Identifying determining factors that impact on the extent of harmonisation with international financial reporting standards: analysis of listed North African companies

Abstract

In the last decades, international accounting harmonisation has become the objective of many accountants in both academic and professional fields. With increased pressure from the globalisation of businesses in financial reporting, stock exchange, and international transactions, accounting information (produced by local accounting system) is not likely to meet users’ requirements. Many countries around the world have noticed the importance of accounting harmonisation in their regional financial markets. Despite problems of reliability of accounting information, developing countries (such as North African countries) have not paid enough attention to adopting international standards. Appropriate literature was covered in this study such as: obstacles to and benefits of harmonisation, interested bodies (historical view), uniformity of standards, harmonising accounting practices, the globalisation effects on the accounting environment, and firm characteristics effects over the accounting environment. Despite the existence of substantial literature about harmonisation around the world, there appears to be a lack of assessment of harmonisation in developing countries, also previous research is not likely to pay enough attention in testing the relationship between firm characteristics and both types of harmonisation (de jure and de facto) especially in developing countries. Therefore, this study was designed to fill these gaps. This study attempted to answer the following questions: Has (de facto and de jure) harmonisation between North Africa’s financial reporting and International Financial Report Standards (IFRS) increased between 2005 and 2010? To what extent does de jure harmonization impact de facto harmonization? And to what extent do firm characteristics (firm size, firm age, leverage, the profitability (ROA), institutional ownership, insider ownership, sector, and language of disclosure) impact on the level of both type (de jure and de facto) of harmonisation? A variety of approaches were used to answer these questions. De facto harmonisation was measured by C index, whereas de jure harmonisation was measured by using a compliance index. In addition, the impact of firm characteristics on harmonisation was analysed by using multivariate models (regression) tests. The result showed that overall de jure harmonisation has been increased from 46% in 2005 to 54% in 2010. Moreover, overall compliance of accounting practise (de facto) has also increased from 36% in 2005 to 50% in 2010. The results reveal that the level of compliance with IFRSs (de jure harmonisation) increases with a company size, institutional ownership, industry and language of disclosure, whereas firm age, leverage, ROA, and Insider ownership were insignificant factors. In addition, the results show that firm characteristics are insignificant in predicting the level of de facto harmonisation. The result also indicates no association between de jure harmonisation and de facto harmonisation