Measuring the convergence of national accounting standards with international financial reporting standards: The application of fuzzy clustering analysis

A single set of accounting standards is considered the path to achieving accounting convergence globally. Given the important role that formal harmonization/convergence plays in the accounting profession and global capital markets, this study focuses on the methods and methodology for the measurement of formal accounting convergence. Based on our review and evaluation of the existing methods for measuring the level of harmonization/convergence between any two sets of accounting standards, we propose using a new method of matching and fuzzy clustering analysis to assess the convergence progress of national accounting standards (NAS) with International Financial Reporting Standards (IFRS) from whole and single standards, respectively. Single standards are clustered according to their convergence level, which may indicate further convergence emphasis. As an illustrative example, the achievements made in China are evaluated using this new method. The results reveal that this new method can measure the convergence level of NAS with IFRS more clearly and informatively.     

The Role of National Culture in International Financial Reporting Standards Adoption

Prior research shows that the development of national accounting systems follows different patterns in different countries over the world. This was recently supported by the staggered manner in which countries adopt IFRS. Extant evidence shows that IFRS adoption decisions at the country level are determined by institutional and economic factors. In this context, cultural factors have not been considered. This paper examines the relationship between five cultural dimensions and countries’ decisions to adopt International Financial Reporting Standards (IFRS) around the world during the period 2003-2014. We find that countries with higher levels of uncertainty avoidance are more likely to adopt IFRS. Additionally, they are more likely to commit to early adoption largely on a mandatory rather than voluntary basis. On the other hand, countries with higher values of masculinity are more likely to adopt IFRS early, but the extent (whether voluntary or mandatory adoption) of adoption is not significantly related to masculinity. Finally, we show that countries with higher power distance (long-term orientation) are more (less) likely to adopt IFRS on a mandatory basis. The results are in line with Gray’s theory of cultural influence and suggest that differences in national culture had a significant role in countries’ reaction to the introduction of IFRS as a set of unified accounting standards targeting the harmonization of accounting standards adopted across different jurisdictions.     

The effects of harmonization and convergence with IFRS on the timeliness of earnings reported under Chinese GAAP

This study examines the effects of a series of harmonization and convergence with IFRS on the timeliness of recognition of earnings in emerging Chinese markets. We find that earnings reported under Chinese GAAP have a lower earnings response coefficient, but a higher future earnings response coefficient, than earnings reported under IFRS before Chinese GAAP converged with IFRS in 2007. This indicates that earnings reported under Chinese GAAP are generally less timely than earnings reported under IFRS before convergence. We also find that the future earnings response coefficient of earnings reported under Chinese GAAP continues to increase, indicating that the timeliness of recognition of earnings reported under Chinese GAAP worsened after a series of harmonization and convergence with IFRS in China. Taken together, this study provides evidence indicating that harmonizing and converging national accounting standards with IFRS in emerging capital markets may not necessarily increase accounting quality.     

Assessing international accounting harmonization in Latin America

We draw on institutional theory and interviews with key informants to assess international accounting harmonization in the 13 countries of the Group of Latin American Accounting Standards Setters (GLASS). Some GLASS countries have effected full formal adoption of International Financial Reporting Standards (IFRS), but in others, IFRS are not permitted. In several GLASS countries, IFRS are supplemented by national standards for micro-entities and cooperatives. We conclude that it will be difficult to achieve material harmonization in GLASS countries due to a lack of trained accountants, unreliable enforcement systems, and competing institutional logics of taxation systems, banks and insurance companies.     

Measurement of Formal Convergence of Vietnamese Accounting Standards with IFRS

Convergence refers to the process of narrowing the differences between International Accounting Standards/International Financial Reporting Standards (IAS/IFRS) and country‐specific accounting standards. The purpose of this study is to measure the formal convergence between Vietnamese Accounting Standards (VAS) and IAS/IFRS using a fuzzy‐based approach. We assess the extent of convergence between VAS and IAS/IFRS from the perspective of a single standard, clusters of standards and the standards as a whole. The levels of standards convergence are clustered into four categories: full convergence, substantial convergence, substantial difference and complete difference. Our results indicate that the level of convergence between the two sets of standards only achieves mid‐level convergence. The findings of this study should help policy makers improve VAS to meet international standards.     

