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(IFRS)INTERNATIONAL FINANCIAL REPORTING STANDARDS AS IT RELATES WITH INTERNATIONAL POLITICS AND CULTURE

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(IFRS)INTERNATIONAL FINANCIAL REPORTING STANDARDS AS IT RELATES WITH INTERNATIONAL POLITICS AND CULTURE

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  2. 2. CHAPTER ONE INTRODUCTION BACKGROUND TO THE STUDY INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) most likely, you have heard the term “IFRS” Steady Progress on Convergence (commonly pronounced “Eye-Fers”) which is the acronym for International Financial Reporting at a 2002 meeting of the IASB and the U.S. Standards. IFRS is a set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements. IFRS are issued by the International Accounting Standards Board. Due to the growth of multinational companies and an increasing trend in globalization, there is need for a single set of accounting standard that 2
  3. 3. facilitate the process of exchanging, sharing and reporting financial results for international business activities. Now a days, ifrs is the basis of the financial reporting standard of most countries and encouraged improvement and convergence of accounting standard There are many companies even after the adoption of IFRS still preferred the national accounting practices in a way that minimizes as far as possible changes in the form of financial reporting that they applied under their previous national GAAP.(Ernest and young,2006) There are many relevant literatures related to international differences in in financial reporting prior to IFRs adoption. Few reasons of implementation difference have been suggested such as providers of finance, taxation, culture and all external factors (Nobes and parker, 2004) In 1998, gray developed a model based hofstede (1980) cultural/societal values related to accounting practices. In this model, he draws a link between societal values and how both values reinforce accounting practices in a particular country. The framework was extended by doupnik 3
  4. 4. and salter (1995) who developed a general model of accounting development which links external environment, Culture and institutional structures to accounting practices. Culture has been established by former researcher to be one of the major reasons of differences in accounting practices (Doupnik and Salter, 1995, Nobes (1998). 1.2 STATEMENT OF THE PROBLEM 4
  5. 5. Financial reporting techniques have been part of the colonial tools employed by the British colonialist to establish the colonial and post- colonial exploitative frameworks of economic environment in Africa. The attainment of independence by the British colonies did not guarantee independence of their accounting system nor standards. Bakre (2008) reports how the Jamaican accounting system still remains at the apron-string of the British despite attempts to freedom. The IFRS in its present form, with the financial reporting standards and practices, are more in line with western standards and practices to fit the requirements of international mobility of capital rather than the developing countries. Culture also influences accounting behaviors with regards to the adoption of International Financial Reporting Standards (IFRS) worldwide. In this context, the homogeneity of applications of IFRS by different countries is to be surveyed. Different cultural values and thought patterns lead to different perceptions of the real world and therefore to individual interpretations of the same standards or conceptions. The translation of standards again conveys individual interpretations and is consequently 5
  6. 6. more or less subjective. For this inspection, Gray´s research “Towards a theory of cultural influence on the development of accounting system internationally” and Hofstede´s cultural dimensions in “Culture´s consequences: Comparing values, behaviors, institutions and organizations across nations” are deployed. From this vantage point, we will attempt to make a statement of the convergence of IFRS applications and the comparability of financial reports between IFRS-adopters, which are the ultimate goals of International Accounting Standards Board (IASB). Related to the evidence found in previous investigation of the role of international power politics and culture on Ifrs adoptions this paper tries to analyze whether international power politics and culture across countries can be an explanation for Ifrs adoption. The goal of this paper is not to IFRS adoption. It aim to answer the following research questioin 6
  7. 7. 1.3 RESEARCH QUESTIONS Following from the statement of the problem above, the following are the statement of the problem in interrogative form: (1)What is the relationship between decision to adopt IFRS by a country and international power politics (2)What is the relationship between decision to adopt IFRS by a country and culture 7
  8. 8. 1.4 OBJECTIVE OF THE STUDY The following are the objective of the study: (1)To find out the relationship between decision to adopt IFRS by a country and international power politics (2) To find out the relationship between decision to adopt IFRS by a country and culture 1.5 RESEARCH HYPOTHESIS The following tentative statement guides this study: 8
  9. 9. (1)There is a positive relationship between decision to adopt ifrs and international power politics (2) There is a positive relationship between decision to adopt ifrs and culture 1.6 SCOPE OF THE STUDY The sample size taken for this study is 50 African countries out of the 56 African countries listed. The geographical area is on those African countries which s listed out in the table. 9
