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CHAPTER ONE

INTRODUCTION

BACKGROUND TO THE STUDY

INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)

most likely, you have heard the term “IFRS” Steady Progress on

Convergence (commonly pronounced “Eye-Fers”) which is the acronym

for International Financial Reporting at a 2002 meeting of the IASB and

the U.S. Standards.

IFRS is a set of international accounting standards stating how particular

types of transactions and other events should be reported in financial

statements. IFRS are issued by the International Accounting Standards

Board.

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Due to the growth of multinational companies and an increasing trend in

globalization, there is need for a single set of accounting standard that

facilitate the process of exchanging, sharing and reporting financial results

for international business activities. Now a days, ifrs is the basis of the

financial reporting standard of most countries and encouraged

improvement and convergence of accounting standard

There are many companies even after the adoption of IFRS still preferred

the national accounting practices in a way that minimizes as far as

possible changes in the form of financial reporting that they applied under

their previous national GAAP.(Ernest and young,2006)

There are many relevant literatures related to international differences in in

financial reporting prior to IFRs adoption. Few reasons of implementation

difference have been suggested such as providers of finance, taxation,

culture and all external factors (Nobes and parker, 2004)

In 1998, gray developed a model based hofstede (1980) cultural/societal

values related to accounting practices. In this model, he draws a link

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between societal values and how both values reinforce accounting

practices in a particular country. The framework was extended by doupnik

and salter (1995) who developed a general model of accounting

development which links external environment, Culture and institutional

structures to accounting practices. Culture has been established by former

researcher to be one of the major reasons of differences in accounting

practices (Doupnik and Salter, 1995, Nobes (1998).

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1.2 STATEMENT OF THE PROBLEM

 Financial reporting techniques have been part of the colonial

tools employed by the British colonialist to establish the colonial and post-

colonial exploitative frameworks of economic environment in Africa. The

attainment of independence by the British colonies did not guarantee

independence of their accounting system nor standards.

Bakre (2008) reports how the Jamaican accounting system still

remains at the apron-string of the British despite attempts to freedom. The

IFRS in its present form, with the financial reporting standards and

practices, are more in line with western standards and practices to fit the

requirements of international mobility of capital rather than the developing

countries.

Culture also influences accounting behaviors with regards to the adoption

of International Financial Reporting Standards (IFRS) worldwide. In this

context, the homogeneity of applications of IFRS by different countries is

5

to be surveyed. Different cultural values and thought patterns lead to

different perceptions of the real world and therefore to individual

interpretations of the same standards or conceptions. The translation of

standards again conveys individual interpretations and is consequently

more or less subjective. For this inspection, Gray´s research “Towards a

theory of cultural influence on the development of accounting system

internationally” and Hofstede´s cultural dimensions in “Culture´s

consequences: Comparing values, behaviors, institutions and organizations

across nations” are deployed. From this vantage point, we will attempt to

make a statement of the convergence of IFRS applications and the

comparability of financial reports between IFRS-adopters, which are the

ultimate goals of International Accounting Standards Board (IASB).

Related to the evidence found in previous investigation of the role of

international power politics and culture on Ifrs adoptions this paper tries to

analyze whether international power politics and culture across countries

can be an explanation for Ifrs adoption. The goal of this paper is not to

IFRS adoption. It aim to answer the following research questioin

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1.3 RESEARCH QUESTIONS

Following from the statement of the problem above, the following

are the statement of the problem in interrogative form:

(1)What is the relationship between decision to adopt IFRS by a

country and international power politics

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(2)What is the relationship between decision to adopt IFRS by a

country and culture

1.4 OBJECTIVE OF THE STUDY

The following are the objective of the study:

(1)To find out the relationship between decision to adopt IFRS by a

country and international power politics

(2) To find out the relationship between decision to adopt IFRS by a

country and culture

1.5 RESEARCH HYPOTHESIS

The following tentative statement guides this study:

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(1)There is a positive relationship between decision to adopt ifrs and

international power politics

(2) There is a positive relationship between decision to adopt ifrs and

culture

1.6 SCOPE OF THE STUDY

The sample size taken for this study is 50 African countries out of

the 56 African countries listed.

The geographical area is on those African countries which s listed

out in the table.

The boundary of the subject matter is on the African continent

comprising of 56 counries.

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1.7 Significance of the study

This significance of the study is of great understanding dealing with

fact of this new accounting standard called IFRS.

Years have come and gone and this accounting standard IFRS is

been globally accepted to improve the quality of financial statement on

businesses and firms. And here is a platform for couuntries that are yet to

adopt this accounting standard IFRS

This study will help the global community in enlightening them

on the adoption of IFRS In relation to the role of international power

politics and culture in African countries adopting IFRS. Of course this

studybwill greatly serve as a reference for future studies,

1.8 Limitation of the Study

This project work was limited due to some various factors

beyond my control, like the poor network of some internet facilities the 10

researcher used. Lack of power supply from the power distribution center

of the State and lack of sufficient material for the project and also

sourcings for datas for the variables.

