to determine the accounting regulations of today’s countries (^{Brown, 2011}). This fact seems to be in the past because more and more companies and countries have adopted or considered replacing their national standards with IFRS (^{Kim & Shi, 2012}; ^{Chen, Tang, Jiang, & Lin, 2010}). The widespread adoption of IFRS and their related convergence initiatives have led to numerous studies examining their implications (^{Armstrong, Bath, Jagolinzer, & Riedl, 2010}; ^{DeFond, Hu, Hung, & Li, 2011}; ^{Daske, Hail, Leuz, & Verdi, 2008}). The results of various investigations are contradictory (^{Puerta, Vergara, & Huertas, 2018}; ^{Guevara, Castaño, & Quirós, 2018}). A considerable number of studies have found positive associations (^{Barth, Landsman, & Lang, 2008}; ^{Devalle, Onali, & Magarini, 2010}; ^{Clarkson, Hanna, Richardson, & Thompson, 2011}; ^{Rodríguez, Cortez, Méndez, & Garza, 2017}) and others negative ones (^{Hung & Subramanyam, 2007}; ^{Van der Meulen, Gaeremynck, & Willekens, 2007}).

IFRS adoption remains a recent phenomenon in Latin America and, consequently, is less explored. Initial studies have provided evidence of an improved information environment related to IFRS, but in isolation; nevertheless, there is a lack of literature on IFRS adoption (^{Santana, Rathke, Lourenço, & Dalmácio, 2014}).

According to ^{Abad, Cutillas, Sánchez, and Yagüe (2017)}, there is an ongoing debate in the recent accounting literature as to whether post-IFRS market benefits have been driven by the change in accounting regulations per se or by other related factors that include: (a) institutional factors such as the level of country compliance and the extent of compliance changes made to support IFRS implementation; (b) incentives for corporate reporting; and (c) the degree of similarity between IFRS and previous local generally accepted accounting principles (GAAP).

Table 2 summarizes the analysis of seven determining factors in the effects studied by implementing IFRS in various countries worldwide, according to the scientific literature collected. A brief description of each factor is included (transparency of financial information, comparability of financial statements, access to sources of financing, increase in foreign investment, access to international markets, financial analysis, and accounting information), with positive and negative aspects.

On the other hand, the adoption of IFRS by many countries raises interesting issues when examining financial indicator-based agreements. Changes in contract structure and errors exposed in pre-IFRS contracts are the subjects of some recent studies (^{Beiruth, Lopes, Dal, Feres, & Brugni, 2017}).

In Colombia, applied research on the impact of IFRS implementation on the financial situation of companies through financial analysis is focused on the development of undergraduate and graduate degree works, which generally analyze micro sectors of specific cities or conduct case studies. Accordingly, there is no research on this subject at the national level and by the macro sectors of the local economy. The work of ^{Guevara et al. (2018)}, who analyzed the financial effects of implementing the new regulatory technical frameworks through financial indicators of liquidity, profitability, and indebtedness in the telecommunications sector, stands out.

Another important contribution is that of ^{Puerta, Vergara, and Huertas (2018)}, who argue that the implementation does not change the formulas for applying financial indicators. Nonetheless, implementing a new technical regulatory framework, partially with accounting principles different from those applied locally (changes in the measurement, recognition, classification, preparation, and presentation of financial information), changes how financial information is interpreted. Various research projects mostly focused on liquidity³ and profitability, show contradictory results regarding the impact of IFRS implementation on indicators (^{Guevara et al., 2018}). For example, concerning liquidity, ^{Daske et al. (2008)} found increases after IFRS implementation, whereas ^{Lantto and Sahlström (2009)} show that it decreases.

Due to the preceding arguments, the following hypothesis is proposed:

H₁: The results of the financial indicators presented statistically significant differences regarding the implementation of IFRS for SMEs in Colombian companies.

Data and method

The research is quantitative, non-experimental, and cross-sectional. Intending to conduct a study covering all the Colombian companies that applied IFRS for SMEs and that reported individual financial statements to the Superintendence of Companies of Colombia (Supersociedades) in the transition period, the financial statements prepared under local GAAP and IFRS for SMEs for 2015 were consulted in the Business Information Portal. When conducting the analysis of the financial information obtained (two sets of financial statements prepared under different accounting standards) that correspond to the same economic events, it was ascertained that the impacts generated were exclusively due to the change in standards and not to other variables that may bias the analysis when conducted for different years⁴.

The total number of companies that reported individual financial statements to the Supersociedades prepared under IFRS for SMEs as of December 31, 2015, was 17 757. The number of companies that reported financial statements for the same period prepared under local GAAP was 26 533. A filter was created to determine the companies that presented information under both technical regulatory frameworks; the result was 16 284. Some companies were excluded from the sample since they presented atypical data, such as reporting zero financial statements and liabilities over assets (negative equity). The database groups the companies according to their ISIC (International Standard Industrial Classification) code, broken down by economic sector. It was decided to work with economic sectors with observations greater than 10; this meant that the analysis was conducted with 16 217 companies and 18 sectors with the help of Stata 14 MP statistical software. A 1% winsorization process was also conducted to avoid measurement errors. Then, 17 financial indicators were calculated and grouped into four categories: liquidity, turnover, indebtedness, and profitability (Table 3).

