Research Proposal - The Influence of Accounting Standard Setters and Auditors on the Preparedness of Companies for the IFRS Convergence

Research Gap

Past studies explore the perceptions of stakeholders that include account preparers, auditors and academics on the impacts of IFRS adoption (Jones & Higgins, 2006; Kraal et al., 2012; Fox et al., 2013). However, the roles of accounting standards setter and regulators have been overlooked in the past research. Some academics question the effectiveness of the roles of accounting standard setters in the IFRS convergence process. Whilst another stream of research argues that the government or regulator actions encourage widespread diffusion of IFRS (Chua & Taylor, 2008; Jermakowicz and Gornick-Tomaszewski, 2006). Hence, there is questionable about the roles of accounting regulators in promoting the IFRS convergence.

Additionally, paucity of research studies the roles of auditors in the IFRS implementation process. Although external auditors do not impose preferred practices on clients, they may provide their opinions or suggestions on financial reporting practices. For example, auditors can facilitate the sharing of common technical and operating standards, methodologies, training and technology that are related to IFRS adoption. Lastly, most research papers focus on the cost and benefits of IFRS adoption, there is lack of research investigates the main driving forces that influence the preparedness of companies to IFRS convergence.

Theoretical background

Considering the impacts of IFRS on stakeholders’ interests, institutional theory can be utilised to examine the roles of regulators and auditors as well as other drivers that can influence the preparedness of companies for IFRS convergence. In the move towards IFRS convergence, the legitimacy of IFRS is crucial because legitimacy justifies and explains an institution’s structure and existence in the process of implementing IFRS. Furthermore, legitimacy of IFRS convergence requires the fit between an institution and its environment. From a sociological perspective, the concept of legitimacy has been defined by Suchman (1995, p.574) as “Legitimacy is a generalized perception or assumption that the actions of an entity are desirable, proper or appropriate within some socially constructed system of norms, values, beliefs and definitions.” Added to this, Scott (2008, p.59) also explains the concept of legitimacy as “Legitimacy is not a commodity to be possessed or exchanged, but rather a condition reflecting perceived consonance with relevant rules and laws, normative support, or alignment with cultural-cognitive frameworks.” These views imply that convergence with IFRS may require the fit between institutions and the environment conditions in order to achieve legitimacy and comply with the society’s values and norms.

According to DiMaggio and Powell (1983) and Scott (1987), organizations must conform to institutional isomorphism if they intend to gain legitimacy within an organizational field. The term institutional isomorphism refers to the situation where organizations within an environment becoming more homogeneous due to political, legitimacy or social purposes. DiMaggio and Powell (1983) identified three types of institutional isomorphism namely coercive, mimetic and normative isomorphism. These three sources of isomorphism form a powerful social framework. Thus, it can be argue that these key forms of institutional isomorphism may drive companies to implement action plans for the IFRS convergence due to legitimacy of IFRS adoption.

Research Questions

Three research questions are proposed as follows:

1.        Does institutional isomorphism influence the preparedness of companies for the IFRS convergence?

2.       Does accounting standard setter play an effective role to influence the preparedness of companies for the FRS convergence?

3.        Do auditors influence the preparedness of companies for the IFRS convergence process?

Research Methods

Past studies use archival and analytical method to examine the influence of IFRS on nation capital market and firms’ performance. This study uses semi-structure interviews to investigate the responses of stakeholders to the IFRS convergence. Interviews are conducted with account preparers and auditors to evaluate the IFRS convergence plan introduced by the local accounting standard setters and the International Accounting Standard Board (IASB). Specifically, study can consider Malaysia context as Malaysia has recently adopted IFRS in 2012 and the IFRS implementation contexts are much different from other countries.

References

Brown, P. & Tarca, A. (2012), "Ten Years of IFRS: Practitioners' Comments and Suggestions for Research", Australian Accounting Review, Vol. 22, No. 63, pp. 319-330.  

Chua, W.F. & Taylor, S.L. (2008), "The rise and rise of IFRS: An examination of IFRS diffusion", Journal of Account Public Policy, Vol. 27, pp. 462-473.

DiMaggio, P.J. & Powell, W.W. (1983), "The iron cage revisited: Institutional isomorphism and collective rationality in organization fields", American Sociology Review, Vol. 48, pp. 147-160.

Fox, A., Helliar, C., Venezian, M. & Hannah, G. (2013), "The Costs and Benefits of IFRS Implementation in the UK and Italy", Journal of Applied Accounting Research, Vol. 14, No. 1, pp. 1-30.

Jermakowicz, E.K. & Gornick-Tomaszewski, S. (2006), "Implementing IFRS from the perspective of EU publicly traded companies", Journal of International Accounting, Auditing and Taxation, Vol. 15, pp. 170-196.

Jones, S. & Higgins, A. D. (2006), "Australia's Switch to International Financial Reporting Standards: A Perspective from Account Preparers", Accounting and Finance, Vol. 46, pp. 629-652.

Kraal, D., Yapa, P.W. & Joshi, M. (2012). "The Socio-Economic Impacts of the Adoption of IFRS: A Comparative Study between the ASEAN Countries of Singapore, Malaysia and Indonesia", American Accounting Association Annual Meeting, Washington, D.C., 4-8 August.

Scott, W.R. (2008), Institutions and Organizations: Ideas and interests, California: Sage Publications.