ifrs adoption around the world: has it worked?

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© 2013 Wiley Periodicals, Inc.Published online in Wiley Online Library (wileyonlinelibrary.com).DOI 10.1002/jcaf.21889

featur

e article

Erick Rading Outa

INTRODUCTION

As globaliza-tion continues to take effect, competition for resources, inves-tors, creditors, and donors has given rise to demands for high standards on the qual-ity of information that is given to various stakeholders in the financial world. These demands have also been driven by questions that have been raised as a result of financial and capital markets turbulences that have been expe-rienced around the world over the past many years. Accord-ing to Imhoff (2003, p. 117), orderly capital markets around the world can be achieved if corporations provide investors and creditors with relevant, reli-able, and timely information. In this context, one of the most significant regulatory changes in accounting history has been the creation of International Financial Reporting Standards (IFRS), which is also referred to as IAS.

This article takes a close look at the adoption and implementation of International Financial Report-ing Standards (IFRS) across the globe. Have they worked properly? And are they really necessary? Those kinds of questions are increasingly asked in the wake of various recent financial scandals and crises. In spite of major efforts by standard setting bodies to develop and promote quality standards, many challenges remain. And the adoption of IFRS around the world has produced mixed results. © 2013 Wiley Periodicals, Inc.

IFRS Adoption Around the World:

Has It Worked?

According to International Accounting Standards IAS Plus (2010), IFRS refers to the entire body of pronouncements of the IAS Board (IASB), including standards and interpretations approved by the IASB, the Inter-national Accounting Standards Committee (IASC), and their interpretations. IFRS or IAS, therefore, is a set of standards stating how particular types of transactions and other events should be reflected in financial statements. IFRS was first issued by the IASC, now referred to as IASB, whose objective is to develop a single set of high qual-ity, global accounting standards

that are acceptable worldwide (Barth, 2008).

Currently, IFRS has been adopted by over 100 countries from different parts of the world (Daske, Hall, Leuz, & Verdi, 2008). Given that many countries have adopted IFRS and others continue to do so, with the United States consider-

ing full adoption by 2015, the effectiveness of IFRS should be evaluated through studies that capture the experiences of dif-ferent countries and companies that have already adopted IFRS (Chen, Tang, Jiang, & Lin, 2010). The main objective of this article is to review the adoption of IFRS worldwide.

REVIEW

The History of Accounting Standards

For many years, account-ing standards were gener-ated locally in fulfillment of

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the reporting standards leading to the creation of 13 standards, which are currently referred to as IFRS.

Even though the United States actively participated in the development of IFRS, it does not subscribe to these standards. This is because the development of standards in the United States occurs within the framework of the Securi-ties and Exchange Commission Act of 1933 and the Securities Exchange Act of 1934. These laws were passed by Congress in response to the stock market crash of 1929 and the subse-quent financial depression.

The need for reliable infor-mation for the investors and the regulation of capital markets continue to be key issues along-side the question of governance, which has always been an ongo-ing debate. The importance of regulation was reinforced in the wake of the 2008 world financial crisis. The crisis meeting of the G20 group in Washington, and later in London, concurred that standards should be enforced as a strategy to avoid the sort of crisis that the world witnessed in 2008/2009 and called on IASB and FASB to work urgently on a single set of high-quality global accounting standards, including adjusting the controversial IAS 39 to a forward-looking model as opposed to a historical one.

Perceptions About IFRS Adoption

The topic of IFRS adop-tion has elicited numerous views from various stakeholders around the world. These views can be loosely categorized into those who support the adop-tion and those who oppose it. Proponents of IFRS, such as Barth (2008), state that global

mission and center on transla-tional reporting of multinational companies. By 1990, the IASC had expanded its membership to include the International Organization of Securities Com-mission (IOSCO), which joined in 1987, and the European Commission and the Financial Accounting Standards Board (FASB), which joined in 1990. This group noted that a number of developing countries were using the accounting standards voluntarily and recommended that the international accounting standards should be revised fur-ther so that they could be used for cross-border listing from the year 2000.