中国对于国际会计协调的基本态度与所面临的问题

本文从分析当前国际经济全球化的背景和国际财务报告准则制定及其应用的急剧变化出发,认为我们应当积极关注国际财务报告准则发展和国际会计协调与趋同的进展情况。尽管我国目前尚没有完全采用国际财务报告准则,但是中国实际上也是国际财务报告准则的使用者和受益者,为此,中国一方面支持国际会计准则理事会制定全球公认会计准则的努力,另一方面也将积极参与国际会计协调与趋同进程。与此同时,考虑到中国当前所面临的特殊会计环境及其对我国会计国际协调与趋同的影响,中国会计国际化将适应经济发展的需要,走一条渐进式改革之路。为此,本文提出了一个务实、可行的会计国际化策略。     

Implications of the ‘IAS Regulation’ for Research into the International Differences in Accounting Systems

Meek and Thomas (2004) call for research on the continued relevance of ‘rediscovered’ dichotomous accounting classifications. We provide such evidence by examining how developments surrounding the ‘IAS Regulation’ (1606/2002) influenced international differences in accounting systems in the European Union. Since a sufficient time series of actual post-2005 International Financial Reporting Standards (IFRS) reporting practice is not yet observable, we propose an initial re-classification of accounting systems based on evidence available to date, that is, the degree of implementation of the IAS Regulation in the Member States. Consistent with Nobes (1998), we find that the degree of public accountability to outside investors (the ‘public/private’ criterion) is becoming the primary differentiator for accounting systems in Europe, surpassing country-level variables such as legal system and culture. The distinction between consolidated and individual financial statements is the second emerging differentiator. While consolidated accounting is becoming more uniform across countries, cross-country cultural differences are most likely to persist in individual accounting. Based on our analysis we highlight two important areas of future research beyond the consolidated financial statements of listed firms (e.g. Nobes, 2005; Schipper, 2005). First, at the country level, the interaction of IFRS and individual financial statements will need to be reassessed. In addition, research could help introduce a degree of differentiation into financial reporting regulation for unlisted firms, because these firms are not a homogeneous group. Also, the convergence of national GAAP systems with IFRS will benefit from fresh research insights. Second, at the firm level, future research could analyze the extent to which the determinants and consequences of IFRS adoption, an area well researched for publicly traded firms (e.g. Cuijpers and Buijink, 2005), generalize to unlisted firms. Such research will help detect emerging patterns of accounting systems within an international context. It will generate insights into the disconnect of consolidated accounts from national influences, the degree of uniformity of consolidated accounts among international firms, the continued relevance of traditional classifications of international accounting systems for individual accounts and accounts of unlisted companies, and the convergence of national standards with IFRS.     

The Role and Current Status of IFRS in the Completion of National Accounting Rules – Evidence from Austria and Germany

Abstract

Austria and Germany share similar accounting traditions. International harmonization in both countries has mainly focused on group accounting. In contrast, single financial statements give rise to legal and tax consequences and, thus, are still tied to the traditional principles of orderly accounting. Recent regulatory changes confirmed this dual role of accounting in both countries, while moving local accounting rules closer to IFRS, although to different extents. We illustrate how recent regulations in the two countries made reference to IFRS, how IFRS was considered during the law-making process and outline major differences that remain between domestic and international accounting standards.     

Analyst Following and Forecast Accuracy After Mandated IFRS Adoptions

This study investigates how accounting harmonization affects one particular group of financial statement users—financial analysts. We find that mandatory International Financial Reporting Standards (IFRS) adoption attracts foreign analysts, particularly those from countries that are simultaneously adopting IFRS along with the covered firm's country and those with prior IFRS experience. We also find that mandatory IFRS adoption improves foreign analysts’ forecast accuracy. The change in analyst following increases with the distance between prior local Generally Accepted Accounting Principles (GAAP) and IFRS and with the extent to which IFRS adoption eliminates GAAP differences between the firm's country and the analyst's country. IFRS adoption also attracts more local analysts, particularly those with prior IFRS experience and with an international portfolio prior to mandated IFRS adoption in their home country. Local analysts’ forecast accuracy is not affected by IFRS adoption. Overall, our results suggest that accounting harmonization brings comparability benefits that enhance the usefulness of accounting data.     

解读国际会计协调化

国际会计协调化是一个富有弹性的动态概念。本文结合历史发展进程和国际环境因素的变化,阐明国际会计协调化这一概念是随同“会计国际化”与“会计国家化”之争而在国际论坛上亮相的。在“会计协调化”的各家定义中,最基本的共同点是:协调是指限制、缩小和减少会计差异的过程。在20世纪80年代,会计协调化被认为是与“标准化”“统一性”和“可比性”不同但相关的概念。作者援用IASC开发国际会计准则的历史,说明在不同的历史阶段协调化的不同内涵,在世纪之交IASC完成全面重组后,已经创立了可行的机制.使协调化体现为准则化(标准化),表现为高度可比甚至趋向统一的趋同化。当前,国际财务报告的趋同化已成为国际资本市场和货币市场的现实需求,是正在实现的近期目标;国家准则与国际准则的趋同化尚在启动阶段.可以说还只是远期目标,我们对IASB和各国准则机构的协作行动和成果寄予厚望。     

