Mediating Perception of Accounting Professionals Towards Implementation of International Financial Reporting Standards

Abstract

Indian companies are also growing their wealth worldwide due to diversification, cross-border fusions, acquisitions, or dis-investments with the growth and development of the economy and increasing convergence of global economies. Under these conditions, it is necessary for the Indian corporate globe to follow IFRS (To create a common accounting language throughout the world, so that businesses and their financial statements can be consistent and reliable across nations, International Financial Reporting Standards (IFRS) were created by International Accounting Standards Board (IASB) in the year 2001) for its financial reporting. The Core Group of ‘Ministry of Corporate Affairs’ of India (MCA) has recommended IFRS convergence in a phased manner from April 1, 2012. The present study examines the attributes that form the perceptions of accounting professionals towards the ‘International Financial Reporting Standards’ (IFRS) implementation. The studies suggested that the implementation of IFRSs has been focused, with a view to minimize difficulties for the implementation participants (Sharad Sharma, Manag Audit J 32(4/5), 406–426. https://doi.org/10.1108/MAJ-05-2016-1374, 2017). A similar view expressed by (Weaver, Account Europe, 12(2), 1–25, 2015) observed different dimensions about the global accounting standards and the challenges faced during the implementation such as costs to be incurred in the implementation, IFRS awareness, and IFRS training and technology to be adopted to enhance that the implementation of IFRS brings comparability and uniformity. A comparative study conducted on usage of the national GAAP (Generally Accepted Accounting Principles (GAAPs) are those concepts and conventions on which the accounting system is based. The primary objective of these principles is to bring uniformity and consistency in the preparation and presentation of final statements). The author focused on reliability of information and openness in the capital markets are positively linked with the IFRS compliance (Bova, J Int Account Res, 11(1), 83–111, 2012).

Introduction

In the time of globalization, the conduct of doing commercial activities in the world has changed drastically. In the context of this, the commercial activities also experienced a great change in the procedure of financial reporting that started in 2005 when it made obligatory for public limited companies to formulate contemporary financial statements with ‘International Financial Reporting Standards’ in European nations. In the year 2005, the adoption of IFRS for the first time happened in the European Union. Afterward, many countries with developed markets started making financial reporting more effectively with the adoption of uniform standards. In accordance with this, many countries followed this approach of reviewing the IFRS for the first time to ensure that how their political, social, and economic conditions would suitability match with IFRS with minor changes. In India, the process of replacing its national standards with IFRS was formulated.

To fulfill the economic decisions and to create a platform for international business practices, the significant study of international accounting practices was developed over the years. The convergence of international accounting plays a vital role for key players such as market regulators, stakeholders, markets, legal authorities, and all related parties who compact with the financial resources of public companies. The practices followed in accounting play an important financial instrument for numerous economic negotiators. International accounting convergence's importance was the capacity to reduce adverse impacts resulting from the multiplicity of accounting practices in different nations [9]. One of the most controlled in this scenario was the ‘International Financial Reporting Standards’ (IFRS) introduction for the businesses mentioned in different nations around the globe on the stock exchange. In contrast to the rule-based accounting norm, the implementation of IFRSs implies that each tiny transaction has to be reported by the businesses. The implementation of IFRS has played a key role in rising the company's regulatory and audit costs. The application and consequences of IFRS are unclear for the investor, and the financial statements were investigated from the prospective of the investors [8, 13].

Review of Literature

The Cutting-edge in the period of globalization has turned out to be critical for every nation to grasp ‘International Financial Reporting Standards’ (IFRS). The present situation of the international business settlement cannot remain to shield itself from the advancements and varieties happening around the world. IFRS cleared up in a restricted and an extensive acumen. In the wide brims, IFRS joins measures and understandings embraced by the IASB,Footnote 1 IASC,Footnote 2 and SIC.Footnote 3 It focusses significantly on viewpoints like comprehend capacity, similarity, comparability, and opportunities in the planning of the money-related transactions. The developers in the arrangement of accounting benchmarks are more models based when appeared differently in relation to the rules issued before that were control based. The change of GAAP to IFRS will transport a huge contrast to the investigation of the use of proportions for the associations.