  10. 10. The boundary of the subject matter is on the African continent comprising of 56 counries. 1.7 Significance of the study This significance of the study is of great understanding dealing with fact of this new accounting standard called IFRS. Years have come and gone and this accounting standard IFRS is been globally accepted to improve the quality of financial statement on businesses and firms. And here is a platform for couuntries that are yet to adopt this accounting standard IFRS This study will help the global community in enlightening them on the adoption of IFRS In relation to the role of international power politics and culture in African countries adopting IFRS. Of course this studybwill greatly serve as a reference for future studies, 1.8 Limitation of the Study 10
  11. 11. This project work was limited due to some various factors beyond my control, like the poor network of some internet facilities the researcher used. Lack of power supply from the power distribution center of the State and lack of sufficient material for the project and also sourcings for datas for the variables. 1.9 Organisation of the study The study is organised as follows Chapter one is the introductory part of the study Chapter two is the review of literature Chapter three is the method of data collection and analysis Chapter four is on presentation and analysis of data Chapter five is the Summary,conclusion and recommendation 11
  12. 12. 1.10 OPERATIONAL DEFINITION OF TERMS International Financial Reporting Standards (IFRS) 12
  13. 13. IFRS is a set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements. IFRS are issued by the International Accounting Standards Board. IFRS are sometimes confused with International Accounting Standards (IAS), which are the older standards that IFRS replaced. (IAS were issued from 1973 to 2000.) INTERNATIONAL POWER POLITICS Politics by definitions is the process of making decisions by adults in regard to how society ought to function. In terms of a global society, international politics help steer and shape the precedents set by industrialized nations so they may hopefully be embraced and implemented in developing countries (Lane and maeland). 13
  14. 14. CULTURE Taylor(1974). Culture is the characteristics of a particular group of people, defined by everything from language, religion, cuisine, social habits, music and arts. Culture refers to the cumulative deposit of knowledge, experience, beliefs, values, attitudes, meanings, hierarchies, religion acquired by a group of people in the course of generations through individual and group striving. 14
  15. 15. CHAPTER TWO LITERATURE REVIEW 2.1 HISTORICAL PERSPECTIVE OF IFRS Nations all around the world are following the fast pace convergence of national generally accepted accounting principles with that of the IFRSs. The forces of globalization and harmonization have been present from the very beginning of this process and have shared in the institutionalization of a "new regulatory regime" (Fontes et al., 2005,). The International Accounting Standards Board (IASB) took on its standard setting responsibilities on April 1, 2001 after its predecessor the International Accounting Standards Committee (IASC). The IASC was designated with the task to design and issue International Accounting Standards (IAS) and did so from 1973 to 2001 until the appearance of the 15
  16. 16. IASB. The IASB did not only develop International Financial Reporting Standards (IFRSs) but it also confronted new topics not yet addressed by the IASC in addition to adopting the previous set of IAS and either renamed them or developed them more in order to give them the new name under a new authority. IFRSs have been deliberately developed as a global language for accounting across boundaries; this process began in the 1960's, which latter led to the formation of the IASC in 1973 by an agreement of the leading professional accounting bodies in 10 countries (Australia, Canada, France, Germany, Ireland, Japan, Mexico, the Netherlands, the United Kingdom, and the United States) to address the matter of the lack of comparability of financial reports between countries (Alfredson et al., 2005). Now, the IASB has sought out for partnership agreements with national accounting standard-setters in order to endorse the adoption of IFRSs. The IASB is a London based regulatory board. Even though 16
  17. 17. developing countries may face difficulties throughout the process of implementing and complying with these standards, the desire to achieve international accounting harmonization has always been one of the key motives that have made the process a bearable one. It was officially recognized in 1966 when professional accounting bodies first activated their attempts towards finding a set of international accounting standards (IASC/IASB Chronology, 2006), that there was a need for a "high quality global GAAP" (Ampofo & Sellani, 2005). Its not only developing countries, "even countries with a long relationship and a strong position in the international accounting harmonization process found themselves at different stages of convergence" (Hussey & Ong, 2005). 2.2 IFRS IN AFRICA Africa is a vast continent and both the strengths and weaknesses of its implementation of a common form of financial reporting through IFRSs and its institutional strengths and weaknesses vary enormously 17
  18. 18. from country to country, and region to region. The Francophone countries north of the Sahara tend to retain their culture of sticking with French domestic accounting rules. South Africa, by contrast, has been a financial reporting powerhouse with a highly regarded stock exchange in Johannesburg and an impetus in implementing the IFRS for SMEs unrivalled around the world. The country of eastern Africa are steadily moving towards IFRSs, and to the west an economic giant, Nigeria, is on course for IFRS implementation from January 2012. ‘There is no country resistance to IFRSs anymore’, says Zubaidur Rahman, Program Manager, Financial Management Unit, Operations Policy and Country Services with the World Bank. But he points to the other obstacles. ‘It is the capacity, the professional accounting bodies, educational institutions, regulators and auditors that remain the problem.’ ‘Africa’, says Jerry Mutonga, Manager for Financial Management with the African Development Bank, ‘has a wide spectrum of countries and the accounting capacity varies from next to nil in some, to others, like South 18