The descriptive statistics for the group of indicators show a high standard deviation to the mean for most of them, which is evidence that the data do not follow a normal distribution (Table 4), consistent with the results of ^{Ezzamel and Mar-Moline (1990)} and ^{Lantto and Sahlström (2009)}.

^{Lantto and Sahlström (2009)} also analyzed the impact of IFRS implementation in 91 companies in Finland for 2004, applying the difference of means with the Wilcoxon test. In contrast, in the present research, the difference of means was calculated with the Mann-Whitney U test, which roughly calculates a statistic distributed according to a normal distribution of mean 0 and variance 1. To calculate this statistic, each of the observations of one of the groups is compared with all the observations of the other group, assigning a value of 1 in case the observation of the first group is superior to the observation of the second group, a value of 0.5 in case of a tie, or a value of 0 in another case. After comparing all the observations, the values obtained are summed and the statistic is calculated to test the hypothesis.

The equation is as follows:

The accounting regulation applied for the study was taken as an independent variable, and the 17 financial indicators were calculated as dependent variables. When conducting an analysis grouped by standard, similar results were found to those obtained by ^{Blanchette, Racicot, and Girard (2011)} and ^{Jin (2017)} in Canada, suggesting that most ratios have significantly higher volatility calculated under IFRS than CGAAP. For the Colombian case, according to the results of this research, the liquidity, indebtedness, and profitability indicators calculated under IFRS for SMEs showed greater standard deviation concerning those calculated under local GAAP, being more evident in the current ratio, acid test, total leverage, financial leverage, return on equity, return on assets, operating margin, and net margin. The efficiency indicators showed the opposite result, with the highest variation being in portfolio turnover and inventory.

Results

The analysis was conducted by financial indicator, group (liquidity, turnover, indebtedness, and profitability), and economic sector. The KTNO had statistically significant differences concerning implementing IFRS for SMEs in all the sectors studied with a p-value of 1 %, except for the Electricity_gas sector. The results of the other financial liquidity indicators presented dissimilar results, so a specific trend could not be demonstrated. Nevertheless, the analysis by sector indicates that Agriculture_fishing, Industrial, Commercial, Hotel_restaurant, and Financial presented statistically significant differences, most of them at 1%, in three of the four financial liquidity indicators (especially KTNO) (Table 5). In this regard, ^{Guevara et al. (2018)} analyzed the telecommunications sector, concluding that the regulation change presented no significant changes in liquidity indicators. This study concludes the same as well.

Regarding the group of turnover indicators, the results are also dissimilar, but some sectors presented statistically significant differences, generally at 1 %, in three of the four indicators: Agriculture_Fishing, Construction, Commercial, Financial, and Real Estate. In the Industrial sector, they were present in this group’s financial indicators, all at 1%, showing a relevant effect. The Hotel_restaurant, Professional_consulting, and Education sectors also showed some differences, but only in 2 turnover indicators.

Regarding the indebtedness indicators, the findings show that they presented fewer changes; the EFIN stands out, showing statistically significant differences at 1% in 6 of the economic sectors (Agribusiness_fishing, Industrial, Construction, Commercial, Hotel_restaurant, and Real Estate) and at 5% in the Health sector. For the ENDT, the Agricultural_fishing sector stands out with a value of 5 %, and the Financial and Real Estate sectors with a value of 1 %. In the analysis of the sectors, Real Estate showed statistically significant differences at 1% in the 4 indicators, followed by Finance with effects in 3 indicators, although not as significant as in Real Estate.

Concerning the group of profitability indicators, none of them shows a specific trend, and the MARBRU stands out with statistically significant effects, most of them at 1%, in 8 of the economic sectors (Agricultural_fishing, Industrial, Construction, Commercial, Information_communication, Financial, Real Estate and Professional_consulting), and differences at 5% in 2 sectors (Hotels_restaurant and Education). Likewise, the MAROPE presented effects at 1% in 4 sectors (Agriculture_fishing, Commercial, Transport_storage, and Real estate) and implications at 5% in 2 sectors (Financial and Administrative_Services). By sectors, the results again highlight the Real Estate sector with statistically significant differences at 1% in the 5 profitability indicators, followed by the Commercial sector with effects also at 1% in 4 of the indicators, and the Agricultural_Fishing, Industrial, Construction, and Financial sectors in 3 indicators.