1.9 Organisation of the study

The study is organised as follows

Chapter one is the introductory part of the study

Chapter two is the review of literature

Chapter three is the method of data collection and analysis

Chapter four is on presentation and analysis of data

Chapter five is the Summary,conclusion and recommendation

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1.10 OPERATIONAL DEFINITION OF TERMS

International Financial Reporting Standards (IFRS)

IFRS is a set of international accounting standards stating how

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particular types of transactions and other events should be reported in

financial statements. IFRS are issued by the International Accounting

Standards Board.

IFRS are sometimes confused with International Accounting

Standards (IAS), which are the older standards that IFRS replaced.

(IAS were issued from 1973 to 2000.)

INTERNATIONAL POWER POLITICS

Politics by definitions is the process of making decisions by

adults in regard to how society ought to function. In terms of a

global society, international politics help steer and shape the

precedents set by industrialized nations so they may hopefully be

embraced and implemented in developing countries (Lane and

maeland).

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CULTURE

Taylor(1974). Culture is the characteristics of a particular group

of people, defined by everything from language, religion, cuisine,

social habits, music and arts. Culture refers to the cumulative deposit

of knowledge, experience, beliefs, values, attitudes, meanings,

hierarchies, religion acquired by a group of people in the course of

generations through individual and group striving.

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CHAPTER TWO

LITERATURE REVIEW

2.1 HISTORICAL PERSPECTIVE OF IFRS

Nations all around the world are following the fast pace convergence

of national generally accepted accounting principles with that of the

IFRSs. The forces of globalization and harmonization have been present

from the very beginning of this process and have shared in the

institutionalization of a "new regulatory regime" (Fontes et al., 2005,).

The International Accounting Standards Board (IASB) took on its

standard setting responsibilities on April 1, 2001 after its predecessor the

International Accounting Standards Committee (IASC). The IASC was

designated with the task to design and issue International Accounting

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Standards (IAS) and did so from 1973 to 2001 until the appearance of the

IASB. The IASB did not only develop International Financial Reporting

Standards (IFRSs) but it also confronted new topics not yet addressed by

the IASC in addition to adopting the previous set of IAS and either

renamed them or developed them more in order to give them the new

name under a new authority.

IFRSs have been deliberately developed as a global language for

accounting across boundaries; this process began in the 1960's, which

latter led to the formation of the IASC in 1973 by an agreement of the

leading professional accounting bodies in 10 countries (Australia, Canada,

France, Germany, Ireland, Japan, Mexico, the Netherlands, the United

Kingdom, and the United States) to address the matter of the lack of

comparability of financial reports between countries (Alfredson et al.,

2005).

Now, the IASB has sought out for partnership agreements with

national accounting standard-setters in order to endorse the adoption of 16

IFRSs. The IASB is a London based regulatory board. Even though

developing countries may face difficulties throughout the process of

implementing and complying with these standards, the desire to achieve

international accounting harmonization has always been one of the key

motives that have made the process a bearable one. It was officially

recognized in 1966 when professional accounting bodies first activated

their attempts towards finding a set of international accounting standards

(IASC/IASB Chronology, 2006), that there was a need for a "high quality

global GAAP" (Ampofo & Sellani, 2005). Its not only developing countries,

"even countries with a long relationship and a strong position in the

international accounting harmonization process found themselves at

different stages of convergence" (Hussey & Ong, 2005).

2.2 IFRS IN AFRICA

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Africa is a vast continent and both the strengths and weaknesses

of its implementation of a common form of financial reporting through

IFRSs and its institutional strengths and weaknesses vary enormously

from country to country, and region to region. The Francophone countries

north of the Sahara tend to retain their culture of sticking with French

domestic accounting rules. South Africa, by contrast, has been a financial

reporting powerhouse with a highly regarded stock exchange in

Johannesburg and an impetus in implementing the IFRS for SMEs

unrivalled around the world. The country of eastern Africa are steadily

moving towards IFRSs, and to the west an economic giant, Nigeria, is on

course for IFRS implementation from January 2012. ‘There is no country

resistance to IFRSs anymore’, says Zubaidur Rahman, Program Manager,

Financial Management Unit, Operations Policy and Country Services with

the World Bank. But he points to the other obstacles. ‘It is the capacity,

the professional accounting bodies, educational institutions, regulators

and auditors that remain the problem.’

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‘Africa’, says Jerry Mutonga, Manager for Financial Management with the

African Development Bank, ‘has a wide spectrum of countries and the

accounting capacity varies from next to nil in some, to others, like South

Africa, with good capacity. For example, the number of qualified

accountants in Francophone countries is so limited. It will take years to

get to the technical capabilities required. Even with a simplified version of

IFRSs they will not be able to comply in the next 10 years.