  19. 19. Africa, with good capacity. For example, the number of qualified accountants in Francophone countries is so limited. It will take years to get to the technical capabilities required. Even with a simplified version of IFRSs they will not be able to comply in the next 10 years. 2.3 IFRS AND CULTURE Before introducing the dimensions of culture, it is essential to find a proper definition for culture. There is no universally agreed definition for culture. As we are going to analyze the influence of cultural values on accounting behaviours by using the cultural dimensions of Hofstede, it is, therefore, sensible to take the culture definition by Hofstede in account. Culture is described as “the collective programming of the mind which distinguishes the members of one group or category of people from another” (Hofstede, 2001). Based on the definition, IFRS-adopters are 19
  20. 20. generally classified in three major accounting cultures: IASB-culture, EU- IFRS culture and local IFRS culture . Historically, distinct desired outcomes have led to the development of different reporting mechanisms within financial accounting standards, but more recent changes in the world business environment have made such a multiplicity of financial reporting rules undesirable. First and foremost among these is the inability to compare international financial statements without considerable effort on the part of the stakeholder. International standard setting bodies and national agencies have reacted to this problem largely by adopting IFRS as a compliment to or in replacement of their older national standards. This literature shows that countries with similar values on the Hofstede measures tend to have other social similarities including business activities (Lin et al., 2008). Further, research shows that countries with similar cultural foundations are more likely to trade with one-another. Membership in the European Union offers benefits such as 20
  21. 21. trade and the ability of citizens to move between member states for employment. Membership also has its obligations, however. One of these is the requirement for consolidated financial reporting, where publicly traded companies must use IFRS as the reporting medium. Thus, as a precursor to a larger discussion of adoption of IFRS in the world economies, the Union may have experienced a centric cultural migration in order to facilitate the formation of such a cohesive economic policy. Because economic affiliations tend to form along cultural similarities. With the movement in international markets toward convergence to IFRS as either the default system of financial reporting or an alternative to the national system of reporting, the current research posits that cultural commonalities among adopting countries may impact the timing of such adoption. The influence of culture on the development of accounting systems and financial reporting has been widely studied. Hofstede’s work on mapping culture into four dimensions forms the basis of much of this inquiry. Hofstede defines culture as the systematic 21
  22. 22. programming of the mind and he posits (1980) that there are four cultural dimensions: individualism (versus collectivism), power distance, uncertainty avoidance, and masculinity versus femininity. The perception of IFRS as a European institution is likely to affect the international standard acceptance by any country(Ding et al 2005, ciesielski 2007,Norris 2007) Countries that are culturally more accepting of European institution international accounting standards can be politically feasible.in countries where European institution are non native, adoption of IFRS can be viewed as abrogating authority to a European standard setter. Thus certeris paribus, we predict countries that are culturally closer to Europe are more likely to adopt IFRS 2.4 IFRS AND INTERNATIONAL POWER POLITICS 22
  23. 23. This research also asserts a link between the political prestige of a country and its willingness to adopt IFRS, with more powerful ones resisting IFRS to a greater extent than those with less political influence. Countries that perceive IFRS adoption as ceding standard-setting power to the EU demonstrate a higher degree of aversion to IFRS. Network trends may also exert influence on a country’s desire to participate in IFRS. Current data indicate a correlation between a country’s adoption of IFRS and its adoption by surrounding nations or by other countries with significant political standing (Ramanna, 2009) Financial reporting techniques have been part of the colonial tools employed by the British colonialist to establish the colonial and post- colonial exploitative frameworks of economic environment in Africa. The attainment of independence by the British colonies did not guarantee independence of their accounting system nor standards. Bakre (2008) reports how the Jamaican accounting system still remains at the apron-string of the British despite attempts to freedom. The 23
  24. 24. IFRS in its present form, with the financial reporting standards and practices, are more in line with western standards and practices to fit the requirements of international mobility of capital rather than the developing countries. Other studies have demonstrated that imposing a financial reporting standard on less developed economies is a testimony that accounting is a political technology and architectural innovation of the West (Mitchell and Silka, 1993; Power, 1994; Copper, 1995). As a neo- colonial tool, accounting has been applied to accumulate and allocate economic surpluses and safeguard the interests of colonial and other international capital by watching over capital and performing global functions of capital (Arnold and Sikka, 2001). Bakre (2008) describes the global accounting standard setters as capitalist bodies which seek to impose on other countries, particularly developing countries, established financial reporting rules conducive to the international mobility of capital. Accountancy firms and professional bodies from the western world dominate and attempt to set financial reporting standards not just for the western world, but also for the whole 24