In general, the financial indicators that presented the most statistically significant differences by economic sector were: KTNO (17 sectors, all with p-value at 1 %), ROTEFE (10 sectors, 7 with p-value at 1 %), MARBRU (10 sectors, 8 with p-value at 1 %), ROTCAR (9 sectors, 7 with p-value at 1 %), EFIN (7 sectors, 6 with p-value at 1 %), ROTACT (6 sectors, 4 with p-value at 1 %), and MAROPE (6 sectors, 4 with p-value at 1 %). Regarding the sectors, the Electricity_gas sector was the only one with no significant differences, while the Real Estate sector was the one with the highest number of significant differences, registering 13 of the 17 indicators analyzed, followed by Financial (12), Commercial (11), Industrial (11), Agriculture_fishing (11), Construction (8) and Hotel_restaurant (7). The rest presented significant differences in 5 or fewer indicators. Finally, the greatest statistically meaningful impact generated by sectors was reflected in the group of turnover indicators (40.3%), followed by liquidity (36.1%), profitability (33.3%), and indebtedness (19.4%). Thus, the results do not enable complete confirmation of the hypothesis put forward.

Conclusions

In order to favor business, financial, and decision-making processes, the accounting homogenization process has expanded from IFRS, covering 167 countries out of the 193 as established by the United Nations Organization. This process has triggered a series of investigations worldwide, seeking to answer all the changes presented, reflecting points in favor and against such regulations or harmonization processes. Nevertheless, given the notable increase in followers, it is important to enrich this process with the results of the investigations on this matter and the solutions that emanate from them.

Any change will always generate crisis or reluctance from those who are affected. In Colombia, since 2015, organizations have been forced to change local accounting regulations characterized by some principles that no longer responded to the new business realities to be visible internationally and to handle the same accounting and financial language. Nevertheless, the process was not easy, resulting in many companies reporting their accounting figures under IFRS several years after being obligated to do so.

Given the above, it was important to carry out this research based on previous reviews of the changes that could be predicted regarding accounting and financial information, and the analysis that could be conducted on it. This analysis shows impacts in some of the financial indicators analyzed, while in others, it was null. According to ^{Abad et al. (2017)}, this can be explained by the degree of similarity between IFRS and previous local GAAP. The mixed results are in line with the findings of ^{Guevara et al. (2018)}.

Turnover indicators proved to have the greatest impact regarding the regulation change, followed by liquidity, profitability, and indebtedness. The main reason is the change in accounting principles for recognizing revenue from ordinary activities, including or excluding some asset items, and accounting of contingent liabilities (^{Callao, Jarne, & Laínez, 2007}). The results do not confirm the findings of ^{Daske et al. (2008)} about liquidity indicators.

It was also concluded that the Real Estate sector was the most affected by the regulatory change, followed by the Financial, Commercial, Industrial, Agricultural_fishing, Construction, and Hotel_restaurant sectors. Thus, the importance of planning a new accounting and financial management based on new ways of measuring or recognizing the different facts and accounting transactions can be derived. These changes condition not only the analysis conducted on the financial information but also the decision-making process based on them since the change in liquidity indicators conditions or modifies the company’s decisions regarding working capital requirements.

In IFRS for SMEs, a model based on principles and not on rules, the use of cash is affected by restrictions not contemplated in the local standard and the reclassification presented in some elements of the financial statements, for example, the recognition of property, plant, and equipment assets as investment property, a topic not known in the Colombian accounting standard, or the estimation of the costs of dismantling, removal of elements and rehabilitation of the place where assets such as machinery and industrial equipment that may affect the environment operated.

Likewise, the variation in the results of the indebtedness indicators changed the parameters for making leverage decisions, so it is advisable to replicate studies that analyze the behavior of this aspect before and after implementation, as ^{Beiruth et al. (2017)} suggested.

On the other hand, when some variables involved in calculating profitability indicators are modified, investors’ decisions will be affected. Indeed, if the results of the financial indicators change, the evaluation criteria must be reconsidered and adjusted above or below the previous ones.

This article provides a basis for research in countries where the IFRS implementation process is being put together, is under consideration, or has not been considered. In this regard, out of the 167 jurisdictions under consideration under IFRS, 86 require or enable IFRS for SMEs, 11 currently have the regulation under consideration, and 70 do not use it or have it under consideration. This situation is the case in countries in the American Continent, such as Mexico, the United States, Canada, Cuba, Haiti, and Bolivia where the regulation for SMEs is not yet mandatory or enabled. In the case of Africa, 20 countries have implemented IFRS.

As for Europe, only 7 have made implementation mandatory, and 2 have considered the process. In Asia, 21 have implemented it, and 8 jurisdictions are considering the process. Similarly, it is important to analyze the impact of the implementation of the regulation in order to identify whether such changes also originate in countries with similar economic dynamics. As Ball (2016) states, despite the substantial increase in globalization, local forces will continue to influence the actual practice of financial reporting. Thus, given the diversity in economic and institutional development across countries, the expected economic benefits of IFRS adoption may not be equally compelling for all countries. According to sociological institutionalism, the search for legitimacy is likely to be at least as important as the economic argument (^{Chua & Taylor, 2008}).

Finally, considering that SMEs have been affected by a series of factors that curtail their presence in the market, it is necessary to study the effects caused by the entry into force of a new regulation on the indicators based on which multiple decisions are made. Future research aims to study the trend followed by financial indicators since implementing IFRS for SMEs and how the market has adapted its decision-making criteria to this new accounting reality.