The past decade has seen a few changes during the time spent lead of business exercises over the world particularly because of globalization. It had additionally made radical changes in the money-related transactions, specifically the proceeding with an appropriation of IFRS (International Financial Reporting Standards) around the world [28]. In this way, IFRS was composed as a typical worldwide dialect for business issues with the goal that organization accounts are justifiable and equivalent crosswise over universal limits.

Numerous nations have embraced IFRS and India, intended to actualize in a staged way to achieve bookkeeping quality change through uniform benchmarks. IFRS execution includes specialized complexities and lawful obstacles. This paper emphasized to comprehend the complexities and issues worried about the postponement in the usage process. The essential information from 198 respondents from academicians, experts, and representatives, gathered with five-point Likert scale and factor examination, and Kruskal–Wallis test was conducted after the approval test. The test outcomes that there was no critical contrast with the impression of the respondents. The paper proposed preparing and expelling legitimate obstacles soon [27].

The union of IFRS with neighborhood measures is currently not only a gathering of information but also rather a reality. There were huge contrasts between the bookkeeping records set down in the current Accounting Standards as against the information conceived in the merged Indian Accounting Standards. These distinctions fundamentally affected the portrayal of benefit and money-related transactions of a venture. As the controllers and different partners utilize the money-related proclamations to accomplish various destinations, they cannot bear to disregard the effect of execution of the Indian bookkeeping measures or Ind-AS.Footnote 4 Controllers were aware of their effect on administrative records, and the benefits earned on resources [18].

The trust and straightforwardness prompted by Sunita [36] showed an exchange of the crucial motivation behind money-related details. Predictable, similar, and justifiable money-related data were the backbone of trade and making a speculation. The ‘Institute of Chartered Accountants Institute’ (ICAI) in India had selected to modify IFRS for bookkeeping records that started on or after April 1, 2011. De George [10] measured country-level improvements in the rating of the reporting scores as the post-IFRS standard of earnings less the quality of the pre-adoption era as an indicator of implementation effectiveness.

The investigation conducted by Cai [5] on the worldwide capital markets showed that IFRS has a higher level of combination among them when compared with the results drawn before the adoption of IFRS. Stice-Lawrence [35] assessed the comparability of financial reporting for a list of non-US businesses using the compatibility of the terms found in the annual reports of the businesses. The paper reviewed literature about the effects of the implementation of International Financial Reporting Standards (IFRS). It aimed at providing a clear picture of analytical archival literature on how IFRS adoption affects: consistency of financial statements, capital markets, business decision-making, stewardship and corporate governance, debt contracting, and auditing [11].

In contrast to the previous studies, the opinion expressed that IFRS appropriations ensure better bookkeeping information [20]. The German organizations showed that the quality of bookkeeping information after they choose IFRS showed improvement. Profitability and firm’s market capitalization have been measured for companies that adopted IFRS in India, China, Germany, Russia, and Kenya. The challenges faced by the listed companies were also examined to understand the readiness of the adoption of IFRS [33]. The author emphasized on IFRS implementation in India and analyzed the IFRS sector-wise implementation in India [29].

The author addressed the norms in Australia and the comparison of IFRS with prior Australian standards. The conclusion was drawn that IFRS were not yet prepared for global, so the implementation was questioned because listed companies already needed a world standard and there would be no better reasonable solution to IFRS. To maintain quality standards, it was mandatory to adopt IFRS [23]. The adoption of IFRS resulted in a reduction in cost of capital. It was suggested to understand the role of implementation guidance in accounting standard setting [1].

Lantto [19] found that IFRS has enhanced the significance of bookkeeping data in Finland, however; they were worried about the quality of those things related to money utilized for the organization. They also included the inquiry of important money-related allocations by the organizations on the choice of fair value accounting guidelines and necessities. Chakrabarty [7] examined the conceptual aspects of convergence of IAS with IFRS and its benefits. The author focused on the challenges faced in the convergence of accounting standards to IFRS. Joshi [16] highlighted the intense need to rediscover the Governance Framework and the Efficient Regulation of corporate entity valuation processes. This was a necessary prerequisite of effective internal controls on financial statements for bringing an efficient financial reporting of the firms (Table 1).