In spite of its efforts, the IASC’s intention of creating uniformity in the preparation of financial reports was marred by its failure to agree on a con-ceptual framework that met user needs. In addition to this, the composition of IASC was problematic because of the dominance by accounting firms, which contributed to the inad-equate enforcement of standards by rendering their financial statements as invincible. The poor performance of IASC was further aggravated by poor gov-ernance and political interfer-ence, which made it difficult for the organization to respond to issues quickly.

In response to these chal-lenges, a foundation was incor-porated in Delaware, United States, with a supervisory func-tion through a group of trustees. The IASB became operational in 2001 as the IASB announced that the IASC foundation had agreed that accounting stan-dards issued by the IASB would be designated as IFRS, with the first IFRS being published on May 23, 2002. By 2011, the IASB had revised and refined

a mandate from the financial ministries or the legal offices of each country. However, with the increased interconnectedness of the world’s financial systems, domestic standard generation faced criticism because of the incongruence between local standards from different states. This realization came to the fore following the invitation of George Benson, then president of the Institute of Chartered Accountants of England and Wales (ICAEW), in 1966 to visit institutes in Canada and the United States. As a result of the visit, the three institutes (United Kingdom, Canada, and United States) established an interna-tional study group in February 1967. This group published articles on accountancy topics that led to the development of a framework. It is these activi-ties that led to the formation of International Accounting Standards Committee (IASC) in 1973, through the extension of invitations to other bodies from Australia, France, Germany, Japan, Mexico, and the Neth-erlands. The aim of IASC was to issue international standards of reference that would guide the convergence of national standards over time. By 1998, when IASC was transforming to IASB, it had generated 41 IASs even though some had been withdrawn.

Over time IASC grew, with its governance evolving to accommodate an expanding and increasingly diverse stakeholder base. Representatives of the World Bank, the United Nations (UN), the Organization for Eco-nomic Cooperation and Devel-opment (OECD), and other par-ticipants formed a partnership in 1981 leading to the creation of the IASC consultative group, with the UN setting up a com-

The Journal of Corporate Accounting & Finance / September/October 2013 37

© 2013 Wiley Periodicals, Inc. DOI 10.1002/jcaf

eignty has been an important consideration in the adoption approaches. The EU also quickly adopted IFRS as a political strategy in what was meant to prove EU’s independence from U.S. influence. In South Africa, concerns about state sovereignty have been addressed through the alignment of IFRS with national standards, as opposed to its full adoption by the state.

The second factor in these challenges was the question of regulation. Many countries around the world have laws that prescribe how companies are formed and managed and the nature of reports that should be issued. The way IFRS has been issued by IASB from London is such that local legislation of different countries has not been taken into account. A key controversy in this area is that IASB uses the terms “true” and “fair” view, which appears in country statutes, but true and fair view has not been properly defined. Cultural factors have also featured prominently in the adoption of IFRS. Of par-ticular interest has been Islamic culture where interest cannot be charged in lending, which would automatically create problems in revenue recognition. IFRS imple-mentation in Malaysia has cited this as a problem, while a study in Egypt confirmed the same because of the secretive nature of related party transactions in Egypt. This made it impossible to fully implement related party disclosures (IFRS 8) as such dis-closures are a taboo.

The fifth challenge that has been cited is understandability, which is one of the four qualita-tive characteristics of account-ing information. And it has also been one of the critiques of financial statements that some people do not understand

formance indicators, corporate finance structure, and financial products. Other writers argue that the adoption of IFRS is more than an accounting issue, with potential economic, social, political, and cultural outcomes” (Prather-Kinsey, Jermakowicz, & Vongphanith, 2008).

Although there are numer-ous calls for the universal adop-tion of IFRS, there is still con-siderable debate as to whether the adoption of IFRS is benefi-cial. In this regard, consensus is yet to be reached on issues relating to improved accounting quality, lower costs of capital, transparency, and capital market effects. In spite of the debates, widespread adoption of IFRS has been prominent since 2005.

The Challenges of IFRS Implementation

The International Federa-tion of Accountants Commis-sion (IFAC) undertook a study on the challenges and successes in the implementation of IAS. The commission’s report, which was issued in September 2004, categorized seven challenges that were likely to arise from the adoption of international accounting standards and indi-cated that the issues of legiti-macy and authority of IASB is subsumed in all the seven chal-lenges (Wong, 2004).

