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"FINANCIAL REPORTING STANDARDS"
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A Systematic Literature Review of the Challenges of Adopting and Implementing IFRS for SMEs in South Africa
The aim of this research was to conduct a systematic review of the existing literature regarding the difficulties associated with the adoption and implementation of International Financial Reporting Standards for Small and Medium-sized Entities (IFRS for SMEs). Additionally, the study sought to propose strategies that could assist with mitigating the complexities relating to IFRS for SMEs adoption and implementation in South Africa. When analysing the related literature, the study employed the Systematic Literature Review (SLR) method and followed the Preferred Reporting Items for Systematic reviews and Meta Analyses (PRISMA) guidelines. According to the inclusion criteria, the literature regarded as relevant related to studies published during 2017–2023. Furthermore, this study adopted the institutional theory due to its relevance in modelling the roles of regulators and SMEs in the adoption and implementation of IFRS for SMEs. The study found that the adoption and implementation of IFRS for SMEs presents several challenges, such as low level of education, costs related to the adoption, political pressures, and training and support by regulatory bodies as well as cultural dimensions. To overcome these obstacles, it is suggested that campaigns be used to raise recognition about the latter, providing extensive educational and regular training for accounting professionals. The study provides an insightful review of the challenges of IFRS for SMEs with specific attention on South Africa, informing the accounting standard setters, policymakers, and professional bodies of the accounting standards.
Journal Article
Does Mandatory Adoption of International Financial Reporting Standards in the European Union Reduce the Cost of Equity Capital?
This study examines whether the mandatory adoption of International Financial Reporting Standards (IFRS) in the European Union (EU) in 2005 reduces the cost of equity capital. Using a sample of 6,456 firm-year observations of 1,084 EU firms during the 1995 to 2006 period, I find evidence that, on average, the IFRS mandate significantly reduces the cost of equity for mandatory adopters by 47 basis points. I also find that this reduction is present only in countries with strong legal enforcement, and that increased disclosure and enhanced information comparability are two mechanisms behind the cost of equity reduction. Taken together, these findings suggest that while mandatory IFRS adoption significantly lowers firms' cost of equity, the effects depend on the strength of the countries' legal enforcement.
Journal Article
Adoption of IFRS in Japan: challenges and consequences
Purpose
– The purpose of this study is to provide a rigorous and holistic analysis of the main features of the Japanese accounting environment. It also raises issues related to the adoption of International Financial Reporting Standards (IFRS) in Japan.
Design/methodology/approach
– For the purpose of investigating the Japanese accounting system, this study applies the accounting ecology framework developed by Gernon and Wallace (1995) and provides a content analysis of relevant meetings of the Business Accounting Council of Japan.
Findings
– The findings of this study provide evidence that it would be problematic to require the adoption of IFRS for all listed companies in Japan. The main reason for this is that the Japanese policymakers and standard-setting bodies follow two objectives: enhancing the international comparability of financial reporting and maintaining institutional complementarity between financial reporting and other infrastructures such as accounting-related laws.
Research limitations/implications
– This study is relevant for accounting researchers and professionals with an interest in Japanese accounting practices. It is also useful for the International Accounting Standards Board and representatives of countries planning to adopt IFRS in the future.
Originality/value
– The findings of this study show that contextual issues such as social, organizational and professional environments cannot be ignored in the adoption of IFRS in Japan.
Journal Article
Navigating legitimacy: diverse stakeholder perspectives on the IFRS Foundation’s establishment of the ISSB
Purpose In 2020, the IFRS Foundation’s public consultation on Sustainability Reporting provided an opportunity for stakeholders to share their opinions on the Foundation’s proposals. This paper aims to analyze the comment letters that would legitimize the IFRS Foundation to institutionalize the International Sustainability Standards Board (ISSB). Design/methodology/approach This study used Python to develop a model for analyzing all 577 submissions that the IFRS Foundation received, using a combination of quantitative and qualitative content analysis methods. Findings Support for the creation of the ISSB was not unanimous but reached 68%. Key supporting arguments were that the IFRS Foundation could harmonize sustainability reporting standards by leveraging its expertise in setting accounting standards, and use its existing relationships to enforce sustainability reporting. Key counterarguments were: the IFRS Foundation lacks expertise in the areas of sustainability and climate; sustainability reporting should be integrated into financial reporting rather than being disclosed separately; the proposals were limited in scope (single materiality, focus on investors’ information needs and climate change centrism); and the IFRS Foundation should aim to endorse already established frameworks instead. Practical implications A consensus between supporters and critics was the need to make sustainability reporting mandatory. Endorsed by IOSCO, the ISSB released its inaugural standards, focusing on climate-related disclosures, effective from 2024 in jurisdictions that choose to adopt them. Originality/value The findings show that the establishment of the ISSB by the IFRS Foundation only partially fulfilled the demand for the harmonization of sustainability reporting standards. As a result, broader and non-investor-centric sustainability information may continue to be reported under alternative frameworks.