2.3 IFRS AND CULTURE

Before introducing the dimensions of culture, it is essential to find a

proper definition for culture. There is no universally agreed definition for

culture. As we are going to analyze the influence of cultural values on

accounting behaviours by using the cultural dimensions of Hofstede, it is,

therefore, sensible to take the culture definition by Hofstede in account.

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Culture is described as “the collective programming of the mind

which distinguishes the members of one group or category of people from

another” (Hofstede, 2001). Based on the definition, IFRS-adopters are

generally classified in three major accounting cultures: IASB-culture, EU-

IFRS culture and local IFRS culture .

Historically, distinct desired outcomes have led to the development

of different reporting mechanisms within financial accounting standards,

but more recent changes in the world business environment have made

such a multiplicity of financial reporting rules undesirable. First and

foremost among these is the inability to compare international financial

statements without considerable effort on the part of the stakeholder.

International standard setting bodies and national agencies have reacted

to this problem largely by adopting IFRS as a compliment to or in

replacement of their older national standards.

This literature shows that countries with similar values on the

Hofstede measures tend to have other social similarities including 20

business activities (Lin et al., 2008). Further, research shows that

countries with similar cultural foundations are more likely to trade with

one-another. Membership in the European Union offers benefits such as

trade and the ability of citizens to move between member states for

employment. Membership also has its obligations, however. One of these

is the requirement for consolidated financial reporting, where publicly

traded companies must use IFRS as the reporting medium. Thus, as a

precursor to a larger discussion of adoption of IFRS in the world

economies, the Union may have experienced a centric cultural migration

in order to facilitate the formation of such a cohesive economic policy.

Because economic affiliations tend to form along cultural similarities.

With the movement in international markets toward convergence

to IFRS as either the default system of financial reporting or an alternative

to the national system of reporting, the current research posits that

cultural commonalities among adopting countries may impact the timing

of such adoption. The influence of culture on the development of

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accounting systems and financial reporting has been widely studied.

Hofstede’s work on mapping culture into four dimensions forms the basis

of much of this inquiry. Hofstede defines culture as the systematic

programming of the mind and he posits (1980) that there are four cultural

dimensions: individualism (versus collectivism), power distance,

uncertainty avoidance, and masculinity versus femininity.

The perception of IFRS as a European institution is likely to affect the

international standard acceptance by any country(Ding et al 2005,

ciesielski 2007,Norris 2007)

Countries that are culturally more accepting of European institution

international accounting standards can be politically feasible.in countries

where European institution are non native, adoption of IFRS can be

viewed as abrogating authority to a European standard setter. Thus

certeris paribus, we predict countries that are culturally closer to Europe

are more likely to adopt IFRS

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2.4 IFRS AND INTERNATIONAL POWER POLITICS

 This research also asserts a link between the political prestige

of a country and its willingness to adopt IFRS, with more powerful ones

resisting IFRS to a greater extent than those with less political influence.

Countries that perceive IFRS adoption as ceding standard-setting power to

the EU demonstrate a higher degree of aversion to IFRS. Network trends

may also exert influence on a country’s desire to participate in IFRS.

Current data indicate a correlation between a country’s adoption of IFRS

and its adoption by surrounding nations or by other countries with

significant political standing (Ramanna, 2009)

Financial reporting techniques have been part of the colonial tools

employed by the British colonialist to establish the colonial and post-

colonial exploitative frameworks of economic environment in Africa. The

23

attainment of independence by the British colonies did not guarantee

independence of their accounting system nor standards.

Bakre (2008) reports how the Jamaican accounting system still

remains at the apron-string of the British despite attempts to freedom. The

IFRS in its present form, with the financial reporting standards and

practices, are more in line with western standards and practices to fit the

requirements of international mobility of capital rather than the developing

countries. Other studies have demonstrated that imposing a financial

reporting standard on less developed economies is a testimony that

accounting is a political technology and architectural innovation of the

West (Mitchell and Silka, 1993; Power, 1994; Copper, 1995). As a neo-

colonial tool, accounting has been applied to accumulate and allocate

economic surpluses and safeguard the interests of colonial and other

international capital by watching over capital and performing global

functions of capital (Arnold and Sikka, 2001). 

Bakre (2008) describes the global accounting standard setters as

capitalist bodies which seek to impose on other countries, particularly 24

developing countries, established financial reporting rules conducive to the

international mobility of capital. Accountancy firms and professional

bodies from the western world dominate and attempt to set financial

reporting standards not just for the western world, but also for the whole

world. These rules and regulations are often a response to politics, conflicts

and scandals in the western world (Mitchell and Sikka, 1993).