Among the challenges was the issue of incentives that might encourage or discourage national decision makers from adoption. Country sovereignty has also been an issue as indi-vidual countries try to debate whether the adoption of the standards would be an infringe-ment on their sovereignty. Australia and the European Union (EU) are typical examples among others where sover-

financial reporting has positive effects on the functioning of global markets. They argue that the adoption of IFRS will facili-tate the availability of standard and quality information to all stakeholders around the globe while reducing the costs incurred in the preparation of financial statements. Indeed, global firms incur huge amounts of money in auditing and interpreting infor-mation that has been prepared with different accounting stan-dards from different countries.

Although cost reduction has been cited as a key benefit of a single set of financial reporting standards, those who oppose IFRS adoption, such as Sunder (2009), argue that the costs of IFRS adoption—and the fact that there is no evidence to sug-gest that it has any advantages when compared to national reporting systems—makes its adoption unviable. While there is no doubt that huge costs will be incurred as organizations transit into the international system, these are once-off investment costs associated with training employees and enlisting appro-priate technology to process and generate transactions in line with IFRS requirements. As Barth (2008, p. 1171) argues, “the cost of learning to live with ambi-guity and judgments and the consequences therefore, include “costs associated with under-standing and accepting different viewpoints.”

The American Institute of Certified Public Accounting (AICPA, 2008) concurs with Barth by pointing out that the transition is not just an account-ing exercise, but an exercise that will require tax planning, management reporting systems, investor relations, employee executive compensation, employee benefit plans, per-



and what its characteristics are. This is problematic because the underlying fundamentals of the entities are not known and com-parison becomes a buzzword rather than a practice.

Ball, Kothari, and Robin (2006), argue that increased worldwide integration of both markets and politics makes increased integration of report-ing standards necessary, but the challenge lies with markets and political forces that remain local. This indeed is a powerful argu-ment given that managers and enforcers remain local and the local financial reporting quality may not meet the international level standards. An interesting example in this regard is the case of EU, where the criteria for adoption have elicited public interest in the European market. This implies that local political considerations are paramount. Ball’s observations are in line with Sunder (2009), who argues that there is no theory or evi-dence on which to build upon the assessment of the advan-tages and disadvantages of uniform accounting rules within a country or internationally. Both Sunder and Ball concur that substantial differences in implementations across coun-tries will inevitably result in differences, and this is already being witnessed in a number of studies in various jurisdictions, as explained below.

Global Experiment: Global Spread of IFRS in Different Markets

The global spread of IFRS has been described by Véron (2007) as the global accounting experiment since some of the causes and effects of adoption have not been validated. Sunder (2009), in his challenge to the

appreciate that IFRS are arrived at through continuous research and debate. Sunder goes on to compare IFRS to the Structural Adjustments Programs (SAPs) prescribed by the World Bank and the International Monetary Fund (IMF) in the 1980s and 1990s and predicts failure for the same reasons, which included lack of consensus, legitimacy, and forced implementation. The key arguments in these issues, therefore, appear to stem from disadvantages of monopoly standardization.

The arguments for and against principle-based standards are endless. Even though IFRS claims its standards are principle, as opposed to US GAAP rule-based, a publication of the stan-dards and their interpretation run to thousands of pages, leav-ing one to wonder at the amount of confusion one runs into while using these volumes. One of the major critiques here has been of the IAS 39 (financial instru-ments measurement), which has three prescribed methods (mark to market, mark to model, and mark to judgment). Following key objections by the EU and the recent financial crisis, alterna-tive methods have been allowed to reclassify financial instru-ments in this area. In this case, political and market pressure has played a key role challenging the “principle.” In spite of this change, Sunder (2009) argues that the allowance of alternatives negates the notion of “principle.” This is because there is nothing to distinguish between the two principles since neither has been explained.

Comparability, which is a quality in the framework and an objective of IASB, also lends itself to major criticism. A fundamental problem at the outset is how to measure quality

financial statements. The trans-lation of standards to different languages is problematic because information may be lost in the process of translation.

