Chapter 4: International Accounting Harmonisation: Literature Review
4.8 Summary, research problem, theoretical approach and research questions
The aim when conducting the current research project was to address calls for further evidence of users’ perceptions of IFRSs’ financial information (i.e. how do users perceive and respond to implementation of IFRSs?). Another target was the provision of an alternative theoretical understanding of accounting harmonisation processes and a discussion of what
82
drives users’ perceptions. From the above literature review it is obvious that without empirical data only normative assumptions can be made.
The majority of international, and specifically accounting research related to the IFRSs presupposes that financial reporting harmonisation as a necessity is a development that is taken-for-granted. Nevertheless, the examination of IFRSs adoption in this study is set against a political economic context. In the previous chapters, the development of international accounting standards, through the emergence of the IASB has been critically examined, as has the role of the US and the EU in influencing the directions and fate of the internationalisation of accounting regulations. What has been challenged is this argument is that ‘globalisation’, in the sense of a new era in which individuals, enterprises and nations- states are increasingly subject to the disciplines of a common and global marketplace, is the driving force behind the rush towards convergence of accounting standards. The argument raised was that the economy is increasingly segmented into major imperialist regional blocs in which national governments remain powerful and recognised ‘Anglo-Saxon’ bias dominates accounting internationalisation processes and attempts. In order to make sense of the changes and implications of companies’ financial reporting shift to the IFRSs in Greece, an historical account of the development of the Greek economy and accounting regulations and practices was provided, with particular reference to the influence of local political, economic and institutional features.
Some of the studies reviewed in this chapter have concentrated on the early years of adoption, and their findings may appear unfavourable due to transitional costs and lack of preparedness of companies. Although there is evidence that there are positive market outcomes and reactions, the literature review reveals that empirical research fails, in general, to support the view that IFRSs adoption leads to an improvement in comparability, transparency and, hence, in the quality of financial statements; even where transparency and comparability increase subsequent to IFRSs adoption, it cannot be assumed that this will trigger positive economic consequences or that the improvements are not due to other tendencies, biases or institutional factors (Brüggemann et al., 2013).
The objectives of the IFRSs’ conceptual framework have been shown to rely on debatable assumptions that mandatory adoption of IFRSs is adequate to make reporting practices across countries more comparable and transparent, in general to enhance the quality of financial reporting information leading to improved reporting practices that yield positive economic
83
consequences. These assumptions, however, are not always supported by prior research, as research findings stand in contrast to regulators’ statements and expectations of a harmonised impact of IFRSs adoption in isolation of reporting practices across different firms and jurisdictions. The majority of the research on IFRSs investigates several users’ and key actors’ perceptions, mainly based on surveys and questionnaires, and so it fails to make sense of what drives perceptions of the use of IFRSs, or how inconsistencies between the objectives of IFRSs and their practical outcomes are managed. These perceptions are not set against a political economy context. Attempts to understand and expose the value-laden and market- driven objectives (qualitative characteristics) of IFRSs that do not adhere to universal and wider beneficial ideas are limited.
The zeal and efforts from governments at the national level, typically the main exponents of IFRSs adoption, reinforce the argument that the political nature and rationale of accounting should not be ignored or underestimated (Chua & Taylor, 2008). The rhetoric adopted to support wider transformations is reflected inevitably on financial reporting standards and concentrates on ideals such as, comparability, reliability and transparency. Even if these are understood as ideals or fictions employed by a technocratic accounting standards board that promotes international harmonisation and the elimination of differences in terms of standard philosophy and content across geographical borders, they also have real consequences and can be regarded as ‘real’. Thus we can ask: why do communities accept the usefulness and the necessity of fictions? Do they challenge these?
There is a bias in current mainstream research towards capital market research based on the efficient markets hypothesis and event study methodology following neoclassical economic theories introduced by University of Chicago (Kothari, 2001). Results on qualitative characteristics, such as comparability and transparency lack homogeneity. For example, papers that examine the comparability of financial statements may use different proxies to measure these and are conducted in different country or industry settings which affects the comparability of the results; it is therefore difficult to arrive at any concrete and common conclusions about ‘qualities’. According to West (2003) the numbers utilised to construct statistical models are, in many cases, not quantities. These numbers are, instead, operational figures that cannot be construed as measures of any scientifically meaningful property.
