Abstract
The International Financial Reporting Standards (IFRS) Conceptual Framework emphasizes understandability, i.e. that users have a reasonable degree of relevant knowledge and an ability to study financial information diligently. This article reports results from an empirical study of Swedish financial analysts’ knowledge of IFRS Standards in an area of high complexity (acquisitions) and their use of such information for company valuation purposes. The study comprises financial analysts with experience analyzing acquisitions. Yet we find that the median analyst only knew the standards “to some extent,” which we interpret as a poorer knowledge level compared to the expected IFRS understandability level. We further find that IFRS knowledge varied considerably across the analysts. Higher IFRS knowledge was not associated with using more sophisticated valuation methods, even though such methods require inputs involving accounting complexities. Our results provide some support for higher IFRS knowledge being associated with higher use of acquisition-related IFRS information. This suggests that analysts’ incentives to invest in accounting knowledge may be driven by factors other than those related to fundamental analysis. Our empirical study considers various aspects of the analyst decision context and the findings are discussed in relation to this context and the research literature.