  25. 25. world. These rules and regulations are often a response to politics, conflicts and scandals in the western world (Mitchell and Sikka, 1993). For instance, Botzem and Quack (2009) report that at the G20 (i.e. the world most developed economies) summit held in London in April 2009, the Summit urged the standard setters to articulate urgent solutions to the financial crisis particularly caused by treatment of financial instruments. Such directives are indications of the extent of influence and interest of the West on reporting standards. Bakre (2008) also demonstrated how the British professional accounting body in collaboration with the multinational accounting firms have tilted the balance of the accounting profession towards international mobility of capital, in which their interests and that of their home countries are protected. He argued that the continued use of imperial-type financial reporting techniques and practices, as in the IFRS, is a political technology because of the peculiar ends that it serves. 25
  26. 26. The African continent has made frantic efforts to ensure that the region is not left out in the accounting harmonisation process. The African Accounting Council (ACC), made conscientious efforts to help member countries set up their independent GAAP. most Francophone countries also subscribe to the OHADA accounting regulations. Whether such harmonisation is relevant or contributes to the development of the continent has remained an issue of intense debate Thus, most Francophone colonies such as Benin, Niger, Burkina Faso, Cameroun, Republic of Congo, Cote d’Ivoire, Gabon, Mali, Guinea, Senegal, Togo, Chad, Congo DR, and Equatorial Guinea became under obligation to modify the OHADA accounting system by including elements of the IFRS (Elad and Tumnde, 2009). If the IFRS is focused on the benefits of investors, countries without stock markets will find its adoption irrelevant. In such circumstances, coercion by imperial powers and the World Bank for adoption of the international standards becomes mean and oppressive; as such countries do not stand to benefit from the adoption. It becomes therefore apparent that edging towards IFRS 26
  27. 27. compliance in these countries is not out of self will but from compelling influence and circumstance. Thus countries that are former colonies are likely to be influenced in the international community by the former masters in the adoption ot the accounting standard called IFRS 2.5 CONCEPTUAL FRAMEWORK There is evidence that political consideration affects the adoption of IFRS decisions. We find that more powerful countries are less likely to adopt IFRS, consistent with more countries being less willing to surrender to the IASB. Country level power as measured as the first principal component of a set of proxies for countries to influence 27
  28. 28. international decision considering their size and popularity within the united nations In contrast to the results of power,we do not find evidence of culture closeness to the EU influencing their IFRS adoption decision, where more Christians countries and countries with long settled colonial relations with Eu powers are considered culturally closer to the region. Academic theories yield mixed predictions on whether the adoption of IFRS is benefictial to a country. Some scholars have argued that international harmonization in according can improve Capital market efficiency: a common sret of international accounting standard can reduce the information processing and auditing cost to market participant(Barth,2007:2008) IFRS by definition are the result of an international political economy equilibrium and thus cannot be expected to provide reporting standards that are uniquely suited to any given countrys circumstance(leuz and wysocki, 2008) 28
  29. 29. 2.5.0 Net Political values of IFRS The adoption of IFRS by a country also involves trading off the political gain from being able to influence international standard setting against the value lost from surrending local authority over accounting standards. We describe the trade offs between the benefit and cost as constituting the net political value as arising from two factors (i) International Power Politics (ii) Culture politics International power politics : ceteris paribus , we would expect more powerful countries to have a larger positive political value since more powerful countries are more likely to be to be able to influence the nature of international standard The influence of powerful countries can be the result of explicit lobbying and pressure tactics or the result of the IASBimplicitly catering to powerful interest when developing standards, The dominant position of the EU in 29
  30. 30. IFRS standard setting presents, however an important contrast is likely to alter the prediction above As notedealier the development of IFRS is strongly linked to support from EU. The IASB is physically situated within the EU and to date, the EU remains the IASB,s largest sponsor(IASB,2008). If a country choses to adopt IFRS,it must either engage in the political process to try to shape the nature of the international standards, cede the standard setting role to the other political playes. It is unlikely that more countries will adopt the latter route, however if they choose to engage in the political process.They will either have to enter into costly political wrangling with the EU Faced with this choice it is reasonable to expect that more powerful countries are less likely to adopt IfRS. On the other hand, for less powerful countries,there is little political face lost on adopting EU-centric standards Thus, ceteris peribus we can predict that less powerful countries are more likely to adopt IFRS 30
