Academic journal article Accounting & Taxation

The Impact of Culture and Economic Factors on the Implementation of Ifrs

Academic journal article Accounting & Taxation

The Impact of Culture and Economic Factors on the Implementation of Ifrs

Article excerpt


This paper examines the effects of culture and other economic factors on a country 's decision to implement International Financial Reporting Standards (IFRS). This work extends the previous literature by using a methodology that assigns an implementation score in different countries and its association with Hofstede 's cultural dimensions and economic factors. The results suggest that certain cultural dimensions and economic factors may affect a country 's decision to implement IFRS.

JEL: F23, F60, M41

KEYWORDS: International Financial Reporting Standards, Accounting Standards, Implementation, Convergence or Adoption, Cultural Dimensions; Economic Factors

(ProQuest: ... denotes formulae omitted.)


Economic transactions are measured with accounting standards that vary from country to country but the global economy has created the need for uniform standards. Differences in culture may affect a country's desire to join a globalized economy (Ding Jeanjean and Stolowy, 2005; Ramanna and Sletten, 2009, among others). Prior studies on the adoption of IFRS consider a country's culture, the barriers to adoption, and the impact of the adoption of IFRS on financial reporting. Callao-Gastón, JameJame, and Lainez-Gadea (2007), Callao-Gastón, Ferrer-Garcia, Jame-Jame, and Lainez-Gadea (2010), Ramanna and Sletten (2009), Armstrong, Barth, Jagolinzer, and Riedl (2010) examine the degree of convergence or adoption of IFRS in Europe, the European Union (E.U.) and the United States (U.S.), respectively. Our study presents an alternative empirical methodology that considers the effect of culture and economic factors on a country's IFRS implementation decision. The databases used were a survey made by PricewaterhouseCoopers, LLP (PwC) in April 2012 (IFRS Adoption by Country), Hofstede's (1980,2001) cultural dimensions, and The Global Competitiveness Report for 2011-2012 published by The World Economic Forum (WEF).

Using the aforementioned databases we designed a grading system based on PwC's survey that assigns an IFRS implementation score to each country. A country's IFRS implementation decision is expected to have an indirect impact on the required disclosure of financial information by listed companies in each country. Appendix A presents the questions included in PwC's survey regarding the current stage of the IFRS adoption or conversion process in each country. The next section provides a brief overview of the institutional background and relevant literature. The literature review is followed by the sample selection procedure, the data analysis, and the research methodology. The final section presents the results and our conclusions.


The academic and professional literature present diverse explanations regarding the IFRS implementation process in different countries. The IFRS Resources website of the American Institute of Certified Public Accountants (AICPA) defines convergence as the development of compatible international accounting standards over time; adoption means establishing a specific timetable for public companies to implement IFRS on their financial reports. Zeff and Nobes (2010) describe the acceptance of IFRS in a country can be accomplished through the following different methods: adoption of IFRS, endorsement of IFRS allowing for the possibility of some differences, full convergence, partial convergence and allowing the use of IFRS standards. As examples of the different stages of the IFRS implementation process, Carvalho and Salotti (2013) document the case of Brazil as a country that has completely adopted IFRS, whereas, Nie, Collins and Wang (2013) note that China is in the process of convergence to IFRS.

Culture and Hofstede's Cultural Dimensions

Prior research suggests that culture plays a central role in accounting decisions. According to Liu and Mackinnon (2002), one of the most cited definitions of culture in recent years was made by Hofstede in 1983. …

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