Accounting in Emerging Economies


The globalization of business operations plays a key role to encourage the overseas expansion of corporate practices. Moreover, globalization has identified an important driver of overseas cash inflow and outflow because companies are always trying to assess new business opportunities for ensuring the long term sustainability of the business (Nurunnabi, 2015). In the context of cross-border trade operations, companies are generally found the reliability of financial returns and accounting process which have been considered by the overseas firms. It increases the risk of investment. For controlling this situation, International Financial Reporting Standards (IFRS) have formed to establish worldwide uniform accounting and auditing norms to maintain uniformity in accounting practices that would support companies and countries to encourage the overseas trade and investment (Camfferman and Zeff, 2015).

Therefore, this study is going to evaluate the adoption and implementation of global accounting and auditing standards in national regulatory spaces. In this context, it pays extra attention to the modifications which are considered by emerging economies within the institutional frameworks and arrangements to integrate new accounting norms. For this purpose, this assessment is going to evaluate the convergence process of IFRS and structural complexity that may have a significant impact on the optimum implementation of IFRS. It evaluates different accounting models that are incorporated by emerging economies in establishing the accounting system. This investigation is going to evaluate the success and failure of new emerging economies within IFRS implementation. In this process, it examines different variables that influence the process of the integration of new accounting systems.


Literature Review

International convergence and structural complexity

In the context of the contemporary economic environment, a reliable and efficient accounting system plays a vital role in global economic operations. The importance of global accounting standards is enhanced in a significant manner as a reason for the globalization of the business operations in new emerging countries that could facilitate great resource allocation, lower cost of capital, and greater comparability (Wagenhofer, 2014). Ijeoma (2014) asserted that the modal of convergence has been as an important approach of the adoption of IFRS that could be carried out either full convergence or gradual convergence with reference to institutional framework and requirements of accounting standards within the country. The international convergence seems like a process to adopt international accounting standards. The investigation of Angeloni (2016) has found that the consideration of the approach of international convergence during the implementation of IFRS requires a detailed assessment of national laws and existing regulations (CHALLENGES AND SUCCESSES IN IMPLEMENTING INTERNATIONAL STANDARDS: ACHIEVING CONVERGENCE TO IFRSS AND ISAS, 2018)). Therefore, government authorities or regulators would be able to establish an appropriate framework and regulatory environment that could control the integration of international standards within the existing system.

According to the study of Bellanca and Vandernoot (2014), it has found that national standard setters face several complexities to manage the process of international convergence related to core principles and resource allocation. Moreover, national standard setters find several issues in consideration of different national constituencies during the advancement of the national accounting framework and decision-making process. On the other hand, Sweeney (2014) argued that national policymakers should have to more attuned to handle different challenges with reference to the efficiency of auditors and users so as government agencies would be able to adopt new system and processes as per the national laws. In this context, awareness management has emerged as a critical element to optimize the efficiency of managerial operations.

Assessment of accounting models in relations to social-political influences

For the determination of geographical origins or social-political influences, there are mainly two types of accounting models considered to different countries to regulate accounting practices. The investigation of Tatin and (2015) has identified that the approach of Continental Europe accounting has gained significant popularity in the 17th century in different European countries like France, Germany, Belgium, and Spain. This system was characterized by the juridical regulation or a codified legal system. In this context, the French Napoleonic Codes governed accounting practices through fixed and rigid accounting rules and regulations. The primary goal of this system is to ensure the appropriate preparation of the financial data and accounting statements. It seems that the sole responsibility of states through different public agencies enforces different accounting rules and regulations. Therefore, government authorities play a key role in the formulation of different accounting norms and corporate strategies (Trabelsi, 2016).

On the contrary, Hampton (2015) stated that the Anglo-Saxon model plays a key role in the implementation of international accounting framework because it is characterized by an accounting system with a conceptual framework. It is mainly adopted by all Anglo- American and commonwealth countries all over the world. It is also termed as Anglo-Saxon countries. The Anglo-Saxon countries include those countries that are having a common law system. It focuses on case law, custom, and practice as fundamental tools of accounting practices. These countries do not provide strict rules for accounting practices that are linked to different accounting norms. However, the accounting system is worked on general principles and accounting regulations. Al Masum and Parker (2020) asserted that this model has found very useful to Anglo-Saxon accounting standard-setting that is mainly regulated by the accounting principles and a conceptual framework for the preparation so as companies can present financial statements through accounting procedures. Therefore, this accounting model offers great support in the adoption of the IFRS system.