  31. 31. CULTURE POLITICS: In addition to country- level power politics, the perception of IFRS as a European institution is likely to affect the international standards acceptance in a country( Ding et al 2005, Ciesielski 2007, Norris 2007). In countries that are culturally more accepting of European institutions, international accounting standards can be more politically feasible.In countries where European institution are non native,adoption of IFRS can be viewed as abrogating authority to a European standard setter Thus ceteris paribus, we predict countries that are culturally closer to the Europe are more likely to adopt IFRS 2.5 REVIEW OF Empirical Literature 2.5.1 WHAT IS IFRS? International Financial Reporting Standards (IFRS), together with International Accounting Standards (IAS), are a "principles-based" set of standards that establish broad rules rather than dictating specific 31
  32. 32. accounting treatments. From 1973 to 2001, IAS was issued by the International Accounting Standards Committee (IASC). In April 2001 the International Accounting Standards Board (IASB) adopted all IAS and began developing new standards called IFRS. 2.5.2 Structure of IFRS IFRS are considered a "principles based" set of standards in that they establish broad rules as well as dictating specific treatments. International Financial Reporting Standards comprise: •International Financial Reporting Standards (IFRS) - standards issued after 2001 International Accounting Standards (IAS) - standards issued before 2001 Interpretations originated from the International Financial Reporting Interpretations Committee (IFRIC) - issued after 2001 Standing Interpretations Committee (SIC) - issued before 2001. Different cultural values and thought patterns lead to different perceptions of the real world and therefore to individual interpretations of the same standards or conceptions. The translation of standards again conveys individual interpretations and is consequently more or 32
  33. 33. less subjective. By examining those two factors, we could come to a conclusion about the influence of value orientations on accounting values and behaviours. For this inspection, Gray´s research “Towards a theory of cultural influence on the development of accounting system internationally” and Hofestede´s cultural dimensions in “Culture´s consequences: Comparing values, behaviours, institutions and organizations across nations” are deployed. From this vantage point, we will attempt to make a statement of the convergence of IFRS applications and the comparability of financial reports between IFRS- adopters, which are the ultimate goals of International Accounting Standards Board (IASB). 2.5.3 Reasons for adoption There are many reasons for the adoption of IFRS. On the one hand, all listed companies located in Europe are obliged to apply 33
  34. 34. IFRS. On the other hand, there are a great number of companies in other continents apply IFRS on a voluntary basis such as Brazil, Canada, US, Japan, China and Australia. The motivation for the (voluntary) adoption can be explained by the “economic theory of networks” (Ramanna/Sletten, 2009). Companies tend to adopt IFRS when their business partners are also in a (worldwide) network of IFRS-adopters. 5 Moreover, the adoption of IRFS opens access to the cross-border financial markets, which enable competitive financing for companies. The choice over a certain version of IFRS depends first of all upon the business and financial culture, e.g. tax law, structure of business transactions, business ethic, traditional forms of firm financing. Furthermore, the politics and the regulatory culture of a country also contribute to the different choice of IFRS-adoption .According to Hall10 (1976), culture of a society can be seen as an iceberg. While some aspects of culture are directly observable, the large portion is below the water. On the assumption of relation 34
  35. 35. between accounting and cultural values, one needs to undercover the underlying beliefs, value and thought patterns to find out the reasons for different accounting behaviours as well as the choice over a certain IFRS-version. 2.5.4 Merits of Adopting IFRS “Advantages to developing nations of harmonizing on IFRS include: the elimination or reduction of set-up costs in developing national accounting standards; the potential for rapid national improvement in the perceived quality and status of financial reports; increases in market efficiency in 35
  36. 36. (inter)national financial markets through the provision of more understandable, comparable, and reliable financial Statements; and a reduction in the cost to firms of preparing financial statements”(Nobes & Parker, 2006). The costs that developing countries would have incurred in developing their own accounting standards are averted when they adopt IFRS. However, these costs are shifted from setting up to training local staffs in handling the IFRS which by far would be profitable to these developing countries. Invariably the quality of financial reporting in these developing countries would increase considerably taking into account the source of these standards. It would also boost the international activities of firms in that they can present reliable andcomparable financial information. More so, companies in these developing countries can raise capital from international financial markets since their financial reports can be compared to other international companies 2.5.5 Demerits of IFRS in Developing Countries 36