For instance, Botzem and Quack (2009) report that at the G20 (i.e.

the world most developed economies) summit held in London in April

2009, the Summit urged the standard setters to articulate urgent solutions

to the financial crisis particularly caused by treatment of financial

instruments.  Such directives are indications of the extent of influence and

interest of the West on reporting standards.

Bakre (2008) also demonstrated how the British professional

accounting body in collaboration with the multinational accounting firms

have tilted the balance of the accounting profession towards international

mobility of capital, in which their interests and that of their home countries

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are protected. He argued that the continued use of imperial-type financial

reporting techniques and practices, as in the IFRS, is a political technology

because of the peculiar ends that it serves.

The African continent has made frantic efforts to ensure that the region is

not left out in the accounting harmonisation process. The African

Accounting Council (ACC), made conscientious efforts to help member

countries set up their independent GAAP. most Francophone countries also

subscribe to the OHADA accounting regulations. Whether such

harmonisation is relevant or contributes to the development of the

continent has remained an issue of intense debate

Thus, most Francophone colonies such as Benin, Niger, Burkina Faso,

Cameroun, Republic of Congo, Cote d’Ivoire, Gabon, Mali, Guinea,

Senegal, Togo, Chad, Congo DR, and Equatorial Guinea became under

obligation to modify the OHADA accounting system by including

elements of the IFRS (Elad and Tumnde, 2009). If the IFRS is focused on

the benefits of investors, countries without stock markets will find its

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adoption irrelevant. In such circumstances, coercion by imperial powers

and the World Bank for adoption of the international standards becomes

mean and oppressive; as such countries do not stand to benefit from the

adoption. It becomes therefore apparent that edging towards IFRS

compliance in these countries is not out of self will but from compelling

influence and circumstance. 

Thus countries that are former colonies are likely to be influenced in the

international community by the former masters in the adoption ot the

accounting standard called IFRS

2.5 CONCEPTUAL FRAMEWORK

There is evidence that political consideration affects the adoption of

IFRS decisions. We find that more powerful countries are less likely to

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adopt IFRS, consistent with more countries being less willing to

surrender to the IASB. Country level power as measured as the first

principal component of a set of proxies for countries to influence

international decision considering their size and popularity within the

united nations

In contrast to the results of power,we do not find evidence of culture

closeness to the EU influencing their IFRS adoption decision, where

more Christians countries and countries with long settled colonial

relations with Eu powers are considered culturally closer to the region.

Academic theories yield mixed predictions on whether the adoption of

IFRS is benefictial to a country. Some scholars have argued that

international harmonization in according can improve Capital market

efficiency: a common sret of international accounting standard can

reduce the information processing and auditing cost to market

participant(Barth,2007:2008)

IFRS by definition are the result of an international political

economy equilibrium and thus cannot be expected to provide reporting

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standards that are uniquely suited to any given countrys

circumstance(leuz and wysocki, 2008)

2.5.0 Net Political values of IFRS

The adoption of IFRS by a country also involves trading off the

political gain from being able to influence international standard setting

against the value lost from surrending local authority over accounting

standards. We describe the trade offs between the benefit and cost as

constituting the net political value as arising from two factors

(i) International Power Politics

(ii) Culture politics

International power politics : ceteris paribus , we would expect more

powerful countries to have a larger positive political value since more

powerful countries are more likely to be to be able to influence the

nature of international standard

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The influence of powerful countries can be the result of explicit lobbying

and pressure tactics or the result of the IASBimplicitly catering to powerful

interest when developing standards, The dominant position of the EU in

IFRS standard setting presents, however an important contrast is likely to

alter the prediction above

As notedealier the development of IFRS is strongly linked to support

from EU. The IASB is physically situated within the EU and to date, the

EU remains the IASB,s largest sponsor(IASB,2008). If a country choses to

adopt IFRS,it must either engage in the political process to try to shape the

nature of the international standards, cede the standard setting role to the

other political playes. It is unlikely that more countries will adopt the latter

route, however if they choose to engage in the political process.They will

either have to enter into costly political wrangling with the EU

Faced with this choice it is reasonable to expect that more powerful

countries are less likely to adopt IfRS. On the other hand, for less powerful

countries,there is little political face lost on adopting EU-centric standards

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Thus, ceteris peribus we can predict that less powerful countries are

more likely to adopt IFRS

CULTURE POLITICS: In addition to country- level power politics, the

perception of IFRS as a European institution is likely to affect the

international standards acceptance in a country( Ding et al 2005, Ciesielski

2007, Norris 2007). In countries that are culturally more accepting of

European institutions, international accounting standards can be more

politically feasible.In countries where European institution are non

native,adoption of IFRS can be viewed as abrogating authority to a

European standard setter

Thus ceteris paribus, we predict countries that are culturally closer to

the Europe are more likely to adopt IFRS

2.5 REVIEW OF Empirical Literature

2.5.1 WHAT IS IFRS?

International Financial Reporting Standards (IFRS), together with 31

International Accounting Standards (IAS), are a "principles-based" set of

standards that establish broad rules rather than dictating specific

accounting treatments. From 1973 to 2001, IAS was issued by the

International Accounting Standards Committee (IASC). In April 2001 the

International Accounting Standards Board (IASB) adopted all IAS and

began developing new standards called IFRS.