Table 1 Summary of Related Literature

In the process of implementation of IFRS in India, the firms had to face some key challenges such as revision in law, incorporation of fair value measurement, treatment of tax liability, GAAP reconciliation issue, changes in reporting system, training and education to the accounting professionals, and impact on the financial performance of the firm [31]. The author discussed the problems faced by the various stakeholders such as accounting regulators, firms, accountant, etc. in the adoption process of IFRS. He had highlighted various issues and problems in the implementation process of IFRS [15]. The study conducted by Shukla [34] highlighted the impact of financial activities of the firm during the adoption of IFRS. The financial activities of the firm such as debt covenants, financial risks, investment, as well as operating activities had no significant relation on the adoption of IFRS by the Indian firms.

Implementation of IFRS in Nigerian firms showed that share price and audit firm size significantly and positively relate to the disclosure of firm’s financial performance. The study investigated the performance of Nigerian firms from 2012 to 2017 which were listed in NSE (‘Nigerian Stock Exchange’). The results drawn exhibited that audit firm size was one of the important determinants for IFRS’s disclosure [25]. The paper attempted to examine the problems related to the harmonization of accounting regulation introduced by SMEs in EU countries, especially in the Czech Republic [3]. Indian Banking industry preparedness was examined in line with the convergence of Indian Accounting Standards with IFRS [12]. It was observed that the reforms in India's various legislative laws were required to be implemented/approved accordingly. Chaibi [6] investigated the value relevance of R&D expenses in the recent period, i.e., from 2005 to 2015, which found a gap in the related French research literature and the importance of post-IFRS research and development expenses in France.

Research Method

In the present study, the research techniques used for the data collection were both the quantitative- and questionnaire-based. In terms of the general framework, quantitative research seeks to confirm the hypothesis about phenomena [21]. The typology of questions asked was mostly close-ended questions. Based on the literature reviewed and an understanding of the important issues related to this study, this section presents the research framework and explains the methodology to address the research questions. The various aspects in the section have been addressed below:

Research Objectives

  1. 1.

    To examine the perception of accounting professionals towards the implementation of IFRS.

  2. 2.

    To determine the comparison of dimensions of IFRS implementation among demographic variables.

Scope

In many nations such as the Ghana, Brazil, U.K., France, Australia, Germany, Russia, Canada, USA, China, Singapore, and Malaysia international financial reporting norms play a vital part in the enlargement and prosperity of the business industry. This research is important, because IFRS implementation will provide a worldwide structure for Indian firms to prepare their financial statements to raise cash from foreign investors and therefore meet the demands of the overseas firms ' financial statements. This carries with it the significance of using IFRS as a single worldwide accounting standard.

Data and Methodology

The data were gathered from the accounting professionals for the present study. The sample size of the data filled by the accounting professionals is 199 responses and the data were compiled to achieve the requirements of the above objective.

  • Descriptive Statistics The data were first organized and placed for the tabulation of descriptive statistics. Descriptive statistics tools such as number of observations mean estimate, standard deviation, and maximum and minimum values were applied to the collected data.

  • Factor Analysis Factor Analysis is a broad term indicating a class of procedures primarily used for data reduction and summarization. “It is a statistical approach that can be used to analyze interrelationships among a large number of variables and to explain these variables in terms of their common underlying dimensions (factors)” “(Gaur and Gaur (2006), Statistical Methods for Practice and Research: A guide to data analysis using SPSS, Sage Publications, 92)”.

  • Independent Samples T Test It is used to find out the significance of difference between means of two independent samples. T test of two independent tests has been applied to assess the difference of three factors i: e accounting, finance, and others on different statements financial disclosure, cost, and impact of implementation of IFRS.

Hypothesis Development

Hypothesis testing for the implementation of International Financial Reporting Standards.

H1: Gender does not affect the implementation of International Financial Reporting Standards.

H2: Age does not affect the implementation of International Financial Reporting Standards.

H3: Educational Qualification does not affect the implementation of International Financial Reporting Standards.