  37. 37. The international accounting harmonization objective is that, “Globalization of capital markets appear to be the driving force behind the proposed changes and while for this reason they may well suit the purposes of the first world nations, their effect on third world countries could be catastrophic” (IASC, 1990 as cited in Chamisa, 2000). In this light therefore, developing countries adopt the IFRS with the sole aim of satisfying their accounting and financial reporting requirements but not purposely aiding in harmonizing accounting standards. These developing countries therefore select the standards that would help their course and modify those that would not be extremely beneficial to them. Developing countries pursue international harmonization of these accounting standards as far it does not hamper on the local accounting needs, laws and regulations. If the main objective for proposing the IFRS is to achieve a globalized capital market whiles most developing countries possess weaker or no capital, then surely adopting these standards can be disastrous to some degree. In addition to the above, the “International Financial Reporting Standards are “carbon copies” of standards originating from the UK and 37
  38. 38. the USA with strong orientations towards maximizing shareholders‟ wealth rather than the social functions of accounting” (Rahaman et al, 2004). Most developing countries have weak structures in place to develop good accounting system and for that matter the first point of call when it comes to accounting issues is shaping and developing meaningful accounting system rather than adopting already structured standards from the developed countries. More so, the fact that these standards were developed with the economy of these developed countries as a yardstick makes the importance of the adoption of IFRS questionable. “Other authors also argue that accounting should not be treated as the object of providing useful information to investors only, but a craft that serves the purpose of divergent interested groups. Since most developing countries would be pursuing different socio-economic development policies, the usefulness of standards developed with significant influence from the advanced industrialized nations remains contestable” (Mir and Rahaman, 2004). The bearing of IFRS on the economic growth of developing countries which have adopted them is conflicting considering the precious studies 38
  39. 39. conducted. For instance, Woolley (1998) studied the bearing that the adoption of IAS has on the economic growth of some Asian countries and came to the conclusion that the average economic growth rate of developing countries when grouped by their approach to adoption or non- adoption of IASs was not significantly different which underscores the point that the adopters were not better off nor worse off as compared to the non-adopters. However, a similar study conducted in Africa observed a higher level of economic growth for countries that adopted with some form of modification of some of the standards to suit the local environmental factors (Larson, 1993). It is worth mentioning that, harmonizing of IFRS by developing nations would mean the adoption of a set of accounting standards unsuited or irreconcilable to national needs. At firm and national levels, this may result in standards overload as firms strive to comply with IFRS that exceed their business requirements in complexity and the ability of local accounting staff to implement or comply with them (Perera, 1989). 39
  40. 40. Increasing harmonization and complexity in accounting standards tends to facilitate expansion of large international accounting firms at the expense of local firms in both developing and developed countries. 2.5.6 The Strong converge while the weak adopt What is even more intriguing is the fact that the highly industrialized countries have all, to some extent, cherry picked some parts of IFRS, ie. converged to IFRS on their own terms, whilst edging less developed countries to adopt unreservedly without any modification. For example, we might think that the larger economies like Canada, the European Union China, India, Russia, and Japan have all adopted IFRS. Nearly all these countries have modified IFRS to suit their economies’ needs. In other words, they pick and choose which IFRSs are relevant and which are not. Unfortunately, many developing countries are in the terrain of adopting these standards without any thought to modification. 40
  41. 41. 2.5.7 Uniformity for a diverse continent? An argument I would like to advance for the no suitability of IFRS in Africa is the fact there is to a larger extent a great diversity in the socio-economic setting in the continent. At least in the European Union (which happens to be the largest patron of IFRS), there exist differences between member countries. But one thing sets them different from the African Continent. The ability of the European Union to design regulations and directives that are enforceable by all member states makes it easier to have a uniform financial system. In Africa, even regional bodies such as ECOWAS and the AU are hardly able to agree on anything which can be enforced. At a conference in South Africa, the out gone chairman of the IASB, Sir David Tweedie, commented that the process of designing IFRSs involves constituents from around the globe. These continents speak with one voice and have the 41
  42. 42. backing of the representatives from the Institutes and Standard Setting Boards within the countries on those continents. When they speak,IFAC (the International Federation of Accountants) and the IASB have to listen. These other continents (excluding Africa) influence the development of the Standards to take care of circumstances within their continents. Africa is also there, but because its countries of this very diverse continent – 54 states! – do not have a united voice, they generally have minimal influence. Even if African countries should adopt IFRS as given, it is unclear how the benefits of IFRS can be measured, as enforcement within the region will be left in the hands of individual countries. Apart from that, each country in Africa differs from the others economically. Thus, whilst some countries are only tax based economies some are clearly natural resources driven. 42