Constructing elaborate calculative models using operational numbers leads to equations with results that are undecipherable without assumptions of validity or a prescribed narrative
84
already embedded in logic derived from the construction of the model. Rigour is, thus, sometimes a matter of appearance and not a substantive quality.
4.8.2 Research Objectives
Initially, the aim of this thesis is to illustrate the way wider institutional and governance changes in financial reporting and the transition to IFRSs are perceived at the micro level, by conducting interviews with local actors, namely key users and preparers. It asks: what does the adoption of IFRSs imply to users, preparers and the profession in Greece? Evidence of attitudes towards the transition and implementation process is being sought. In particular how financial statements are used, what challenges are encountered and the recognised benefits after the adoption of IFRSs.
Juxtaposing both the ‘national’ and IFRSs financial reporting frameworks will enhance understanding of the impact of the shift to IFRSs on quality dimensions and objectives of financial reporting. It will then be possible to discover: is there a consensus between the users’ and preparers’ views on the purported improved quality of financial statements prepared under IFRSs? What are the implications of that shift on economic decisions and the roles of actors; are IFRSs more relevant, reliable, and transparent and what is the relationship between tax accounting and IFRSs? How are accounting transgressions dealt with?
Although the IFRSs arguably have the potential to render organisations more transparent and comparable, it is hoped that this study will uncover whether this achieved in a meaningful way. The purpose of the current enquiry is not to measure and quantify these characteristics but to understand the views of users and preparers. However, we provide rich evidence on how local actors affect social change and accounting practice, the effects resulting from IFRSs’ diffusion at the level of local practice, with regard to implementation and compliance.
The current study also provides further empirical evidence of relevant research, conducted in Greece, regarding views on the implementation of IFRSs, for instance, Spathis and Georkakopoulou (2007), Caramanis & Papadakis (2008), Ballas et al. (2010) and Papadatos
& Bellas (2011).
The analysis herein will attempt to mobilise the empirical data to provide a critical perspective, by problematising unquestioned beliefs, forms of understanding and values upon which taken-for-granted surface accounts of key users encourage theoretical insights. It will
85
also aim to reveal any implicit assumptions accepted by individuals; in particular ideological assumptions of rhetoric surrounding the adoption of IFRSs, more specifically, the rhetoric used by promoters and key users (e.g. the profession, financial market analysts, etc.). The objective is, also, to critically evaluate the underpinnings promoted by the IASB, that suggest IFRSs’ standards and imperatives are superior to other accounting paradigms, and that an element of these standards is often considered as inherent and irrefutable. The aim is also to illustrate that these assumptions ignore the importance of institutional and environmental factors in the process of convergence, and more importantly that this notion of IFRSs’
superiority is driven by the wider superiority of ‘free markets’ and neo-liberalism. Based on the previously mentioned historical and institutional analysis of accounting in Greece and internationally we will reflect on findings and attempt to investigate the driving rationale behind actors’ views. By adopting the Gramscian concepts of ideology and hegemony the researcher will examine underlying value systems and focus on identifying links between ideologies and financial accounting users’ values. The motivations that underlie the adoption of IFRSs are explored in reference to the ideological implications of such motivations and the way international influences (hegemony) are considered nationally.
The main question to be explored is ‘what are key actors’ perceptions and how do they respond to the use of IFRSs?’ The main research objective is to study the application and dynamics of IFRSs practices, in response to changes to the economic and accounting environment in Greece. Empirical material will also be mobilised to provide a critical perspective in the understanding of actors’ experience and interpretation of accounting change. In turn, this will leads to an exploration of ‘what drives key actors’ perceptions on the adoption and use of IFRSs?’ and ‘does their experience match with the statements made by the IASB about the benefits of IFRSs? If actors’ experience does not match with their expectations and the claims about the benefits of IFRSs, ‘how do they make sense of the inconsistencies arising?’
In the next chapter the conceptual framework adopted to address these questions is presented.
86