The evaluation of the role of IFRS reporting framework in the context of emerging countries

Nurunnabi (2017) asserted that the application of IFRS within the accounting system encourages companies and government authorities to restructure accounting practices in emerging countries so as it brings transparency in accounting operations. This is because it enhances the international comparability of financial results so as countries and companies would be able to attract overseas investors and companies that would play an important role in the overall economic development. However, the investigation of Boateng, Arhin and Afful (2014) has assessed the report of UNCTAD on the IFRS and has found that many emerging countries do not have fundamental aspects of accounting infrastructure that are linked with Institutional requirements, regulatory requirements, and human resource requirements. In this process, cultural diversity and social norms could encourage several challenges during the adoption of IFRS within an institutional framework of a country.

The investigation of Hossain, Hasan and Safiuddin (2015) has determined that IFRS Standards have found very effective in the strengthening and accountability of institutional and accounting system by removing deviations in different legal operations. By reducing the information gap between the providers of capital and users of money, government authorities can encourage capital inflow through an efficient accounting system. These Standards provide information that is needed to hold management to account along with government agencies so as government agencies would be able to regulate the economic structure of the country. In this context, Dsouza and Ravinarayana (2014) asserted that developing or emerging countries generally do not have a legally controlled and established accounting and auditing system. In some countries, the lack of a strong professional accounting body has affected the efficiency of accounting operations and legal framework. Moreover, the existing accounting and auditing systems may be inadequate to adopt new systems and procedures. In addition to that, Hidayat (2016) stated that the shortage of skilled professionals in the field of accounting and auditing creates several difficulties to new emerging countries in the adoption of IFRS.

According to the investigation of Simegn (2015), it has found that IFRS assists government agencies in the integration of the global accounting standards in the existing accounting system that would enhance the economic efficiency of different business operations. It supports emerging countries to attract overseas investors towards different investment opportunities. Moreover, it helps government agencies and companies in lowering the international reporting cost along with the cost of capital. On the contrary, Samujh and Devi (2015) stated that unfavourable political environments like corruption and limited transparency in government operations could affect the reliability of IFRS. This is because some countries do not have appropriate information for information share that encourage false representation of government financial statements along with week institutional framework. All these elements may create several problems in the application of the IFRS system in an appropriate manner.

Analysis of Key findings

Anglo-Saxon model has found a great approach to integrating IFRS with the existing institutional framework of the emerging countries

The globalization plays a key role to influence a legal system of emerging countries towards the accounting practices and approaches. This is because the Anglo-Saxon model is already applied in Anglo-American and commonwealth countries that have paid extra attention to the conceptual accounting system. Therefore, IFRS would facilitate great opportunities for emerging countries to update their accounting framework and financial reporting framework with reference to contemporary business trends (Odo, 2018). This is because the process of international accounting harmonization is significantly influenced by the Anglo-American accounting model. It could avoid the risk incompatibility in the integration of new accounting systems within the existing framework and institutional settings. The investigation of dos Santos, Fávero and Distadio (2016) has found a positive correlation between the areas of economy and financing accounting practices. Therefore, different accounting principles based on the Anglo-Saxon model would be found very useful in the development of a conceptual accounting framework among new emerging countries. In the context of new emerging economies, Anglo-American modal has found it very effective to establish uniform principles for the accounting and auditing practices with consideration of the needs of contemporary market trends. It could assure the optimum integration of new accounting systems and procedures with different initiations and regulatory authorities of financial markets (Elkelish, 2017). This modal creates an appropriate basis for the international convergence of accounting principles.