  43. 43. CHAPTER THREE METHODOLOGY 3.1 INTRODUCTION Chapter 3 includes a review of the research method and design appropriateness, a discussion of the population and sample, sampling technique. In addition, this chapter also includes the sources of data, measurement of variables, methods of data analysis and the model specification. 3.2 THE RESEARCH DESIGN The cross-sectional survey design was adopted in this study, this is because the secondary data collected was at a particular point in time without any intention to take a second look at the data source 43
  44. 44. 3.3 POPULATION AND SAMPLE The population in this study is made up of all the 56 countries making up Africa. The sample size of 50 countries in Africa is used. This sample size is adjudged to be adequate because it is representative of the population. 3.4 SAMPLING TECHNIQUE The samplingtechnique of this study which the samples were collected enables the researcher to carry out his research in the most appropriate manner which relates to the variables in the table for a regression model on the data being collected. 44
  45. 45. 3.5 SOURCES OF DATA The data used for this study and their secondary sources are as stated below: TABLE 3.5.1 DESCRIPTION OF VARIABLES S/N VARIABLES DATA SOURCE 1. ADN International financial accounting standard 2. IPP http//en.wikipedia.org/list of Africa countries by Gdp 3. CULTURE http//en.wikipedia.org/list of Africa countries and territories 45
  46. 46. Source: Marwa,M.f and Nyaboga A.B 2008, International financial accounting standard and the continent of Africa.IABR and TLC conference proceeding 3.6 MEASUREMENT OF VARIABLES The variables used in this study (international power politics and culture) were majored as follows: (1)International power politics: this is to be taken as the population of the country or geographical area 46
  47. 47. (2) Culture: This is to be taken as cultural closeness to Europe. If a country is culturally close to Europe, we give it a score of one and otherwise zero. 3.7 METHOD OF DATA PRESENTATION AND ANALYSIS All data collected and analyzed for this research will be presented in table form. This is to ensure orderly and organized data presentation for easy understanding and also the study adopted the regression method of data analysis 47
  48. 48. 3.8 MODEL SPECIFICATION A simple linear econometric model shall be adopted for this study – since the study focuses on IFRS adoption: The role of international power politics and culture ,the Binary logit regression method shall be applied. The specification of the model for explaining IFRS adoption: The role of international power politics and culture is given below: ADN=F (IPP, CUL)…………………(1) This can be econometrically expressed as 48
  49. 49. k K ADN = α1 + ∑ β1 IPP + ∑ β2CUL j=1 j=1 Where α1 = Intercept of the equation B1-B2 = Coefficient of the variable ADN = Adoption of IFRS IPP = International power politics CUL = Cultural closeness/Culture . 49
  50. 50. The apriori or theoretical expectation between the dependent and independent variables are given below; BI >O International power politics has positive impact on Adoption of IFRS (ADN) B2>O Cultural closeness/Culture has impact on Adoption of IFRS (ADN) DECISION RULE If the value of the calculated ratio is greater than the table value, the null hypothesis (Ho) would be rejected and the alternative hypothesis (H1) will be accepted. If the calculated value is less than the table value, the null hypothesis (HO) would be accepted and the Alternative hypothesis (H1) will be rejected. . 50
  51. 51. CHAPTER FOUR PRESENTATION AND ANALYSIS OF DATA 4.1 INTRODUCTION This chapter contains the presentation and interpretations of empirical findings. This result is analysed using the binary logit based on its advantage in qualitative 51
  52. 52. response models. Thus the coefficient are explained as the likelihood of achieving the dependent variable 4.2 PRESENTATION AND ANALYSIS The study has attempted to examine empirically IFRS Adoption and the role of international power politics and culture. In the previous chapter, we specified an econometric model that captured the effect of the independent variables on the dependent variable. The data is analyzed using the Binary logistic regression technique with data covering 50 observations. The Binary logistic regression Estimation technique is adopted due to the presence of categorical variables in the model. The coefficient of the variables is explained as the likelihood of achieving the independent variable (Adoption of IFRS). The result for the specified model is presented as follows: 52
  53. 53. RESULT OF BINARY LOGIT ESTIMATION Dependent Variable Explanatory Variable Coefficien t Standard Error -ratio AND C 0.619228 0.572029 1.082512 CUL 1.452725 0.657814 - 2.208428 IPP 7.83E-05 9.12E-05 0.858582 Sources: EVIEWS 2012 ADN= 0.619228-1.452725CUL+7.83E-05IPP 53 McFadden R- squared 0.082983 LR statistic 5.725385 Prob(LR statistic) 0.057115
  54. 54. (1.082512) (-2.208428) (0.858582) Note: Z-Statistics are presented in Parenthesis below each coefficient estimate in the equation above: 4.3 INTERPRETATION OF RESULT A close examination of the results above shows that in table 4.1, the explanatory variables (CUL and IPP) explained about 8.29% of the systematic variation in ADN. This is shown by the McFadden R-squared of 0.82983 above. The LR-statistic value of 5.72 is significant. This is because a comparison of the calculated value with the table value at the 11% level of significance shows that LR-statistic value critical value. This shows that the explanatory variables are jointly significant in the model for explaining the adoption of IFRS. Thus the overall model is significant in explaining the adoption of IFRS 54
  55. 55. On the basis of the Z-test, only the co-efficient (CUL) passed the Z-test at 5% level of significance. This is because the critical value of (-2.208428) in absolute term is greater than the rule of thumb value of 2. This is to an extent means that culture is a strong determinant of the adoption of IFRS. The coefficient of (IPP) did not pass the test of significance. The Economic criteria pertaining to the apriori sign from the results shows that the coefficients of IPP conform to the apriori expectation by bearing the required signs. The coefficients of CUL did not conform to the apriori expectation by bearing a negative signs. 4.4 HYPOTHESIS TESTING 55