H4: Occupation does not affect the implementation of International Financial Reporting Standards.

Attributes forming perceptions of respondents towards implementation of IFRS

Table 2 explains the attributes that the perception of the respondents towards the implementation of International Financial Reporting Standards.

Table 2 Attributes forming perception of respondents towards The implementation of IFRS

The purpose of applying exploratory factor analysis is to find the essential structure of a relatively large set of variables. The factor analysis is a multivariate statistical method, which identifies the underlying factors on the correlation structure between the variables. The highly correlated variables are clubbed together to form a factor. The factor analysis with varix rotation was applied on the scale. The Kaiser–Meyer–Olkin (KMO) Test and Bartlett's test Table, factor, and factor loadings are presented below with necessary interpretations:

The result is integrated that KMO statistics is found to be 0.874, which indicates that the presence of sample is adequate. The degree of common variance as per KMO value calculated is meritorious.

The Bartlett's Test of Sphericity is used to test the null hypothesis that the correlation matrix is an identity matrix. An identity matrix is matrixes in which all of the diagonal elements are all off-diagonal elements are zero. If the off-diagonal values are zero, those variables are linearly independent. That means if all the off-diagonal values are zero, there is no relationship between the variables. The Bartlett’s test of Sphericity is significant if its associated probability is less than 0.05. After that, all the items are added in three factors, which are given in Table 3.

Table 3 Table showing KMO test and Bartlett’s Test of Sphericity

The result indicates that the extracted commonalities of all variables are found to be greater than 0.5 which indicates that the factor analysis applied is useful for the study (Tables 4 and 5).

Table 4 Communalities
Table 5 Table showing Principal Component Analysis

In the extraction method, the principal component analysis is calculated to extract the factors. It is based on the correlation matrix of the variables involved, and correlations usually need a large sample size before they stabilize. In principal component analysis, the Eigenvalue of different components is calculated. The component is arranged in descending order and those components are considered whose Eigenvalue is greater than one. The result of the principal component applied to the latent factors is shown as below:

The results extracted from principal component analysis indicates that 22 variables can be extracted from three latent factors based on estimated Eigenvalues. The Eigenvalues of three factors are found to be more than one and explains 70% of the variance in the variables:

Percentage of variance = Eigenvalue of each component/Sum of Eigenvalue.

The results show that the first component explains 39.458% of the variance followed by the second component, which indicates 16.903%, and the third component explains 13.208%.

After applying principal component analysis, components are rotated using varimax. Varimax is the most commonly used rotation technique. The calculated Eigenvalue of different components is shown in graphical presentation of Eigenvalue known as Scree plot in Fig. 1.

Fig. 1
figure1

Source: Compiled by Authors

Scree plot.

With the help of this, factor and factor loadings have been extracted which is shown as below:

Based on the factor loadings of different factors, the variables are categorized into three factors:

Financial Disclosure

‘International Financial Reporting Standards’ (IFRS) helps in bringing the improvement in the quality of financial reporting. The significant improvement in the quality of maintaining and disclosing the financial facts in the financial statements that helps in establishing cross border relations and builds the trust among foreign investors too. The financial disclosure in the financial statements helps in bringing a positive impact on Foreign Direct Investment Inflows and promotes better investment decisions. IFRS implementation safeguards the use of one standard for both the parent and subsidiary companies (Tables 6, 7, 8, 9, 10 and 11).

Table 6 Factors and factor loadings of IFRS The implementation measuring scale
Table 7 Reliability Test of Factors
Table 8 Comparison of dimensions of the implementation of IFRS between male and female respondents
Table 9 Comparison of dimensions of the implementation of IFRS between age group
Table 10 Comparison of dimensions of the implementation of IFRS between education levels
Table 11 Comparison of dimensions of the implementation of IFRS between education levels

Cost

The numerous factors that lead to higher costs for businesses while adopting or convergence of Indian AS to IFRS. For the implementation of IFRS, the company is required to conduct workshops or training programs for the employees. There will be an increase in the financial burden on the company owing to the fees to be paid to the external auditors and consultants. The companies have to install a few accounting softwares to make the accounting processes uniform.