The intention of the government and economic condition of the country plays a key role in the successful implementation of IFRS in the UAE and Indonesia

The United Arab Emirates (UAE) has gained significant success in the successful integration of IFRS within its legal and institutional framework. The economy of the UAE is highly dependent on global oil trade and other overseas business operations that have enhanced the importance of IFRS-based accounting system (Santana and et al., 2014). For attracting global capital, the integration of IFRS was mainly implemented in the banking system through law. Moreover, UAE has established the “free-trade zone” with European union to maximize the efficiency of IFRS so as UAE’s companies can get listed on the DIFX Index. In the context of the capital market, the companies have to adopt IFRS to list of DIFX Index as well as the assessment of the global capital. Furthermore, financial reforms were focused to make UAE a globalized nation where any organization or individual does not want to pay any tax on foreign exchange and capital profit. This approach plays a critical role in the integration of IFRS with different financial institutions (Irvine and Lucas, 2006). In addition to that UAE joined Technical Corporation program of the World Bank to develop an appropriate infrastructure to implement World Bank accounting guidelines. Therefore, different activities of the UAE have played a critical role in the successful implementation of IFRS.

On the other hand, Indonesia has focused on performing full integration of IFRS. Initially, the government of Indonesia has adopted the convergence approach. In this process, government authorities have restructured the two professional bodies with reference to IFRS that include the Indonesia Financial Services Authority (OJK) and the Institute of Indonesia Chartered Accountants (IAI) (Nölke and, 2015). The whole process of transformation has been carried out in two stages. Therefore, significant modifications and convergences have been implanted in the Standard Akuntansi Keuangan (SAK)/ financial accounting standards. The current status of IFRS adoption in Indonesia is partly adopted.

Inflexibility of the legal system and High-cost transformation have failed the implementation of IFRS in Brazil and Romania

The flexibility of the existing legal system plays a key role in the smooth integration of IFRS within the accounting framework. In this context, Brazil found several difficulties in restructuring its legal and legislative framework towards the new system. Therefore, the inflexibility of legal norms has taken a long duration in the implementation of IFRS (Al Masum and Parker, 2020). Therefore, companies have found various issues in accounting operations, and it has also increased the chances of noncompliance.

Romania focused on a different variable to implement IFRS such as training of professionals, the adjustment in the information system, and other consultation fees so as local authorities have reported cost overrun. Moreover, government authorities have not found any significant benefits of IFRS within 2-3 years of implementation (Thompson, 2016). Therefore, the implementation of IFRS has not identified a reliable approach in the context of Romania's economic and legal environmental conditions. This is because the investment in IFRS would facilitate the best return when a country transforms all legal processes and other operations as per the requirements of the global economy.

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The above assessment has concluded that the importance of global accounting and auditing standards is enhanced in a significant manner in the context of globalization. A uniform accounting and auditing standards (International Financial Reporting Standard (IFRS)) has provided a great tool to external investors to evaluate the profitability and efficiency of companies situated in overseas locations. This investigation has focused on the implementation or integration of the global accounting norms or IFRS in emerging economies. This essay has found that government authorities have followed different strategies in the successful integration of global accounting standards that include the advancement of the accounting system, structural changes in different government sections, and many more. This assessment carries out a detailed evaluation of international convergence of IFRS and structural complexity that has been faced by the public authorities in the integration of accounting standards and found that public authorities adopt different tactics like gradual convergence and full convergence with reference to efficiency and complexity of existing legal structure and institutional framework of a particular country.

Furthermore, this report evaluates different accounting models that could be considered in different countries such as the Continental Europe accounting and Anglo-Saxon model and has found that the Continental Europe accounting model has been enforced by laws in accounting, but a conceptual framework is being implanted in Anglo-Saxon model. Therefore, the majority of emerging countries follow the Anglo-Saxon model, and it would be emerged as a great approach to adopt IFRS. For the assessment of the integration of IFRS in new emerging economies, this report evaluates the example of four different countries like UAE, Indonesia, Romania, and Brazil who have tried to adopt IFRS. This evaluation has determined that UAE’s economic conditions and intentions of the Indonesian government have played a critical in successful in the integration of the new accounting framework. However, Romania and Brazil have addressed cost and legal issues, respectively, that have encouraged failure in the implementation of accounting standards. Therefore, this essay concludes that the efficiency of the IFRS integration process is highly dependent on the economic situation and efficiency of the legal framework of new emerging economies.


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