2.5.2 Structure of IFRS

IFRS are considered a "principles based" set of standards in that they

establish broad rules as well as dictating specific treatments. International

Financial Reporting Standards comprise: •International Financial

Reporting Standards (IFRS) - standards issued after 2001 International

Accounting Standards (IAS) - standards issued before 2001 Interpretations

originated from the International Financial Reporting Interpretations

Committee (IFRIC) - issued after 2001 Standing Interpretations Committee

(SIC) - issued before 2001.

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Different cultural values and thought patterns lead to different

perceptions of the real world and therefore to individual interpretations

of the same standards or conceptions. The translation of standards

again conveys individual interpretations and is consequently more or

less subjective. By examining those two factors, we could come to a

conclusion about the influence of value orientations on accounting

values and behaviours. For this inspection, Gray´s research “Towards a

theory of cultural influence on the development of accounting system

internationally” and Hofestede´s cultural dimensions in “Culture´s

consequences: Comparing values, behaviours, institutions and

organizations across nations” are deployed. From this vantage point,

we will attempt to make a statement of the convergence of IFRS

applications and the comparability of financial reports between IFRS-

adopters, which are the ultimate goals of International Accounting

Standards Board (IASB).

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2.5.3 Reasons for adoption

There are many reasons for the adoption of IFRS. On the one

hand, all listed companies located in Europe are obliged to apply

IFRS. On the other hand, there are a great number of companies in

other continents apply IFRS on a voluntary basis such as Brazil,

Canada, US, Japan, China and Australia.

The motivation for the (voluntary) adoption can be

explained by the “economic theory of networks” (Ramanna/Sletten,

2009). Companies tend to adopt IFRS when their business partners

are also in a (worldwide) network of IFRS-adopters. 5 Moreover, the

adoption of IRFS opens access to the cross-border financial markets,

which enable competitive financing for companies. The choice over

a certain version of IFRS depends first of all upon the business and

financial culture, e.g. tax law, structure of business transactions,

business ethic, traditional forms of firm financing.

Furthermore, the politics and the regulatory culture of a

country also contribute to the different choice of IFRS-

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adoption .According to Hall10 (1976), culture of a society can be

seen as an iceberg. While some aspects of culture are directly

observable, the large portion is below the water. On the assumption

of relation between accounting and cultural values, one needs to

undercover the underlying beliefs, value and thought patterns to find

out the reasons for different accounting behaviours as well as the

choice over a certain IFRS-version.

2.5.4 Merits of Adopting IFRS

“Advantages to developing nations of harmonizing on IFRS include: the

elimination or reduction of set-up costs in developing national accounting

standards; the potential for rapid national improvement in the perceived 35

quality and status of financial reports; increases in market efficiency in

(inter)national financial markets through the provision of more

understandable, comparable, and reliable financial

Statements; and a reduction in the cost to firms of preparing financial

statements”(Nobes & Parker, 2006).

The costs that developing countries would have incurred in

developing their own accounting standards are averted when they adopt

IFRS. However, these costs are shifted from setting up to training local

staffs in handling the IFRS which by far would be profitable to these

developing countries.

Invariably the quality of financial reporting in these developing

countries would increase considerably taking into account the source of

these standards. It would also boost the international activities of firms in

that they can present reliable andcomparable financial information. More

so, companies in these developing countries can raise capital from

international financial markets since their financial reports can be

compared to other international companies

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2.5.5 Demerits of IFRS in Developing Countries

The international accounting harmonization objective is that,

“Globalization of capital markets appear to be the driving force behind the

proposed changes and while for this reason they may well suit the

purposes of the first world nations, their effect on third world countries

could be catastrophic” (IASC, 1990 as cited in Chamisa, 2000).

In this light therefore, developing countries adopt the IFRS with the

sole aim of satisfying their accounting and financial reporting requirements

but not purposely aiding in harmonizing accounting standards. These

developing countries therefore select the standards that would help their

course and modify those that would not be extremely beneficial to them.

Developing countries pursue international harmonization of these

accounting standards as far it does not hamper on the local accounting

needs, laws and regulations. If the main objective for proposing the IFRS

is to achieve a globalized capital market whiles most developing countries

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possess weaker or no capital, then surely adopting these standards can be

disastrous to some degree.