Trends in research on international accounting harmonization

International harmonization of financial accounting standards has been the goal of many professional and academic accountants during the last 40 years. As of January 1, 2005, international accounting harmonization entered a new and perhaps decisive phase. From that date, all companies domiciled in the European Union with shares listed on securities exchanges are required to prepare their consolidated accounts in accordance with International Financial Reporting Standards (IFRS). This landmark event presents an opportunity for accounting researchers to assess the status of research on international accounting harmonization. In this paper, we review articles published in major English language accounting journals during the period from 1965 through 2004 in order to trace thematic and methodological trends in this line of research and to assess where the research may evolve from here.     

On the global acceptance of IAS/IFRS accounting standards: The logic and implications of the principles-based system

The widespread acceptance of International Accounting Standards (IAS)/International Financial Reporting Standards (IFRS) makes it timely to examine their technical determinants as well as their implications for the accounting profession and the process of accounting harmonization. In this respect, we suggest that the principles-based approach to the standards and its inner flexibility enables the application of IAS/IFRS to countries with diverse accounting traditions and varying institutional conditions. Furthermore, the principles-based approach involves major changes in the expertise held by accountants and, hence, in their educational background, training programs, and in the organizational and business models of accounting firms. Finally, we submit that the standards set by the IAS/IFRS constitute a step forward in the process of accounting harmonization, although there is still far to go in the comparability of accounting measures across countries and regions.     

Perceptions of accounting professionals in the adoption and implementation of a single set of global accounting standards: Evidence from Bahrain

In the quest for a single set of global accounting standards, the International Accounting Standard Board (IASB) continues to work with regulators in other countries toward adoption of IFRS. This study reports on an exploratory study of Bahrain's accounting and auditing professionals' perceptions about important issues relevant to developing and implementing global accounting standards. Bahrain is a financial hub of the Middle East with distinct features that could provide some insights to harmonization issues. The respondents' views portray optimism by auditors and non-auditors that harmonization of accounting standards is a worthwhile objective that can be fairly, but gradually accomplished. However, the survey data indicate expected challenges in applying the IFRS principles-based accounting standards. The survey findings suggest that there will be a growing demand for detailed application guidance for IFRS. Also, it appears that nationalism may well continue to be a major impediment to global adoption of IFRS.     

The Development of Accounting Regulation in Iraq and the IFRS Adoption Decision: An Institutional Perspective

This paper reviews the historical development of accounting regulation in Iraq and analyzes, from an institutional perspective, both the decision to adopt International Financial Reporting Standards (IFRS), and the factors likely to impact the expansion of IFRS application beyond listed companies. We find that all three forms of institutional isomorphism (coercive, mimetic, and normative) explain the initial decision to adopt IFRS. The most significant force in the decision to adopt IFRS is coercive pressure, from western forces following the fall of the Ba'ath regime, and from international aid organizations. Further, we find that the accounting system in Iraq is likely to be further advanced due to mimetic and normative pressures from Iraq's trade partners, multinational corporations, and the accounting profession. The paper concludes with a discussion of lessons that can assist other developing nations, and in particular countries in the Middle East in their decision to adopt IFRS. It is important that IFRS adoption is accompanied by reform to governance and investor protection regimes, together with investment in education and training to support ongoing implementation. Otherwise, IFRS adoption may be perceived as merely symbolic.     

The Impact of Regulatory Enforcement on Harmonization of Accounting Practices: Evidence from China

This paper evaluates China's regulatory enforcement in 2001 on the harmonization of accounting practices. We find that the Chinese Government's 2001 compulsory harmonization policy has made a significant contribution to reducing the differences between Chinese GAAP-based earnings and IFRS-based earnings for many line items. The decline of earnings differences is because of the firms' application of the standards rather than differences in the standards. We belive that the harmonization of accounting practices in line with IFRS can be achieved by effective enforcement of standards.     

