Reversing IFRS adoption: navigating operational challenges, financial impact, and regulatory insights

This study provides one of the first comprehensive analyses of the abandonment of International Financial Reporting Standards (IFRS) by unlisted Italian companies. While much of the literature has focused on the impacts and determinants of IFRS adoption, the reverse process, voluntary IFRS abandonment, has remained largely unexplored. Based on a sample of 72 unlisted Italian firms that abandoned IFRS between 2012 and 2021, this research investigates the phenomenon from three key perspectives: (1) the motivations disclosed by companies in support of their decision; (2) the procedural and technical features characterizing the transition; and (3) the financial impact of the transition on both accounting figures and individual balance sheet items. The findings reveal that the majority of abandonments were linked to previously forced IFRS adoption, particularly by firms subject to group-level reporting obligations or other governance-related requirements. From a technical standpoint, the study highlights a significant improvement in transition quality following the publication of Italian Generally Accepted Accounting Principle (ITA- GAAP) 33 in 2020, which addressed a long-standing regulatory gap. Disclosure rates and retrospective application improved markedly after the standard’s release, with firms more frequently including reconciliation statements and using consistent equity accounts to register cumulative adjustments. On the financial side, the analysis, based on Wilcoxon signed-rank tests and comparability index metrics, confirms the absence of statistically significant changes in equity, total assets, net income, profitability, and leverage after abandoning IFRS. Although several individual financial statement items were frequently adjusted (notably employee termination benefits, lease-related assets, and deferred tax accounts), their cumulative effect on key financial indicators was negligible. These findings suggest that practical differences between IFRS and ITA-GAAP are narrower than their theoretical divergence might imply. This study contributes to the literature on financial reporting by offering novel insights into a neglected yet increasingly relevant area: the reversal of IFRS adoption. The results have implications for practitioners, accounting regulators, policymakers, and standard-setters, particularly in economies where IFRS are not universally mandated and where firms may reconsider the cost-effectiveness of maintaining IFRS-compliant reporting.