In addition to the above, the “International Financial Reporting

Standards are “carbon copies” of standards originating from the UK and

the USA with strong orientations towards maximizing shareholders‟

wealth rather than the social functions of accounting” (Rahaman et al,

2004). Most developing countries have weak structures in place to develop

good accounting system and for that matter the first point of call when it

comes to accounting issues is shaping and developing meaningful

accounting system rather than adopting already structured standards from

the developed countries. More so, the fact that these standards were

developed with the economy of these developed countries as a yardstick

makes the importance of the adoption of IFRS questionable.

“Other authors also argue that accounting should not be treated as

the object of providing useful information to investors only, but a craft that

serves the purpose of divergent interested groups. Since most developing

countries would be pursuing different socio-economic development

38

policies, the usefulness of standards developed with significant influence

from the advanced industrialized nations remains contestable” (Mir and

Rahaman, 2004).

The bearing of IFRS on the economic growth of developing countries

which have adopted them is conflicting considering the precious studies

conducted. For instance, Woolley (1998) studied the bearing that the

adoption of IAS has on the economic growth of some Asian countries and

came to the conclusion that the average economic growth rate of

developing countries when grouped by their approach to adoption or non-

adoption of IASs was not significantly different which underscores the

point that the adopters were not better off nor worse off as compared to the

non-adopters.

However, a similar study conducted in Africa observed a higher level

of economic growth for countries that adopted with some form of

modification of some of the standards to suit the local environmental

factors (Larson, 1993).

39

It is worth mentioning that, harmonizing of IFRS by developing

nations would mean the adoption of a set of accounting standards unsuited

or irreconcilable to national needs. At firm and national levels, this may

result in standards overload as firms strive to comply with IFRS that

exceed their business requirements in complexity and the ability of local

accounting staff to implement or comply with them (Perera, 1989).

Increasing harmonization and complexity in accounting standards

tends to facilitate expansion of large international accounting firms at the

expense of local firms in both developing and developed countries.

2.5.6 The Strong converge while the weak adopt

What is even more intriguing is the fact that the highly

industrialized countries have all, to some extent, cherry picked some parts

of IFRS, ie. converged to IFRS on their own terms, whilst edging less

developed countries to adopt unreservedly without any modification. For

example, we might think that the larger economies like Canada, the

40

European Union China, India, Russia, and Japan have all adopted IFRS.

Nearly all these countries have modified IFRS to suit their economies’

needs. In other words, they pick and choose which IFRSs are relevant and

which are not. Unfortunately, many developing countries are in the terrain

of adopting these standards without any thought to modification.

2.5.7 Uniformity for a diverse continent?

An argument I would like to advance for the no suitability of

IFRS in Africa is the fact there is to a larger extent a great diversity in the

socio-economic setting in the continent. At least in the European Union

(which happens to be the largest patron of IFRS), there exist differences

between member countries. But one thing sets them different from the

African Continent. The ability of the European Union to design regulations

41

and directives that are enforceable by all member states makes it easier to

have a uniform financial system.

In Africa, even regional bodies such as ECOWAS and the AU are

hardly able to agree on anything which can be enforced. At a conference in

South Africa, the out gone chairman of the IASB, Sir David Tweedie,

commented that the process of designing IFRSs involves constituents from

around the globe. These continents speak with one voice and have the

backing of the representatives from the Institutes and Standard Setting

Boards within the countries on those continents. When they speak,IFAC

(the International Federation of Accountants) and the IASB have to listen.

These other continents (excluding Africa) influence the development of the

Standards to take care of circumstances within their continents. Africa is

also there, but because its countries of this very diverse continent – 54

states! – do not have a united voice, they generally have minimal

influence.

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Even if African countries should adopt IFRS as given, it is unclear how the

benefits of IFRS can be measured, as enforcement within the region will be

left in the hands of individual countries. Apart from that, each country in

Africa differs from the others economically. Thus, whilst some countries

are only tax based economies some are clearly natural resources driven.

CHAPTER THREE

METHODOLOGY

3.1 INTRODUCTION

Chapter 3 includes a review of the research

method and design appropriateness, a discussion of the

population and sample, sampling technique. In addition,

43

this chapter also includes the sources of data,

measurement of variables, methods of data analysis and

the model specification.

3.2 THE RESEARCH DESIGN

The cross-sectional survey design was adopted

in this study, this is because the secondary data collected

was at a particular point in time without any intention to

take a second look at the data source

3.3 POPULATION AND SAMPLE

The population in this study is made up of all

the 56 countries making up Africa.

44

The sample size of 50 countries in Africa is used. This

sample size is adjudged to be adequate because it is

representative of the population.

3.4 SAMPLING TECHNIQUE

The samplingtechnique of this study which the samples were

collected enables the researcher to carry out his research in the

most appropriate manner which relates to the variables in the table

for a regression model on the data being collected.