Journal Article
IFRS reporting, firm-specific information flows, and institutional environments: international evidence
This study investigates whether and how a firm’s voluntary adoption of International Financial Reporting Standards (IFRS) influences the extent to which firm-specific information is capitalized into stock prices measured by stock price synchronicity. We also study the role of analyst following and institutional environments in determining the relation between IFRS reporting and synchronicity. Using firm-level data from 34 countries, we find that synchronicity is significantly lower for IFRS adopters than for non-adopters across all regression specifications and that for IFRS adopters it decreases from the pre-adoption period to the post-adoption period. This finding supports the view that voluntary IFRS adoption facilitates the incorporation of firm-specific information into stock prices, thereby reducing synchronicity. We also find that the synchronicity-reducing effect of IFRS adoption is attenuated (accentuated) for firms with high (low) analyst following and is stronger (weaker) for firms in countries with poor (good) institutional environments.
Journal Article
The impact of the institutional environment on the value relevance of fair values
Most prior studies attribute valuation discounts on certain fair valued assets to
measurement
error or bias. We argue that institutional differences across countries (e.g., information environment or market sophistication) affect investors’ ability to process and impound fair value information in their valuation. We predict that the impact of the institutional environment on value relevance is particularly pronounced for reported fair values of assets designated at fair value through profit or loss (hereafter, “FVO assets”), for which investor experience is lowest and complexity is highest. Using a global sample of IFRS banks, we find that FVO assets are generally less value relevant than held-for-trading assets (HFT) and available-for-sale assets (AFS). By partitioning countries into market- and bank-based economies to proxy for institutional differences, we find that the valuation discount on FVO assets is more pronounced in bank-based economies. Additional tests suggest that this valuation discount is attenuated by a richer firm-level information environment and the presence of institutional investors with fair value experience.
Journal Article
Accounting for crypto-assets: stakeholders’ perceptions
Purpose
The purpose of this paper is to analyse stakeholders’ perceptions on the accounting of crypto-assets. They also look at the need to amend/clarify existing accounting standards or develop new accounting standards.
Design/methodology/approach
The authors use a qualitative approach featuring interviews with four stakeholder groups including academics, professional bodies, standard setters and accounting practitioners. Interview recordings are transcribed and then analysed through NVivo.
Findings
The interviewees identify various issues in the application of current accounting standards to crypto-assets. The interviewees perceive that the rapid development of crypto-assets and fluidity hinder the development of accounting guidance. Hence, continuous monitoring by standard-setters is required. The general consensus is that unless there are crypto-assets with economic characteristics and functionality that are pervasive enough to warrant a new accounting standard, principles of current accounting standards are robust to address gaps in accounting requirements for crypto-assets.
Originality/value
This study adds to the discussion on harmonising the current practices in accounting of crypto-assets. By examining perceptions of multiple stakeholder groups, this study provides insights into the applicability of current accounting standards to the classification, measurement and disclosure of crypto-assets. The findings will inform standard setters and aid their efforts towards providing formal guidance on the accounting of crypto-assets.
Journal Article
Examining the Impact of Vulnerability and the Law of Justice on the IFRS Adoption Decision
We investigate the impact of vulnerability and the law of justice indicators on the decision to adopt International Financial Reporting Standards (IFRS) by 133 countries. Applying robust Logit and Probit models to 2021 cross-sectional data, we find that the absence of corruption, state illegitimacy, a well-functioning civil justice system, and insufficient public services are helpful for IFRS adoption. On the other hand, results show that a country’s uneven economic development and human rights violations are detrimental to IFRS adoption. Our research confirms that requiring higher standards for financial and accounting reporting in the media, allocating sufficient budget amounts to support an equitable civil justice system, and coordinating efforts to reduce or eliminate economic inequality may help IFRS adoption. We argue that highlighting the positive benefits of IFRS adoption and the commensurate constructive policy outcomes may add the emphasis needed to convince governmental leaders to move toward IFRS adoption.
Journal Article
The interaction of blockchain technology, audit process, and the International Financial Reporting Standards
Purpose
This study aims to provide a framework for the interaction of blockchain technology, the audit process and International Financial Reporting Standards (IFRS).
Design/methodology/approach
This study was conducted in three phases. In the first phase, a meta-synthesis method was used until 2020. Out of 87 papers, a total number of 15 were selected, and 72 were excluded after an initial screening. In the second phase, 11 interviews were held with experts with sufficient experience and expertise in blockchain technology, accounting and auditing. These interviews were held between 2020 and 2021. The sampling was purposive (targeted) in type, along with snowball sampling. In the third phase, a combination of questionnaire-based method and the fuzzy Delphi method was used. The research population for this phase consisted of accounting professors, members of the Iranian Association of Certified Public Accountants and accounting and technology professionals. Following the selection of the Delphi panel, 35 questionnaires were collected between 2021 and 2022 for analysis.
Findings
The results showed that in line with the interaction of blockchain technology, audit process and IFRS, 52 indicators were confirmed in eight components. Moreover, “Verifiability,” “Timeliness” and “Predictive value” were the most influential factors, respectively, according to the conceptual model. In addition, higher average scores of experts’ views were related to “Transparency audit reports” and “Increasing the quality of the auditor’s judgment”, respectively.
Originality/value
Blockchain is a complex subject, and there has been very little published research on the intersection of IFRS and blockchain technology. It is crucial for the audit profession and technology professionals to focus on the interaction of blockchain technology with the qualitative characteristics of information. This is an area that has not been thoroughly researched yet. The interaction of blockchain technology, improvements in the audit process and adherence to IFRS is a significant development in accounting and auditing.
Journal Article