The question of educa-tion given that IFRS is a new area and is constantly evolv-ing also needs to be addressed. The Securities and Exchange Commission (SEC) in the U.S. roadmap is clear that university syllabuses and other educational institutions need to adopt IFRS as part of their training. The other challenges have been ques-tions of cost and benefits. For small- to medium-size enter-prises a single set of standards has been proposed; but for the big companies, especially in the United States, the cost of conversion has been huge since the United States has invested heavily in its generally accepted accounting principles (GAAP). Nevertheless, these concerns may be superseded by views that the long-term benefits of IFRS adoption outweigh the short-term transition costs of its implementation.

CRITIQUE OF IFRS

According to Sunder (2009), consensus to implement IFRS may discourage the discovery of an evolution toward better methods of financial report-ing. This will make it difficult to conduct comparative studies of the consequences of using alternative methods of account-ing. He argues that countries should not promote substitu-tion of analysis and thinking by rote learning in their education systems. Sunder’s arguments set forth are interesting because he appreciates the development of alternative sets of account-ing standards (alternative to US GAAP); he however fails to



Major debates in the EU have focused on the controver-sies surrounding the adoption of IAS 39 and IAS 32 on financial instruments, measurements and disclosures. The provisions of these standards had material effects on financial statements that led to rejection of these standards. Consequently, the EU is not fully compliant. In spite of the controversies surround-ing the adoption of IFRS in the EU, Armstrong, Barth, Jag-olinzer, and Riedl (2008) argue that there is a lot of support for adoption as investors expect the benefits associated with IFRS adoption in Europe to exceed the expected costs where benefits are associated with convergence and increased accounting infor-mation quality.

The United States of America

America’s economy is ranked as the world’s most com-petitive economy valued at US $14 trillion by the World Eco-nomic Forum (Kotlyar, 2008, p. 231). The history of account-ing standards in America can be traced to the stock market crash of 1929 and the US securi-ties legislation of 1933 after the election of President Franklin Roosevelt. Following the stock crash, and the emergence of the Generally Accepted Accounting Principles (GAAP), the Securi-ties Commission (SEC) dele-gated standards development to the American AICPA until 1973 when the Financial Account-ing Standards Board(FASB) took over from AICPA because standard setting had become too complex, a process which was instigated by major stakeholders in capital markets.

America is often perceived as a leader in standard setting because it is home to the capital

the G20 to aggressively advocate for the adoption of IFRS.

The European Union

The EU, became one of the leaders of IFRS adoption following the March 2002 EU parliamentary resolution requir-ing all firms listed on the stock exchanges of the EU member states to apply IFRS for their financial statements by 2005.Over 7000 firms were affected by this directive and this con-stituted a major shift because IFRS differs substantially from the domestic GAAP of most countries. The growing influence that IFRS’s has had on national accounting standards coupled with the internationalization of capital markets has enhanced the need for IFRS. The EU’s adoption policy demonstrates its goal of achieving capital market integration and a step towards convergence of financial report-ing not only across Europe but the rest of the world where the EU is a major trader.

Of major interest, is the process of IFRS adoption which has to go through a three step endorsement criteria where a standard can only be endorsed if it is not contrary to the EU’s true and fair principle, meets qualitative characteristics and is in the European public Interest. The European Financial Report-ing Group (EFRAG) which is made up of accounting experts from the EU and with major input to IASB provides advice to the EU before the endorse-ment of new standards. These arrangements are peculiar in the sense that the EU may not fully adopt IFRS and risks being referred to as a label adopter. This is because the adoption of IFRS in the EU is pegged on certain EU interests.

IFRS spread, concludes by ask-ing whether there is wisdom in going through the tedious adop-tion process since the projected benefits of adoption are unlikely to be realized.

