Accounting standards are defined as “… accounting regulations. At best, they restrict the choice of accounting methods available to management. At worst, they force companies to report financial information in a form which companies would not have chosen voluntarily” (Sutton, 1984:81 quoted in Al-Hajraf, 2002:102).
Since the 1970s an extensive effort toward the development of IASs (referred to as the IFRSs since 2002) has been exerted by the International Accounting Standards Committee (IASC) (referred to as the International Accounting Standards Board [IASB] since 2001). The IASB and its former body the IASC were developed with the purpose to develop in the public interest, a single set of high quality, understandable and enforceable global accounting standards to improve decision
making of all user groups; to promote the use of such standards and to achieve convergence of national accounting standards and International Financial Reporting Standards to high quality solutions (IASB, 2008: 64).
However, opponents of adoption of IFRSs worldwide argue that this one set of accounting standards might not be the best option for both developed and developing countries. For developed countries such as the US and the UK, IFRSs may be seen of lower quality than national standards as well as healthy competition between standard setters is required (Barth et al., 2008; Jamal et al., 2010). On the other hand, for developing countries it is argued that the IASC/IASB was not initially designed (structurally or operationally) as an effective tool to improve the accounting measurements and practices among developing countries (Kapaya, 2000). Likewise, Chamisa (2000) highlights that the conclusion regarding the relevance of IASs/IFRSs for developing countries should be made with caution due to several limitations associated with developing economies, such as their amorphous and heterogeneous nature. Within the same context some researchers propose that the accounting profession is nationalistic and thus, the development of financial reporting practices must be in light of national socio-political characteristics (Mueller, 1967 cited in Chand & Patel, 2008:84; Nobes, 1991) as the quality of financial reporting is more attributable to incentives of preparers and the country context (Jamal et al., 2010). However, the current scene shows that, globalisation and political convenience are forcing an increasing number of countries to adopt IFRSs, resulting in their wide international adoption (Ali et al., 2006; Al- Shammari et al., 2008; Daske et al., 2008; Joshi et al., 2008). Moreover, many developing capital markets including Egypt and Jordan, can be regarded as early adopters of IASs/IFRSs on a mandatory basis as will be discussed in Chapter Four. In contrast with Nobes (1991:78), who twenty years ago described the IASC’s effort toward worldwide standardisation as “a hopeless and unnecessary target”, Rodrigues and Craig (2007:740) argue that “[t]he push for global adoption of IFRS is part of a general wave of standardization that has taken place in broader, non-accounting contexts over the past 150 years … Consequently, in modern society, the global harmonization of accounting standards might be regarded as uncontroversial, unremarkable, and inevitable”.
On the other hand, proponents of compliance with IASs/IFRSs emphasise that one of the most important merits of compliance with IFRSs is that it enables easy comparison of the results and financial positions of companies across national boundaries, thereby removing barriers to international investment (Emyunu, 1993; Ali et al., 2006; Samaha et al., 2009). Furthermore, the adoption of the IFRSs is a pre-requisite of listing on foreign stock exchanges (Omar, 2007). Street et al. (1999) argue that the adoption of the IASs/IFRSs can help in lowering the cost of capital and the risk worldwide, reducing the costs of multiple reporting, providing a better understanding of
companies’ performance across countries by eliminating the confusion arising from different practices and measures of companies’ financial positions, promoting international financial investments in the capital markets, and improving the allocation of savings worldwide.
In addition, proponents argue that compliance with IFRSs enhances the professional status of the accountancy bodies, and saves costs associated with research and standard-setting efforts (Chandler, 1992; Larson, 1993; Chand, 2005). Peasnell (1993) suggests that for developing countries where there are poor national accounting structures and the accounting profession is not able to effectively regulate accounting and financial reporting, it is preferable to apply the IASs. Furthermore, developing countries fall under pressures from the international lending organisations, which justify such pressures by referral to their lack of resources and infrastructure to enable them to prepare their own standards, as well as their need to manage changes in line with modern and international harmony (Kapaya, 2000, Al-Htaybat, 2005; Ellabbar, 2007). According to Vlachos (2001), compliance helps to secure the minimum amount of information needed for decision- making and ensures that unsophisticated investors are not fooled.
Mandating the adoption of IFRSs worldwide reflects the success of the IASB, as supported by the international institutions such as the WB and IMF in persuading national governments worldwide of the merits of following a single set of accounting standards to connect their national capital markets as part of a global economy. Furthermore, the IASB-FASB project on convergence reflects to a great extent, their support to the adoption of IFRSs worldwide (Joshi et al., 2008)6. However, given that IFRSs originated in developed countries, it is necessary to acknowledge that it will take some time before full compliance with IFRSs is achieved in developing contexts, because these are different in their economies, institutional infrastructures, and accounting systems as well as in their ability to swiftly adopt IFRSs (Ali et al., 2006). In this regard other scholars argue that even with de jure compliance with IFRSs, important accounting differences still exist in different jurisdictions (Choi et al., 2002; Nobes & Parker, 2004; Saudagaran, 2004; Chand & Patel, 2008; Dahawy & Samaha, 2010). Ball et al. (2003:260) state that some countries adopt IFRSs to gain “instant respectability” or to serve as a “politically correct substitute” for their own accounting standards without developing the appropriate infrastructure that enables compliance with IFRSs. Consequently, given the increasing importance of compliance with IFRSs worldwide, it is important for all countries to take the appropriate steps to narrow the gap between de facto and de jure compliance, and thus achieve the most from the standards.