IFRS CONVERGENCE AND ADOPTION: CHALLENGES AND OPPORTUNITIES
“IFRS Convergence and Adoption: Challenges and Opportunities” was the theme of the first JIAR Conference held June 2011 in Xiamen, China. IFRS adoption and convergence is occurring globally. The process of adoption of and conversion to IFRS creates many obstacles as a result of significant differences among countries with respect to institutional, legal, economic, and cultural systems. The conference was organized to identify and examine challenges and opportunities arising from the adoption and implementation of IFRS for practitioners and academicians. The goal of the conference was to deepen understanding and raise awareness of these challenges and opportunities through the sharing of original and rigorous research work to provide practitioners and regulators with deeper insights.
The Journal of International Accounting Research (JIAR), published by the International Accounting Session, held its first journal conference in Xiamen, China from June 14 to June 17, 2011. Xiamen University was a cosponsor of the conference. I greatly appreciate Xiamen University; without their substantial support, the conference would not have been a success. Professor Xiaohui Qu and her fellow professors and staff provided excellent logistical support and were very gracious hosts. The staff at the AAA was also extremely helpful.
Papers were submitted for one of two tracks: Plenary Session submissions or Concurrent Session submissions. Thirty-four papers were submitted for the plenary sessions, and we received over 60 submissions for the concurrent sessions. It was a very difficult decision to choose only six papers for the plenary sessions and for publication in this special issue. I appreciate the help in reviewing the papers, which were each double-blind reviewed. I also appreciate our committee for all of the work that they did in organizing and putting on such a wonderful conference. The members of the organizing committee were: C. S. Agnes Cheng and Xiaohui Qu (co-chairs), Ervin Black, Greg Burton, Carol Ann Frost, and Stephen Lin.
Ultimately, the six papers chosen for the plenary sessions and for publication in this special issue were the right fit for this conference edition and theme. Each of them helps us understand issues relevant to the theme of IFRS convergence and adoption: challenges and opportunities. The authors and discussants provide excellent insight into multiple issues around IFRS convergence and adoption. The authors come from many different countries, including Italy, Russia, Australia, China, Taiwan, Canada, and the U.S.
The research in this issue helps us add pieces in the puzzle and cover the following important areas surrounding IFRS adoption: the impact of culture, voluntary and mandatory IFRS adoption, developing and developed countries, as well as corporate governance issues. The first paper in this issue is, “A Cross-Cultural Study of the Influence of Country of Origin, Justice, Power Distance, and Gender on Ethical Decision Making” (Curtis, Conover, and Chui). This paper was chosen purposely because although we are getting closer to having one worldwide accounting standard, we do not have a single harmonized accounting culture. In this study, the authors focus on personal and cultural factors to understand these effects on international accounting and ethical decision making. We learn from their study that while we may achieve a worldwide accounting standard, it is necessary to understand the effects of cultural factors on accountants and their decisions. Greg Burton provides an excellent discussion of this paper and some avenues for future research.
In the next three papers, the authors provide insight into IFRS adoption around the world, by a developing country (Nigeria), and within a developed country (Australia). In their paper, “Voluntary IFRS Adoption, Analyst Coverage, and Information Quality: International Evidence,” Kim and Shi provide evidence that firms that voluntarily adopt IFRS have a larger analyst following and that the precision of the information increases. In her discussion, Agnes Cheng provides insight into some of the limitations of this study, noting that, “While Kim and Shi cannot distinguish the causal effects … the evidence that there is an increase in the number of financial analysts following firms that voluntarily adopt IFRS is itself an interesting phenomenon.”
Nigeria is the setting for the Bova and Pereira research paper, “The Determinants and Consequences of Heterogeneous IFRS Compliance Levels Following Mandatory IFRS Adoption: Evidence from a Developing Country.” Examining the effects of IFRS adoption in developing countries is an extremely important research area, as many of these countries are seeking to adopt IFRS and compete in the global economy. While limited by data availability, this research finds evidence that IFRS compliance is influenced by economic incentives related to the capital markets. They have interesting data for an emerging economy in which IFRS compliance is made mandatory for all private and public traded firms. They find that public, rather than private firms, exhibit greater IFRS compliance. Also, foreign ownership has a positive impact on IFRS compliance. While recognizing data limitations, the discussant, Stephen Lin, provides some cautions interpreting the results and some excellent suggestions for future research.
Chua, Cheong, and Gould examine accounting quality effects of mandatory adoption in a developed country—Australia—in their paper, “The Impact of Mandatory IFRS Adoption on Accounting Quality: Evidence from Australia.” This paper provides evidence of increased accounting quality after mandatory IFRS adoption in Australia. By examining mandatory adoption, the authors are able to remove self-selection bias of research that uses voluntary adopters. The difficulty in this paper lies in the interpretation of the constructs of accounting quality. As the discussant, Nabil Elias, points out: “Is less smoothed earnings or more loss recognition always evidence of improved accounting quality?” Probably not in every circumstance, but given that these have been used as proxies for accounting quality in prior literature, the authors find evidence that earnings smoothing decreases and loss recognition increases after adoption in Australia.
In “The Cross-Country Comparability of IFRS Earnings and Book Values: Evidence from France and Germany,” Liao, Sellhorn, and Skaife examine IFRS earnings and book values in two developed countries that have been using IFRS for some years. This is an interesting paper fitting the theme of the conference because the authors find that the comparability of earnings increases after mandatory IFRS adoption in France and Germany. They also find, however, that the increase in comparability decreases in subsequent years after adoption. The discussant, Tony Kang, provides some excellent research design suggestions and also offers some big-picture insights on the journey to global accounting harmonization.
In the final paper of this special JIAR issue, “Dominant Owners and Performance of Continental European Firms,” Krivogorsky and Burton examine the association between dominant shareholders and firm performance for firms from seven Continental European countries that have adopted IFRS. The authors examine different dominant ownership types on measures of accounting performance and a measure of firm value. Dominant owners generally have a positive impact. However, as the discussant, Wendy Wilson, points out, “country-level institutions, laws, and other regulatory features can interfere with dominant shareholders' typical incentives and ability to monitor managerial behavior.” Several interesting issues would benefit from future research in this area.
Overall, it has been my pleasure to have this opportunity as guest editor of this special JIAR issue. I learned much as I read and reviewed these papers and the discussions provided. The papers provide evidence of the effects of culture that need to be understood as IFRS is adopted globally. Evidence is provided for both voluntary and mandatory IFRS adopters, as well as for developing and developed countries. Ownership and structural factors are also important to understand as we continue to research effects of IFRS adoption internationally.
–Ervin L. Black, Guest Editor
Brigham Young University