The rise and rise of IFRS: An examination of IFRS diffusion

We seek to understand the ever-increasing push towards the international harmonization of accounting standards and particularly the inexorable rise of standards produced by the International Accounting Standards Board (IASB). While the primary justifications for the increasing recognition given to these standards (IFRS) are economic, we question whether the empirical evidence to date has yielded convincing support for these arguments. We therefore offer an alternative explanation for the origin and diffusion of IFRS that incorporates social and political factors. Outsourcing the manufacture of accounting standards to a single private agency appears to be a rational, lower cost option – lowering both economic and political costs for individual states as long as they continue to retain residual decision rights with respect to the adoption of IFRS. However, such outsourcing must also be perceived to be legitimate. IFRS confer institutionalized legitimacy because they possess three characteristics required of a technology for global governance. These are sponsorship by powerful interest groups/regulators, internationality and plasticity. We therefore conclude that the widespread diffusion today of IFRS can at best be only partially explained as an economically rational phenomenon. Rather, the demand for legitimate action in the face of tightly coupled and complex global markets is at least equally important in generating support for IFRS.     

Transitioning to IFRS in Japan: Corporate Perceptions of Costs and Benefits

This paper examines the ongoing transition to International Financial Reporting Standards (IFRS) in Japan with a particular focus on recent institutional developments and corporate concerns. While Japan has committed to the convergence of Japanese generally accepted accounting principles (J‐GAAP) with IFRS it has not as yet formally adopted IFRS. This paper reports on Japanese corporate perceptions of the likely costs and benefits of adopting and implementing IFRS using survey data collected from senior financial executives of 292 Japanese listed companies in 2013–14. Our findings reveal that Japanese companies identify a number of major areas of general concern with the adoption and implementation of IFRS. Most importantly, uncertainty regarding the interpretation of standards followed by staff training, IT systems, technical knowledge and differences between J‐GAAP and IFRS were reported as major concerns. Our survey also highlights that revenue recognition, depreciation, consolidated financial statements, financial statement presentation and the retrospective application of IFRS were viewed as key IFRS accounting issues. While the large majority of companies expected a moderate degree of benefits to arise from IFRS, substantial benefits were perceived more likely to apply to large and overseas listed companies mainly arising from improvements in the international comparability of financial statements.     

LARGE ACCOUNTING FIRMS’ SURVEY REVEALS EMERGENCE OF “TWO STANDARD” SYSTEM IN THE EUROPEAN UNION

Convergence with International Financial Reporting Standards (IFRS) as promulgated by the International Accounting Standards Board (IASB) is receiving great attention. In 2005, all listed companies domiciled in the European Union (EU) will be required to prepare consolidated accounts based on IFRS. Individual EU member states are, however, permitted to decide whether IFRS will be required or allowed for non-listed companies or for listed companies’ individual accounts. Based primarily on data collected by the six largest international accounting firms during their most recent convergence survey, this paper examines each of the 15 EU member states’ convergence plans and their perceived barriers to convergence.The findings indicate that most EU members do not plan to converge national GAAP with IFRS, thereby highlighting the great significance of the large firms’ concerns regarding emergence of a “two-standard” system in the EU. The survey indicates the majority of EU countries will continue to require or allow national GAAP for individual accounts. While Belgium is considering requiring IFRS for all consolidated accounts, other EU countries have decided to allow or are considering allowing non-listed companies to prepare IFRS consolidated accounts.In most EU countries, the link between financial accounting and tax accounting represents a major barrier to convergence. Other frequently cited barriers include disagreement with certain IFRS and the complicated nature of certain IFRS. International requirements for financial instruments are viewed as particularly problematic.     

Microfinance institutions and International Financial Reporting Standards: An exploratory analysis

Previous studies analyzing firms’ incentives to choose international accounting standards show that firms with strong contracting incentives will be more likely to comply with International Financial Reporting Standards (IFRS). These studies are mostly centered on developed economies and are based on European and US data. Little is known about development finance organizations’ incentives to choose to draft their financial statements according to IFRS. Because commercialized microfinance institutions (MFIs) have strong contracting incentives, we investigate whether commercialization drives the choice of IFRS and study a pooled international sample of MFIs’ audited financial statements extracted from the MIX from 2007 to 2014. Consistent with our predictions, evidence shows that commercialization and maturity (age) are likely to drive the MFIs’ choice to comply with IFRS. Results are robust after controlling for heterogeneity in national regulations with regard to IFRS.     

The Role and Current Status of IFRS in the Completion of National Rules – Evidence from Greece

Abstract

Law 4308/2014 is the main regulation that transposed Accounting Directive 2013/34 of the EU into national law in Greece. This short paper summarises the underlying background and the process followed up to the issuance of this Law. It also outlines the key accounting principles introduced with this Law and how they compare with IFRS. This brief analysis indicates that, to a large extent, Greek accounting standards have now been aligned with IFRS. Given the preceding substantial differences between Greek accounting Laws and IFRS, this Law introduced significant changes to the accounting environment for non-listed companies in Greece, aiming at improving accounting quality and enhancing accounting comparability between listed and non-listed companies.