The purpose of this paper is to examine the effects of a principles-based accounting standard with guidance (principles-with-guidance approach), stringency…
The purpose of this paper is to examine the effects of a principles-based accounting standard with guidance (principles-with-guidance approach), stringency (conservativeness) of numerical thresholds, and incentives (high or low debt-equity ratio environment) on the judgments of Japanese auditors in a lease accounting setting.
To reflect Japanese auditors’ judgmental features, this study adopts a quasi-experiment that uses both manipulation for different environments (i.e. stable or critical financial condition) and perceptions about the importance of “principles” and “guidance” in different types of lease accounting standards (i.e. substantially all, approximately 90 and 88 percent).
“Principle” (substantially all) has a positive effect, while “guidance” (approximately 90 percent) has a negative effect on encouraging Japanese auditors to capitalize lease transactions. “More stringent guidance” (approximately 88 percent) has a positive effect only when clients are in critical financial conditions. Other findings indicate that judgments of Japanese auditors are strongly influenced by their colleagues’ perceived judgments.
This is the first quasi-experiment to examine Japanese auditors’ professional judgments using a lease accounting setting. To find out whether Japanese auditors interpret and apply International Financial Reporting Standards (IFRS) in the similar manner as their counterparts in other countries will be important when Japanese policymakers make their final decision regarding the adoption of IFRS. The discussion and findings also contribute to the International Accounting Standards Board (IASB) with regard to enhancing global convergence of financial reporting.
Parmod Chand, PhD (Macquarie) is a senior lecturer in the Department of Accounting and Corporate Governance, Macquarie University, Sydney, Australia. He has also held teaching positions at the University of the South Pacific, Fiji. He has published in a variety of professional and refereed journals, including the European Accounting Review, Advances in Accounting, Incorporating Advances in International Accounting, Critical Perspectives on Accounting, and Australian Accounting Review. He is also involved in various consulting activities for the professional body in Fiji.
We have considered both the de jure and de facto aspects of comparability in financial reporting. Generally, the findings presented in this monograph show that there is a lack of both de jure and de facto comparability in financial reporting across countries. We have considered the de jure aspect of comparability in financial reporting by identifying the ways in which IFRS are adopted and enforced in the South Pacific region and also investigated the relationship between country-specific characteristics and the selection of the appropriate approach for adoption. An examination of the convergence process in the South Pacific region provides evidence that countries use different approaches in their adoption of IFRS. We have broadly identified five different approaches for convergence and harmonization of accounting standards, ranging from adoption of IFRS in their entirety to the lack of reference to IFRS, that is, no convergence or harmonization.
The forces of globalization and political expediency are forcing an increasing number of countries to adopt International Financial Reporting Standards (IFRS) issued by…
The forces of globalization and political expediency are forcing an increasing number of countries to adopt International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB). Although numerous countries are adopting IFRS, the approaches used for convergence continue to differ significantly across countries. Using selected countries from the South Pacific region, this chapter investigates the relationship between country-specific characteristics and the selection of the appropriate approach for the adoption of IFRS. The country-specific attributes that have been found to influence convergence are (1) the set of accounting standards that prevailed in the country at the time the selection was made, (2) the availability and experience of professional accountants, (3) the relevant educational and professional training, (4) the presence of the Big 4 accounting firms, and (5) the accounting regulatory framework. The results of this study suggest that complete comparability in financial reporting may be difficult to achieve across all countries in the region even after adopting the IFRS because of differences in country-specific factors. These findings are important because they indicate that attention should be concentrated on theorizing and empirically testing the effects of country-specific attributes on convergence efforts across jurisdictions.
The globalization of the world's economies has inevitably brought with it moves to establish a single set of financial reporting standards. Prima facie, the formulation…
The globalization of the world's economies has inevitably brought with it moves to establish a single set of financial reporting standards. Prima facie, the formulation and promulgation of International Financial Reporting Standards (IFRS) is concealed behind reified icons of “relevance.” This chapter adds a new dimension to the international accounting debate by discussing themes of regulation, public and private interests, from a critical perspective. Specifically, this chapter examines the reasons for the willingness to accept IFRS in Fiji. A critical conception of “relevance” and “accountability” is developed to demonstrate how the needs of private interests' are met in adopting the IFRS. This study demonstrates that in this process of convergence, the influence of these private interests – multinational enterprises and large international accounting firms – can lead to a transfer of economic resources in their favor, wherein the public interests are usually ignored. The study offers suggestions on how public interest might be best served within the current financial reporting system and how, in principle, the needs to report both globally and locally can be reconciled.
This study extends prior cross-cultural research by examining the effects of both cultural and noncultural factors on the judgments of professional accountants. It…
This study extends prior cross-cultural research by examining the effects of both cultural and noncultural factors on the judgments of professional accountants. It examines the extent and the cause of differences in judgments of professional accountants in Australia and Fiji when interpreting and applying selected International Financial Reporting Standards (IFRS). A comparative study between these two countries, which have both adopted IFRS, provides empirical evidence that IFRS are not interpreted and applied consistently. It supports the views that: (a) both national culture and organizational culture (Big 4 and non-Big 4 firm affiliations) have a significant effect on the manner in which professional accountants in a country interpret uncertainty expressions contained in IFRS; and (b) national culture and organizational culture interact to influence the judgments of professional accountants. Further, the results of the effects of noncultural factors on the judgments of professional accountants in Australia and Fiji show that the professional accountants' perceived level of task complexity has a significant effect on their judgments. An important implication of this study is that the adoption of IFRS in different countries alone may not result in uniformity in financial reporting as IFRS may not be consistently applied by those countries because of differences in cultural as well as noncultural factors.
International bodies such as the European Union (EU), the International Organization of Securities Commissions (IOSCO), the Association of South-East Asian Nations (ASEAN), and the World Trade Organization (WTO) are actively working toward the creation of business structures that will facilitate international trade and commerce.1 Certain aspects of international business and trade – such as law, marketing, finance, and economics – have all, by methods such as treaties and bilateral agreements, transcended national boundaries and converged (Carlson, 1997, p. 357). There is an expectation within the international capital market that since accounting is an important source of business information, it should further transcend national boundaries, and practices should also converge (Carlson, 1997; Purvis, Gernon, & Diamond, 1991; Whittington, 2005). In the international accounting literature, this process has been denoted as “harmonization” or “convergence.”
This study extends prior research on accounting judgment and decision-making research by examining the effects of “new” and “complex” accounting standards on judgments of…
This study extends prior research on accounting judgment and decision-making research by examining the effects of “new” and “complex” accounting standards on judgments of professional accountants. It examines whether there are differences in the judgments of professional accountants in Fiji when interpreting and applying selected IFRS. A significant within-country difference in such judgments has serious implications for the convergence of accounting standards. The results show that the interpretation and application of accounting standards is affected by the complexity of the accounting standard and the professional accountant's familiarity with that standard. The study also finds strong support for the existence of an interactive effect of familiarity with the accounting standards and their complexity on the judgments of professional accountants. Furthermore, the results show that differences in judgments exist between the Big 4 and non-Big 4 professional accountants when they are provided with new accounting standards that require complex judgments. The results of this study are of interest to stakeholders at a time when IFRS are increasingly being adopted throughout the world and standard setters are struggling to promote compliance with those standards.