The spread of IFRS has been aided by a number of events. The IOSCO has been supporting standards by lob-bying for the IASB to publish standards for use in multina-tional securities where shares in a company are offered for sale in more than one country simultaneously. This is obviously useful as companies do not have to redraft statements where local practices have been applied. While IOSCO announced a qualified statement in May 2000 recommending that its members should allow multina-tional companies to use IFRS in cross-border listings, the com-mendation fell short of complete endorsement because it provided national and regional regulators with the discretion to disallow some aspects of IFRS and rec-onciliations to national GAAP thus encouraging label adoption. In spite of all these, the lobbying has and continues to boost and heighten the status of IFRS. The EU requirement that all listed companies should use IFRS from 2005 was another boost that endorsed the acceptance of the standards.

The UN also announced that all its “agencies, depart-ments, committees and head-quarters must adopt interna-tional public sector accounting standards no later than 1 Janu-ary 2010” (Nuthal, 2007). Gold-stein (2009), writing for Reuters, recently stated that for the standards to be truly global, the world’s biggest economy, the US must be on board. He observed that IFRS convergence has slowed down and encouraged



Standards for Business Enter-prises. This marked a significant move towards IFRS and away from the Soviet-style book keeping method (Durfee, 2007). Prior to the new rules, China had its own version of GAAP. Chinese GAAP was prescriptive and relied heavily on histori-cal accounting. The new rules being closer to IFRS principle base implying that accountants can now use judgments to some extent. Improvements in the new rules include accrual of rev-enues in contracts as opposed to previous full recognition at once as well as fair value accounting and reporting on related party transactions. The difference between the Chinese standards and IFRS in fair value account-ing is that in China, fair value is only applicable for optional assets such as investment property. This is unlike IFRS where fair value accounting is a proposal for all accounting and a standard for financial instruments and liabilities. The rules also allow related party transactions only if they impact on the outcome of a transaction unlike IFRS where all related party transactions has to be dis-closed. More interesting is the revaluation of impaired assets which is allowable under IFRS but disallowed in Chinese rules. It should be pointed out that these differences do not make Chinese rules inferior because some of these approaches are under serious consideration by IASB. It is even possible that IASB may consider not allow-ing revaluation of assets like in the US where asset revaluation is not allowed. By 2007, many companies in China were happy with the new rules as it created some flexibility and resulted in reports of higher earnings by some companies.

By March 2009, more than two thirds of financials had not budgeted for the conver-sion according to a Delloite & Touche survey. The 2008/2009 financial crisis also worsened the scenario because most com-panies have had to plan for cost containment and reduction. Key areas of spending to achieve IFRS conversion has included staff training, accounting and legal fees, staff costs to maintain two accounting systems and software costs. Moreover, it has been argued that shareholders would question the significance of such an investments in light of the uncertainty regarding the final decision about whether or not the US will fully embark on the adoption of IFRS. Some in the US have been categorical that the IFRS project has not been fully vetted and the final outcome is not readily appar-ent. The US financial reporting environment is too complex and threatens to become a competi-tive disadvantage for US capi-tal markets.” (Manasa, 2008). Indeed, this is further evidenced by the slow pace of Americans gravitating towards convergence. Interestingly, the road map by SEC outlined a number of activ-ities including incorporation of IFRS in universities syllabuses to ensure training and capac-ity is available. However, the US adoption of IFRS is quite remote with the Chief Accoun-tant’s final report issued in mid 2012 only highlighting big issues that still need to be resolved before the SEC ever makes that determination, according to Ciesielski & Weirich (2013).

China

In February 2007, China announced new accounting rules known as New Accounting

markets. In August 2008, the SEC issued a road map for pos-sible use of financial statements prepared on the basis of IFRS as from 2014. However, CFOs in the US are a bit skeptical and Mary Schapiro who replaced Christopher Cox as the chair of SEC does not appear to have the same enthusiasm as her prede-cessor had about IFRS adoption (Johnson & Leone, 2009). In an article in CFO Asia, Johnson and Leone observed that the extension of the public comment period on the road map to IFRS adoption also implied that the original time line of 2014 may change. This is an indicator of the slow pace the US is likely to take in the transition.