  56. 56. On the basis of the test of individual empirical significance, the result of the regression exercise reveals that explanatory variables (CUL) used for the analysis passed the test of significance, while IPP fail to pass the test. It is on this basis we can now test our hypothesis. DECISION From the result above, it can be observed that the Z- calculated value of (-2.2084) in absolute term for CUL is greater than the rule of thumb value of 2 . Therefore we can conclude by accepting the alternative hypothesis (H1) and reject the null hypothesis (HO). Hence Culture has a significant impact in the adoption of IFRS While the Z-calculated value of (0.858582) in absolute term for IPP is less than the rule of thumb value of 2 . Therefore we can conclude by rejecting the alternative 56
  57. 57. hypothesis (H1) and accepting the null hypothesis (HO). Hence IPP has no significant impact in the adoption of IFRS 4.4.1 DISCUSSION The result obtained from the binary logistic regression is fairly satisfaction and can be relied upon. Thus the deduction that could be made from the empirical findings is predicated on the size and magnitude of the slope of the coefficient. The result shows that culture has a negative relationship on IFRS. A unit change in CUL will result to the likelihood of not adopting IFRS. 57
  58. 58. Another implication of the result is IPP, which shows a positive relationship. A unit change in IPP will result to the likelihood of adopting IFRS. In conclusion, the result implied that the explanatory variables play an important role in the adoption of IFRS. In conclusion,the result implied that the explanatory variables play an important role in adopting IFRS. CHAPTER FIVE SUMMARY OF FINDINGS, RECOMMENDATION AND CONCLUSION 5.1 SUMMARY OF FINDINGS 58
  59. 59. This study has tried to fully comprehend and highlight the econometric Analysis of the impact or the relationship between Culture, international power politics and the IFRS adoption using cross sectional data of 50 African countries. Based on the quantitative exploration of the relationship between the dependent and independent variables used in the model,we found out that culture plays a significant role in the adoption of IFRS. The study also shows a positive relationship between the adoption of IFRS and international power politics which was proxied with GDP. Though international power politics had the required sign, it was not statistically significant in the model and does not to a large extent according to our research findings determine the adoption of IFRS. The empirical analysis that exist between the dependent and independent variable was carried out with the aid of the logistic regression. The binary logit was used and the result shows negative relationship between in the adoption of IFRS and culture. The result also 59
  60. 60. shows that culture was significant in explaining the adoption of the IFRS , while international power politics was not statistically significant in the model but had a positive relationship with the adoption of IFRS 5.2 RECOMMENDATION In view of the current economic situation in the country and Africa at Large, this study hence recommends the following : 1. Countries especially West African countries should adopt IFRS as a common accounting standard in other to bring transparency, uniformity and universality into accounting reporting system. 2. Since the world is fast becoming a global village and African countries are in dire need of expanding their frontiers, it is important for both British colonized and non-British colonized countries to adopt IFRS as it gives them the opportunity to venture into cross boundary activities. 60
  61. 61. 3. There should be massive sensitization and enlightment of developing countries on the need to adopt IFRS, as it will enable countries have a unified accounting standard. 4. African countries should develop a common accounting standard in other to have their own objectives and standard incorporated in the IFRS as the IFRS have been argued to reflect United kingdom accounting system. 5. There is need to improve on culture in respect to the adoption of IFRS in other to remove the colonialist barrier 6. Countries should ensure that they establish meaningful accounting system in place before thinking of adopting IFRS CONCLUSION IN conclusion, this study have established that there exist a positive relationship between in the adoption of IFRS and 61
  62. 62. international power politics while a negative relationship with culture. The research work demonstrates and underscores the need for the adoption of IFRS, as IFRS serves as a global language for accounting across boundaries. The research work also demonstrates the problem facing the adoption of IFRS, in terms of culture barrier as many French African speaking countries prefer to stick with French domestic accounting rules. Thus there is need for concerted effort on the part of Government in francophone countries to break away from this culture barrier in other to have a universally accepted accounting reporting method called IFRS. The research shows that IFRS has been perceived as a European institution and according to Bakre (2008) countries describe the global accounting standard as a capitalist body which seeks to impose on other countries, established financial reporting rules 62
  63. 63. conducive to the international mobility of capital. Thus, there is need for massive sensitization of developing nations and the need for the accommodation and a critical way to give room for the harmonization of Africa accounting rules into the IFRS, as most countries perceives developed countries as selecting the standard that would help their course. 63

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