45

3.5 SOURCES OF DATA

The data used for this study and their secondary

sources are as stated below:

TABLE 3.5.1 DESCRIPTION OF VARIABLES

S/N VARIABLES DATA SOURCE

1. ADN International financial

accounting standard

2. IPP http//en.wikipedia.org/list

of Africa countries by Gdp

3. CULTURE http//en.wikipedia.org/list

of Africa countries and

territories

Source: Marwa,M.f and Nyaboga A.B 2008, International

financial accounting standard and the continent of

Africa.IABR and TLC conference proceeding

46

3.6 MEASUREMENT OF VARIABLES

The variables used in this study (international

power politics and culture) were majored as follows:

(1) International power politics: this is to be taken as the

population of the country or geographical area

(2) Culture: This is to be taken as cultural closeness to Europe. If

a country is culturally close to Europe, we give it a score of one and

otherwise zero.

3.7 METHOD OF DATA PRESENTATION AND ANALYSIS

47

All data collected and analyzed for this research will be presented in

table form. This is to ensure orderly and organized data presentation

for easy understanding and also the study adopted the regression

method of data analysis

3.8 MODEL SPECIFICATION

A simple linear econometric model shall be adopted for this

study – since the study focuses on IFRS adoption: The role

of international power politics and culture ,the Binary logit

regression method shall be applied.

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The specification of the model for explaining IFRS

adoption: The role of international power politics and

culture is given below:

ADN=F (IPP, CUL)…………………(1)

This can be econometrically expressed as

k K

ADN = a1 + å b1 IPP + å b2CUL

j=1 j=1

Where a1 = Intercept of the equation

B1-B2 = Coefficient of the variable

ADN = Adoption of IFRS

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IPP = International power politics

CUL = Cultural closeness/Culture

.

The apriori or theoretical expectation between the

dependent and independent variables are given below;

BI >O International power politics has positive impact on

Adoption of IFRS (ADN)

B2>O Cultural closeness/Culture has impact on

Adoption of IFRS (ADN)

DECISION RULE

If the value of the calculated ratio is greater than the table

value, the null hypothesis (Ho) would be rejected and the

50

alternative hypothesis (H1) will be accepted. If the

calculated value is less than the table value, the null

hypothesis (HO) would be accepted and the Alternative

hypothesis (H1) will be rejected.

.

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CHAPTER FOUR

PRESENTATION AND ANALYSIS OF DATA

4.1 INTRODUCTION

This chapter contains the presentation and

interpretations of empirical findings. This result is analysed

using the binary logit based on its advantage in qualitative

response models. Thus the coefficient are explained as the

likelihood of achieving the dependent variable

4.2 PRESENTATION AND ANALYSIS

The study has attempted to examine empirically IFRS

Adoption and the role of international power politics and

culture. In the previous chapter, we specified an

econometric model that captured the effect of the

independent variables on the dependent variable.

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The data is analyzed using the Binary logistic

regression technique with data covering 50 observations.

The Binary logistic regression Estimation technique is

adopted due to the presence of categorical variables in the

model. The coefficient of the variables is explained as the

likelihood of achieving the independent variable (Adoption

of IFRS). The result for the specified model is presented as

follows:

RESULT OF BINARY LOGIT ESTIMATION

53

Depende

nt

Variable

Explanator

y Variable

Coefficien

t

Standar

d Error

-ratio

AND C 0.619228 0.57202

9

1.08251

2

CUL 1.452725 0.65781

4

-

2.20842

8

IPP 7.83E-05 9.12E-05 0.85858

2

Sources: EVIEWS 2012

ADN= 0.619228-1.452725CUL+7.83E-05IPP

(1.082512) (-2.208428) (0.858582) 54

McFadden R-

squared 0.082983

LR

statistic 5.725385

Prob(LR

statistic) 0.057115

Note: Z-Statistics are presented in Parenthesis below

each coefficient estimate in the equation above:

4.3 INTERPRETATION OF RESULT

A close examination of the results above shows that in

table 4.1, the explanatory variables (CUL and IPP) explained

about 8.29% of the systematic variation in ADN. This is

shown by the McFadden R-squared of 0.82983 above.

The LR-statistic value of 5.72 is significant. This is

because a comparison of the calculated value with the

table value at the 11% level of significance shows that LR-

statistic value critical value. This shows that the

explanatory variables are jointly significant in the model for

explaining the adoption of IFRS. Thus the overall model is

significant in explaining the adoption of IFRS

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On the basis of the Z-test, only the co-efficient (CUL)

passed the Z-test at 5% level of significance. This is

because the critical value of (-2.208428) in absolute term is

greater than the rule of thumb value of 2. This is to an

extent means that culture is a strong determinant of the

adoption of IFRS. The coefficient of (IPP) did not pass the

test of significance.