Players in the US have cited a number of factors about whether the cost of implement-ing the switch to IFRS is really worth it. It has even been sug-gested that the switch could lead to further confusion and even worsen marketplace con-fidence in financial statements mores at this time when con-fidence is at its lowest. Ques-tions have also been raised as to whether the US legal culture and auditors can handle princi-ple-based accounting language, train staff, and integrate IASB and whether the international rules are truly better than US GAAP. SEC has predicted that early adopters of IFRS would each incur about $32 million (Johnson & Leone, 2009) in fil-ing their returns. The transition quagmire was summarized in a forum in June 2006 where it was proposed that a transition plan or a blue print be created to guide an orderly move to IFRS in a way that would minimize disruptions and costs to capital market participants and other US entities that use FASB stan-dards (FASB, 2008.)



nism, auditor’s independence, inadequate IFRS accountants and other cultural reasons.

Kenya

In Kenya, the Council for the Institute of Certified Public Accountants (ICPAK) made a historic decision in 1998 to adopt IFRS (Mulera, 2007) and companies were required to prepare financial statements based on IFRS from January 1999. For many years, Kenya relied on local standards then known as Kenya Account-ing Standards (KAS) which in most cases were replicas of IAS. This therefore, facilitated the county’s adoption of IFRS as there were no contentious issues to deal with. However, the implementation process has been marred by challenges that are similar to those being experienced in many states around the world. They include costs, cultural changes, impact on taxation and size of enti-ties applying the standards according to ICPAK. While the challenges may have been addressed partially, there is no clear evidence that a serious study has been undertaken in Kenya to try and evaluate the consequences of adoption.

To heighten adoption and continuity, ICPAK runs an annual competition for com-panies known as the Financial Reporting (FIRE) Awards, in which companies that are compliant are rewarded. The awards identify weaknesses such as failure to disclose compensation for key person-nel, failure on disclosure for defined benefits and compli-ance with IFRS 7 (risk dis-closure and profit sensitivity) in companies in the country (ICPAK, 2010).

tices is on the capital structure where debt financing plays a major part as opposed to equity. This has, therefore, slowed capital market development and the enthusiasm that goes with financial reporting as a way of providing quality information to investors. In a study by Kim (2007), he observed that Japa-nese firms may be using IFRS and principles similar to US GAAP, but the spirit of finan-cial reporting geared towards investors is not deeply rooted hence, Japanese firms qualify to be label adopters.

Egypt

In an article by Agami (2007), 13 items of noncompli-ance with IFRS are listed in spite of the fact that Egypt has officially adopted IFRS. These items include failure to prepare segmental reports, excluding statement of changes in equity, related parties, impairment tests, misleading comprehen-sive income statement, inven-tory at the lower of cost or net realizable value, exclusion of subsidiaries in the consolida-tion statement, pledged assets, failure to distinguish finance from operating leases, risk exposure per IFRS 7, failure to present working capital on the face of the balance sheet and incorrect classification of current and noncurrent assets(to avoid negative capital) as well as failure on report-ing deadlines. Other serious omissions include overstating income/expenses by not accru-ing expenses, failure to account for deferred tax and failure to comply with events after the balance sheet.

The reasons for noncompli-ance are varied but not limited to lack of enforcement mecha-

Some of the challenges fac-ing China is that as at 2008, it had only 70,000 accountants while 3 million were required (Durfee, 2007). Some of these 70,000 accountants may not even be conversant with IFRS. This scenario is no different from research by Pricewater-houseCoopers (PWC) in 2004 when it was apparent that only 10% of surveyed participants in 300 European companies had the right people and skills in place to complete the transition to IFRS in the EU on time.

Japan

In Japan, a U.S.-style accounting framework was cre-ated in 1949 after the introduc-tion of new securities legislation and the standard setting func-tion vested in the accounting standards board of Japan in 2001 (ACCA, 2008). For many years, the financial reporting system was not transparent because the economy was pros-pering; there was little pressure to change. The Asian Economic Crisis of the late 1990s propelled Japan towards the IASC model of accounting. Japan’s systems closely follows the code law where tax reporting is superior to investor information needs hence, for long IFRS did not take effect. Japan has, how-ever, been reluctant to accept accounts prepared using IFRS guidelines although its finance ministry has set up a working committee to consider the revi-sion of national requirements in line with IFRS. Since IFRS has not been officially endorsed, the Tokyo stock exchange has agreed to accept financial state-ments prepared in their own home country standards.

