ARE IFRS FINANCIAL STATEMENTS USEFUL FOR ECONOMIC ANALYSIS? EVIDENCE FROM SLOVAKIA

Abstract

The global adoption of International Financial Reporting Standards (IFRS) was intended to enhance the comparability and usefulness of financial statements for capital market participants. This paper critically examines this assumption by evaluating whether IFRS-based financial data provides more useful information than data prepared under a rigid, rules-based national Generally Accepted Accounting Principles (GAAP). Using a sample of Slovak enterprises, we employ regression analysis to test the explanatory power of standard financial ratios on enterprise performance. Our findings reveal a significant paradox: the predictive power of models using IFRS data is substantially lower than for models using data from enterprises applying Slovak national GAAP, particularly micro-enterprises with the most rigid reporting rules. We argue that the principle-based nature of IFRS, which allows for significant subjective judgment in areas like revenue recognition, asset valuation, and state aid presentation, leads to a fundamental lack of comparability across enterprises. This heterogeneity makes IFRS-based data difficult to use for standardized financial analysis and unsuitable for aggregation in macroeconomic analysis without significant, case-by-case adjustments. The study concludes that the internationalization of accounting via IFRS may have inadvertently degraded the utility of financial data for broader economic analysis.