Many researchers have investigated the challenges of IFRS adoption and there have been a number of challenges reported in the literature. The challenges to IFRS adoption can be categorised into two main features: (1) internal challenges within the companies; and (2) external challenges from the external environment. The internal factors can be identified as the readiness of the companies to adopt IFRS, and this includes the cost of the adoption, understanding the standards, staff
IFRS adoption; for example, inconsistency with other legal requirements, valuation of accounting items, and enforcement of the standards.
Pawsey (2017) found that IFRS adoption increased the cost for companies, both in the process of adoption and after adoption. The adoption of IFRS required companies to invest significant time and money to upgrade the company’s systems, such as internal controls and accounting systems, staff training, and for promoting awareness for financial report users. In addition, the costs of staff training and development, external auditor’s fees and other expenses for hiring financial statement specialists to help with the adoption, keep increasing. Perera and Chand (2015) and Thompson (2016) confirmed that the high cost of adoption is considered as one of the practical difficulties for the adoption of IFRS. These costs include the actual training costs, opportunity costs of the time for training, restructuring internal control system costs, and audit costs.
Jermakowicz and Gornik-Tomaszewski (2006) believed that the challenges in IFRS adoption resulted from complications with IFRS as well as the lack of the guidance for implementing IFRS and the need for uniformity in the interpretation of the standards. The IFRS is considered to be complicated and requires staff with sufficient knowledge about accounting to prepare the financial statements.
Further, Faraj and El-Firjani (2014) pointed out that the lack of training programmes was one of the setbacks that the Libyan listed companies experienced. The accountants in Libya were unaware of the application of IFRS and were not capable enough to comply with the accounting standards because there was no relevant training programme for them (Faraj & El-Firjani, 2014). An accounting curriculum that lacks the inclusion of IAS/IFRS was also another major problem. These two points led to another issue that the preparers of the financial statements were not fully aware of the IAS/IFRS; thus, they had limited ability to implement the standards (Faraj & El-Firjani, 2014). Jermakowicz and Gornik-Tomaszewski (2006) asserted that the scarcity of adequate accounting education and training for the implementation of IFRS was seen as a difficulty in applying the IFRS. This was similar to the studies by Jones and Higgins (2006) and Guerreiro, Rodrigues, and Craig (2012) who supported the argument for the necessity of training and transition assistance for the financial statement preparers to be ready to handle the new practices of the IFRS.
Another issue, the limited ability of the practitioners in using English, was also reported as a problem facing the adoption of the IFRS (Faraj & El-Firjani, 2014). Language differences are one of the challenges experienced by staff from non-English speaking countries. For English-based
countries, language was not a problem compared to non-English speaking countries (Edeigba, 2017). The IFRS Standard originated from an (Anglo-Saxon) space where specific practices were unique to
the region and this resulted in difficulties in finding equivalent meanings in other languages to represent those terms (Istrate, 2015). Thus, this indicates that language could be a barrier to IFRS adoption.
Joshi (1998) studied the perception of accounting educators regarding the obstacles to the
harmonisation of accounting standards and showed that the respondents in his survey believed that the companies’ laws and taxation law were barriers to the harmonisation of accounting standards. Specifically, the inconsistency of IFRS with other legal requirements is one of the challenges for IFRS adoption. Barnett (2016) reported the differences between IFRS and Cambodian tax requirements in determining the expenses and incomes, which could lead to two potential issues: (1) if the financial statement preparers were not aware of the differences, it would lead to the non-compliance of either IFRS or taxation requirements; and (2) the preparation of two set financial information. Thus, Uzma (2016) stated that when the countries use their national accounting system for taxation purposes, it might be costly for the companies to use two different accounting systems.
The measurement methods of financial items in IFRS involves the use of the ‘market value’ valuation method. Edeigba (2017) suggested that the difficulty in determining the valuation of financial items was another obstacle for the application of IFRS. Firms facing difficulty in computing the values of assets and liabilities are not likely to comply with IFRS. Inconsistencies in the Libyan accounting regulations for IFRS were also described as one of the obstacles that deterred the adoption of IFRS by Libyan firms (Zakari, 2014). This study was confirmed by Edeigba’s (2017) findings which suggested that the more regulatory requirements for a certain type of accounting reporting (not the same as IFRS), the lower the chances for the adoption of IFRS adoption.
Barnett (2016) identified the lack of enforcement as one of the problems in the adoption of IFRS in Cambodia, while Faraj and El-Firjani (2014) asserted that the lack of enforcement could be
considered as one of the factors that prevented successful IFRS compliance. For example, the enforcement mechanism is a serious issue for IFRS adoption especially in countries that have weak institutions and enforcement agencies (Odia & Ogiedu, 2013). Cairns (2001) specified that the degree of compliance for IFRS was different even though the companies claimed they had used IFRS, the external auditors failed to express their opinions on the issue of compliance or non-compliance.