Another interesting observa-tion of Japanese business prac-



the claimed benefits of IFRS as enunciated in the government’s Corporate Law Economic Reform Program. Whilst Aus-tralia and the EU are two devel-oped regions who have com-mitted to IFRS, it appears that the EU has a more structured process for evaluation and adop-tion, something which ensures communication and acceptance right through the process.

CONCLUSION

The great global account-ing experiment is one that is met with “hue and cry” and the questions based on these cases as to whether the IASB prom-ise of enhanced comparability and transparency, lower cost of capital, and generally improved accounting quality quality will be realized. The question may not be answered soon. In spite of adoption challenges and uncertainty in benefits, the belief that the benefits outweigh the demerits of accepting IFRS as the global standard seems to sink further, with the United States wavering on the road map and the India 2012 deadline passing without full adoption. Given that serious adoption of IFRS picked up momentum after the EU made its adoption mandatory in 2005, some of the conclusions as to its impact are to be tested over time.

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The Australian government through the financial reporting council announced the adoption of IASB IFRS in July 2002, and this meant that all Australian companies would follow AIFRS from January 2002. The Aus-tralian experience is a unique one because instead of adopt-ing IFRS directly, Australian equivalent standards known as AIFRS were reproduced. It has been argued that part of the problem facing implementation in Australia related to the issuing of these standards, as opposed to the adoption of IFRS as it is. Studies by Pickering, Ais-bit, Gray, & Morris, (2008) concluded that preparers had difficulties interpreting the stan-dards. In addition to this, the time as well as the costs spent by the auditors was on the higher side. Like in many countries, financial instruments, account-ing for income taxes and impair-ment of assets were reported as difficult. Based on perception, preparers of financial informa-tion did not think that users were concerned with IFRS adoption other than the volatil-ity in earnings. In a survey of 60 firms in Australia, Jones and Higgins (2006, p. 99) reported that many respondents were not well prepared for the transition and were very skeptical about

South Africa

Rudolph (2006) quoted the Accounting Practices Board (APB) and South African Insti-tute of Chartered Accountants (SAICA) as stating that foreign investment, credibility in finan-cial statements and the need for single standards for the prepa-ration of financial statements are the main reasons for the shift towards IFRS. Like many developing countries, little aca-demic research especially in the area of economic consequences has taken place. Nevertheless, a study by Ernst and Young in 2006, highlighted the challenges of transition from SA GAAP to IFRS as greater complexity, high costs in some cases, poor under-standing for the transition as well as the potential for confusion. More than 34 companies with R 5 billion and over were studied after first time transition. Like Australia, most companies relied on auditors and external staff to achieve clear interpretation of IFRS. Fair value accounting was highlighted as the most challeng-ing in the study. Part of the study focused on the impact on the bottom line, 57% of respondents reported adverse impacts while 34% positive impacts with causes arising mainly from deprecia-tion, financial instruments insur-ance contracts and some extent business combinations (Luke, 2007). South Africa’s involve-ment with IASB also extends further with its participation in IASB research project to develop accounting standard for extrac-tive activities given major mining activities in South Africa.

Australia

IFRS was adopted in Australia in 2005 and the first financial reports were prepared



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Erick Outa is an Accounting Doctorate Scholar at the University of South Africa and a researcher. He holds an MBA from the University of Cape Town. He is a former CFO and Director at Sara Lee H&BC Africa and Deputy Vice Chancellor and adjunct faculty at United States International University and adjunct faculty at Strathmore Business School. He is a member of the Institute of Directors (IOD), the Academy of Interna-tional Business (AIB) and the Global Corporate Governance Forum. He has served on the IFRS committee of the Institute of Certified Public Accountants of Kenya. He has published on the impact of IFRS adoption and his research interests include IFRS, Corporate Governance and firm performance and his forthcoming publications include “Consequences of IFRS Convergence Projects” and “Corporate Governance Disclo-sures and Earnings Management: The Case of East Africa.”

ifrs adoption around the world: has it worked?

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