Parmod Chand

Effect of the global financial crisis on accounting convergence

Fair value accounting (FVA) is threatening the convergence of accounting practices around the world. It has been regarded as one of the contributing factors of the recent financial crisis. Given that International Financial Reporting Standards (IFRS) have embraced FVA, this financial crisis raises concerns about their suitability for financial reporting across the world. This study explores important implications of the global financial crisis for financial reporting, in particular seeking to identify whether the trend towards convergence has been impeded by inherent problems in the IFRS. Contrary to our expectations, analyses show that the financial crisis has made the case for global convergence of accounting standards more compelling than before. The majority of countries intending to converge in the near future have not been affected by the global financial crisis and are committed to adopt IFRS as planned. The analyses also show that the International Accounting Standards Board (IASB) has been facing pressure from the financial institutions, regulators, policy‐makers and finance ministers to review its rules on FVA. Consequently, the IASB has been undertaking measures to improve the reporting requirements in the light of the financial crisis.

The Effect of Accounting Education and National Culture on Accounting Judgments: A Comparative Study of Anglo-Celtic and Chinese Culture

Countries adopting International Financial Reporting Standards (IFRS) need to educate and train their professional accountants so that they are able to interpret and apply IFRS in a consistent manner. This study examines the effect of national culture and education on the judgments of Australian (Anglo-Celtic) and Chinese final year undergraduate accounting students in Australia. It seeks to understand whether culture influences student interpretation and application of uncertainty expressions, which are used as recognition and disclosure thresholds in IFRS. Results obtained on the cultural dimensions of Uncertainty Avoidance, Individualism, Power Distance, Masculinity and Long-Term Orientation provide evidence that Chinese students exhibit greater conservatism and secrecy compared to Australian students. The results of the study indicate that national culture has a significant effect on the judgments of accounting students when interpreting and applying selected IFRS containing uncertainty expressions. The results also imply that educational similarity does not moderate the effect of culture in influencing the judgments of accounting students. An important implication of the study is that regulators and standard-setters involved in the international convergence of accounting standards need to pay greater attention to cultural factors that may result in a difference in the interpretation and application of IFRS.

Convergence And Harmonization Of Accounting Standards In The South Pacific Region

Over the last few years there has been a significant increase in the acceptance of International Accounting Standards (IASs) and International Financial Reporting Standards (IFRSs) which are issued by the International Accounting Standards Board (IASB). Many countries are adopting the IASs/IFRSs using various approaches. These various approaches to converge and harmonize include adoption of IASs/IFRSs in its entirety, full adoption of IASs/IFRSs with time lags, selective adoption of IASs/IFRSs and countries developing national standards based on IASs/IFRSs. Given this divergence in adoption of IASs/IFRSs, national standard setters in many countries that are adopting IASs/IFRSs are struggling to impose standards that reflect the perspectives and needs of their respective users. This study seeks to examine issues that affect the adoption and implementation of IASs/IFRSs. Using countries from the South Pacific region, namely Australia, New Zealand, Fiji and Papua New Guinea, this study provides examples of how these countries have adopted IASs/IFRSs. Importantly, this study identifies various factors that should be considered and proposes actions to be taken by relevant stakeholders in countries adopting IASs/IFRSs. In conclusion, we reiterate the misconception that it is not a case of ‘flicking a switch’ to comply with IASs/IFRSs. We suggest that country specific contextual factors should be considered in adopting IASs/IFRSs.

Judgment and Decision-Making Research in Auditing and Accounting: Future Research Implications of Person, Task, and Environment Perspective

The discipline of accounting and auditing has increasingly recognized judgment and decision making (JDM) as highly important attributes in the profession because individuals such as managers, auditors, financial analysts, accountants, and standard setters make pivotal judgments and decisions. Many studies undertaken in this domain of research also substantiate the significance of JDM in accounting and auditing. This study evaluates all the papers published in 10 accounting journals among the leading ones from 1980 to 2010 that fall within the domain of JDM research. The categorization of the studies reviewed in this paper is based on Bonners (1999) three major determinants of JDM: Person, Task, and Environment variables. The review highlights the progress in the literature over the past three decades and also identifies the methodological limitations of previous research. The identified limitations will be useful for improving the research method of future JDM studies in accounting and auditing. The review also draws inferences on how JDM research in auditing, which is well established, could usefully guide future JDM research in financial accounting.

Chapter 7 Implications and Directions for Future Research

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.

Judgments of auditors on "principles" versus "guidance" in lease accounting standard: Evidence from Japan

Purpose 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. Design/methodology/approach 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). Findings “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. Originality/value 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.

Chapter 5 Judgments Based on Interpretation of “New” and “Complex” International Financial Reporting Standards (IFRS) within a Country: Evidence from Fiji

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 accountants 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.

Chapter 2 International Convergence of Financial Reporting Standards: Evidence from the South Pacific Region

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.