Impact

‘International Financial Reporting Standards’ (IFRS) implementation will expand the time dedicated to reporting the financial information, as a portion of the new guidelines is more troublesome than the current principles, which may lead to sector-specific problems.

Comparison of demographic variables on dimensions of the implementation of IFRS

The t test of two independent tests has been applied to assess the comparison of demographic variable’s dimensions or factors of the implementation of IFRS.

Financial Disclosure, one of the dimensions of the implementation of IFRS, showed a mean value of 3.89 for male respondents and a mean value of 4.09 for female respondents. The comparison between genders did not show any significant difference and the t value is found to be 1.371. A higher mean reflects attention given towards the implementation of IFRS in this competitive world by male and female respondents.

The male respondents when compared to female respondents of the dimension of cost of the implementation of IFRS showed no significant difference with t value of 1.938. The mean value of male respondents and female respondent were 2.87 and 2.60, respectively. Higher mean values reflect that cost of the implementation IFRS is given by both male and female. The cost of the implementation of IFRS is important to the business world as it may enhance more training to be given to the employees.

Impact, one of the dimensions of the implementation of IFRS showed a mean of 3.00 for male respondents and a mean of 3.08 for female respondents. The comparison between genders did not show any significant difference and the t value was found to be 0.593. A higher mean reflects that both male and female respondents have given importance to the impact of the implementation of IFRS; as in the present scenario, most of the countries have adopted IFRS.

Financial Disclosure, one of the dimensions of the implementation of IFRS, showed a mean of 3.61 for 20—30 year age group respondents and a mean of 4.27 for 30 years and above respondents. The comparison between age group did not show any significant difference and the t value was found to be 5.173. Higher mean reflects that both age groups, i.e., 20–30 years and 30 years and above pay attention towards the implementation of IFRS in Indian economy.

The respondents in 20–30 years’ age group when compared to the respondents in 30 years and above age group on the dimension of cost of the implementation of IFRS showed no significant difference with 0.103 t value. The mean value of respondents in 20–30 years’ age group and respondents in the age group of 30 years and above were 2.79 and 2.78, respectively. Higher mean values reflect that both age groups give the importance to the cost of implementation of the IFRS.

Impact, one of the dimensions of the implementation of IFRS showed a mean of 3.13 for respondents in 20–30 year age group and a mean of 2.93 for respondents in the 30 years and above age group. The comparison between age group did not show any significant difference and the t value was found to be 1.635. A higher mean reflects that both age group respondents have given significance to the impact of the implementation of IFRS, as in the present scenario most of the countries have adopted IFRS.

Financial Disclosure, one of the dimensions of the implementation of IFRS, showed a mean of 3.80 for graduate respondents and a mean of 4.07 for postgraduate & above respondents. The comparison between education levels did not show any significant difference and the t value is found to be 1.943. It is evident from the higher mean that both the graduate and post-graduate and above respondents pay attention to financial disclosure as one of the most important dimensions of the implementation of IFRS in this competitive world.

The graduate respondents when compared to postgraduate and above respondents of the dimension of cost of the implementation of IFRS showed no significant difference with t value of 0.641. The mean value of graduate respondents and postgraduate and above respondent was 2.83 and 2.75, respectively. Higher mean values reflected by both graduate and postgraduate respondents show that it is important to the business world to incur the cost of implementation of IFRS.

Impact, one of the dimensions of the implementation of IFRS, showed a mean of 2.93 for graduate respondents and a mean of 3.11 for postgraduate and above respondents. The comparison between education level did not show any significant difference and the t value is found to be 1.445. A higher mean reflects that both graduate and postgraduate and above respondents have given importance to the impact of the implementation of IFRS.

Financial Disclosure reveals that the mean for business and profession respondents is 4.04 and a mean of service and other respondent is 3.88. The comparison between occupations did not show any significant difference and the t value is found to be 1.222. It is evident from the higher mean that both the Business & Profession respondents and service & other respondents give importance to financial disclosure as one of the most important dimensions of the implementation of IFRS.