The Economic criteria pertaining to the apriori sign

from the results shows that the coefficients of IPP conform

to the apriori expectation by bearing the required signs.

The coefficients of CUL did not conform to the apriori

expectation by bearing a negative signs.

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4.4 HYPOTHESIS TESTING

On the basis of the test of individual empirical

significance, the result of the regression exercise reveals

that explanatory variables (CUL) used for the analysis

passed the test of significance, while IPP fail to pass the

test. It is on this basis we can now test our hypothesis.

DECISION

From the result above, it can be observed that the Z-

calculated value of (-2.2084) in absolute term for CUL is

greater than the rule of thumb value of 2 . Therefore we

can conclude by accepting the alternative hypothesis (H1)

and reject the null hypothesis (HO). Hence Culture has a

significant impact in the adoption of IFRS

While the Z-calculated value of (0.858582) in absolute

term for IPP is less than the rule of thumb value of 2 .

Therefore we can conclude by rejecting the alternative 57

hypothesis (H1) and accepting the null hypothesis (HO).

Hence IPP has no significant impact in the adoption of IFRS

4.4.1 DISCUSSION

The result obtained from the binary logistic regression

is fairly satisfaction and can be relied upon. Thus the

deduction that could be made from the empirical findings is

predicated on the size and magnitude of the slope of the

coefficient.

The result shows that culture has a negative

relationship on IFRS. A unit change in CUL will result to the

likelihood of not adopting IFRS.

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Another implication of the result is IPP, which shows a

positive relationship. A unit change in IPP will result to the

likelihood of adopting IFRS.

In conclusion, the result implied that the explanatory

variables play an important role in the adoption of IFRS. In

conclusion,the result implied that the explanatory variables

play an important role in adopting IFRS.

CHAPTER FIVE SUMMARY OF FINDINGS, RECOMMENDATION AND CONCLUSION

59

5.1 SUMMARY OF FINDINGS

This study has tried to fully comprehend and highlight the

econometric Analysis of the impact or the relationship between Culture,

international power politics and the IFRS adoption using cross sectional

data of 50 African countries.

Based on the quantitative exploration of the relationship between the

dependent and independent variables used in the model,we found out

that culture plays a significant role in the adoption of IFRS. The study also

shows a positive relationship between the adoption of IFRS and

international power politics which was proxied with GDP. Though

international power politics had the required sign, it was not statistically

significant in the model and does not to a large extent according to our

research findings determine the adoption of IFRS.

The empirical analysis that exist between the dependent and

independent variable was carried out with the aid of the logistic

regression. The binary logit was used and the result shows negative 60

relationship between in the adoption of IFRS and culture. The result also

shows that culture was significant in explaining the adoption of the IFRS ,

while international power politics was not statistically significant in the

model but had a positive relationship with the adoption of IFRS

5.2 RECOMMENDATION

In view of the current economic situation in the country and Africa

at Large, this study hence recommends the following :

1. Countries especially West African countries should adopt IFRS as a

common accounting standard in other to bring transparency,

uniformity and universality into accounting reporting system.

2. Since the world is fast becoming a global village and African

countries are in dire need of expanding their frontiers, it is

important for both British colonized and non-British colonized

61

countries to adopt IFRS as it gives them the opportunity to venture

into cross boundary activities.

3. There should be massive sensitization and enlightment of

developing countries on the need to adopt IFRS, as it will enable

countries have a unified accounting standard.

4. African countries should develop a common accounting standard in

other to have their own objectives and standard incorporated in the

IFRS as the IFRS have been argued to reflect United kingdom

accounting system.

5. There is need to improve on culture in respect to the adoption of

IFRS in other to remove the colonialist barrier

6. Countries should ensure that they establish meaningful accounting

system in place before thinking of adopting IFRS

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CONCLUSION

IN conclusion, this study have established that there exist a

positive relationship between in the adoption of IFRS and

international power politics while a negative relationship with

culture.

The research work demonstrates and underscores the need for the

adoption of IFRS, as IFRS serves as a global language for accounting

across boundaries.

The research work also demonstrates the problem facing the

adoption of IFRS, in terms of culture barrier as many French African

speaking countries prefer to stick with French domestic accounting

rules. Thus there is need for concerted effort on the part of

Government in francophone countries to break away from this

culture barrier in other to have a universally accepted accounting

reporting method called IFRS.

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The research shows that IFRS has been perceived as a European

institution and according to Bakre (2008) countries describe the

global accounting standard as a capitalist body which seeks to

impose on other countries, established financial reporting rules

conducive to the international mobility of capital. Thus, there is

need for massive sensitization of developing nations and the need

for the accommodation and a critical way to give room for the

harmonization of Africa accounting rules into the IFRS, as most

countries perceives developed countries as selecting the standard

that would help their course.

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