www.sciedu.ca/afr Accounting and Finance Research Vol. 2, No. 4; 2013 Published by Sciedu Press 130 ISSN 1927-5986 E-ISSN 1927-5994 IFRS Adoption in Italy: Which Effects on Accounting Figures and Subjectivity? Silvano Corbella 1 , Cristina Florio 1 & Francesca Rossignoli 1 1 Department of Business Administration, University of Verona, Italy Correspondence: Cristina Florio, Department of Business Administration, University of Verona, Via dell’ Artigliere 19, 37129, Verona, Italy. Tel: 39-045-802-8296. E-mail: cristina.florio@univr.it Received: October 27, 2013 Accepted: November 18, 2013 Online Published: November 19, 2013 doi:10.5430/afr.v2n4p130 URL: http://dx.doi.org/10.5430/afr.v2n4p130 Abstract The issue about the degree of subjectivity incidental to financial statements is topical, although it has long been studied and debated. Indeed, such issue recurs any time new accounting rules or standards are issued. And, of course, it recurs in case of a complete renovation of the accounting system of reference, such as the one that took place in Europe in 2005, when all listed companies were required to repeal their national accounting rules and GAAP, and to adopt IFRS for the preparation of their consolidated financial statements. This study focuses on such transition with specific reference to the Italian context and explores three interconnected issues: a) identification of the changes in the evaluation criteria – from the Italian regulations and GAAP to IFRS – which actually impact on the financial statements presented by Italian companies in the year of transition; b) appreciation of the importance of such impacts, based on (1) how often each adjustment recurs; (2) whether they determine an increase or decrease in accounting figures and (3) how relevant their effects are on the main accounting figures, namely net earnings and net capital; c) discussion about the managerial discretion introduced by the most impacting evaluation criteria identified, in comparison with the Italian provisions and GAAP previously applied. The overall analysis demonstrates that IFRS introduction determined wide impacts on financial statements, affecting most assets and liabilities, but its impacts on accounting figures were less significant than could be expected. In terms of subjectivity, however, differences are very significant. Keywords: IFRS, Subjectivity, Financial statements, First-time adoption, Italy 1. Introduction Issues as to the most appropriate manner to record assets and liabilities in the balance sheet and to reflect their changes in value in the income statements have been integral to financial reporting since a long time ago. Moreover, evaluation approaches evolve over time, as well as the idea of the most appropriate way to achieve that “true and fair view” that any financial statement is required to provide to the benefit of its stakeholders – for example, we recently assisted to a progressive and extensive introduction of the principle of “fair value”, instead of the “historical cost” (Gwilliam & Jackson, 2008; Georgiou & Jack, 2011) –. In 2002, within the European Union (EU), this trend towards the improvement of the quality of financial statements led to the enforcement of a new regulation concerning the preparation of financial statements by companies listed in European financial markets (Note 1). Such regulation immediately appeared considerably different from the previous European Union Fourth Accounting Directive of 1978 on individual accounts and the Seventh Accounting Directive of 1983 on consolidated accounts, as it pursued accounting homogenization all around the EU, instead of a lighter accounting harmonization. And the homogenization did not consist in a more strict formulation of existing provisions about the balance sheet and income statement schemes, classification rules and evaluation criteria; differently, it consisted in the adoption of an entirely new system of accounting standards issued by the International Accounting Standards Board (IASB), a highly professional independent organization supported by industry and governments throughout the world and deputed to issue a single set of high-quality, understandable, enforceable and globally accepted accounting principles (http://www.ifrs.org/The-organisation/Pages/IFRS-Foundation-and-the-IASB.aspx). The legislative intervention operated by the EU was so important that within Europe it is often referred to as an