The business & professional respondents when compared to service & others respondents on the dimension of the impact of the implementation of IFRS showed no significant difference with 0.152 t value. The mean value of Business & Professions respondents and service & other respondents was 3.04 and 3.02 respectively. Higher mean values reflected by business & Professions respondents and service & other respondents show that the impact of the implementation of IFRS is significant for the business organizations.

Cost, one of the dimensions of the implementation of IFRS, showed a mean of 2.74 for business & professions’ respondents and a mean of 2.81 for service & other respondents. The comparison between occupations did not show any significant difference and the t value is found to be 0.564. A higher mean reflects that both Business & Professions’ respondents and service & other respondents have given importance to the cost of the implementation of IFRS.

Conclusion

IFRS is intended for business-oriented corporations to adhere. The financial statements of these organizations include quality, status, and cash flow information that is useful in making financial decisions for a variety of users. The efficient introduction of Ind AS would include a comprehensive strategic evaluation, a detailed step-by-step strategy, resource coordination, preparation, successful project management, and the successful incorporation of the various changes into regular business operations. Finally, the Ind AS deployment exercise involves permanent processes to continue delivering useful knowledge [28]. These users include main users: current and prospective stakeholders, borrowers and other users: staff, vendors, consumers, governments, and their agencies.

  • These perspectives are used by accounting bodies in developing economies to inform their employees on IFRS problems and to organize training programs and provide a better knowledge of the advantages of IFRS implementation for the prosperity of the company.

  • The findings indicate the merits of accounting standard convergence and discuss the significance of IFRS implementation in the Indian economy.

  • The views of accounting experts evaluated in this study linked to the problem of global convergence of accounting norms that will be helpful to policymakers and managers engaged in the process of convergence.

  • IFRS, if globally accepted, might in fact encourage more and more companies to increase the cross-border transactions.

  • The study also establishes IFRS as an effective accounting standard for revealing the true and fair measurement of the financial transactions.

Implications for business organizations and policymakers

  • Adoption of IFRS by Indian Companies will help and ensure single financial/accounting language will be used and results in reduce audit costs.

  • The study establishes IFRS as an effective accounting standard for meeting out the requirements of the financial reporting. The leading companies should adopt this and take advantage of presenting the financial reports to outsiders in an effective way.

  • With the increasing global trade, government’s effort should be concentrated on developing and providing training to the accounting professionals. This will enhance to create a roadmap for future trade across the globe.

  • Providing training to employees at all levels affected by the evolution to IFRS.

Notes

  1. 1.

    International Accounting Standard Board (IASB) is an independent, private-sector body that develops and approve International Financial Reporting Standards. The IASB operates under the oversight of the IFRS foundation.

  2. 2.

    The International Accounting Standards Committee (IASC) was formed in1973 through an agreement made by professional accountancy bodies from Australia, Canada, France, Germany, Japan, Mexico, The Netherlands, the United Kingdom and Ireland, and the United States of America.

  3. 3.

    Standing Interpretation Committee—developed and invited public comment on interpretations of IASC Standards, subject to final approval by the IASC Board.

  4. 4.

    Indian Accounting Standard, commonly called Ind-AS are the accounting standards adopted by companies in India in the year 1977.

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This article is part of the topical collection “Computational Statistics” guest edited by Anish Gupta, Mike Hinchey, Vincenzo Puri, Zeev Zalevsky and Wan Abdul Rahim.

To create a common accounting language throughout the world so that businesses and their financial statements can be consistent and reliable across nations, International Financial Reporting Standards (IFRS) were created by International Accounting Standards Board (IASB) in the year 2001.

Generally Accepted Accounting Principles (GAAPs) are those concepts and conventions on which the accounting system is based. The primary objective of these principles is to bring uniformity and consistency in the preparation and presentation of final statements.

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Puri, N., Singh, H. Mediating Perception of Accounting Professionals Towards Implementation of International Financial Reporting Standards. SN COMPUT. SCI. 1, 317 (2020). https://doi.org/10.1007/s42979-020-00334-5

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Keywords

  • IFRS
  • GAAPs
  • Accounting professionals
  • Factor analysis
  • Kaiser–Meyer–Olkin (KMO) test
  • Bartlett's test

JEL Classification

  • M41
  • E42