The adoption of IFRS in Poland: an institutional approach

The introduction of IFRS (International Financial Reporting Standards) in the EU in 2005 was perceived to be a major step towards greater global harmonisation of accounting leading to better comparability and uniformity of financial statements (Deloitte Touche Tohmatsu, 2005). However, prior literature suggests that there are significant national differences in de facto application of the international standards (Kvaal and Nobes, 2010; Krzywda and Schroeder, 2007). This thesis, supported with empirical data, contributes to knowledge by rejecting the argument commonly put forward by the International Accounting Standards Board (IASB) and other policy setters that the adoption of IFRS will in itself be sufficient to achieve harmonisation of accounting practice. The research uses a case study of Poland to address three main research questions. Firstly, whether the accounting standards as promulgated by IASB (International Accounting Standards Board) have been fully adopted by Polish listed companies? Secondly, the thesis addresses the question that if Polish companies are not compliant with IFRS what are the reasons for the non-compliance? The thesis draws on the sociological perspective of new institutional theory as put forward by Meyer and Rowan (1977) and DiMaggio and Powell (1983) to explain the reasons for the deviation in accounting practice from IFRS in Poland. The response of the Polish companies to the external demands to adopt IFRS has been evaluated using the model developed by Oliver (1991) where responses may vary from full acquiescence to defiance. Thirdly the thesis addresses the question to what extent is new institutional theory adequate for explaining the motives driving the behaviour of various actors in the field of financial reporting? The study contributes to knowledge by linking institutional theory to organisational behaviour and accounting practice in a transition economy in a novel and previously unexplored way in order to gain a better understanding of the role of accounting in Poland. The study of Poland provides a particularly insightful and novel approach for the study because Poland is a post-communist economy and so its national institutional orientation is significantly different to the Anglo-Saxon origins of IFRS. Poland is also a recent entrant to EU and so the interaction of communist legacy with market orientation allows better understanding of the institutional and economic factors that shape accounting. The thesis maintains that financial reports produced by Polish companies are rationalised ‘myths’ due to the largely ceremonial adoption of IFRS. Furthermore, the quality of accounting is affected by various competing institutional forces. The thesis makes a contribution to the theory by challenging the narrow perspective of mainstream new institutional theory which focuses on the homogeneity and permanency of existing practices. In contrast this research focuses on the dynamic conflict between the existing structures and new regulatory pressures that lead to the breakdown of old institutional arrangements. In particular the study addresses two aspects of institutional theory that have been neglected in prior research. Firstly, drawing on Lounsbury (2008) the notion of multiple logics and therefore different concepts of rationality have been mobilised to explain variation in accounting practice. Secondly, the role of power and conflict are used to explain the current institutional arrangements in Poland and the changing role of the accountancy profession (Lawrence, 2008). In adopting the power and multiple logics perspectives, which are not addressed in the earlier seminal works, a better insight has been gained into the heterogeneity of organisations rather than accepting the notions of order and stability. Using institutional perspective it is argued that companies are failing to comply fully with IFRS because they face a multiplicity of expectations arising from different institutional origins. Their strategic response to these pressures is to ‘compromise’ to satisfy the competing demands of the accounting profession, investors and the tax authorities. The power and resource dependency constructs were also utilised to explain how major firms of accountants attempt to penetrate the existing accounting structures in Poland and so influence the role that accounting plays in Poland. The analysis also highlights the tensions between the various bodies and the impact that has on company reporting. In particular both the state and other stakeholders utilise a common set of financial statements and the extent to which they meet the objectives of each user group is explained using the power construct. Following call by (Suddaby, 2010) and DiMaggio (1985) for greater research focus on actions at actor level this research considers individual organisational responses to the requirement to introduce IFRS into Polish accounting framework. The thesis finds that that Polish companies will change their established practices in response to the external influences and their actions are rationally determined based on different logics and the relative influence of coercive forces which either promote or hinder change. The research has found that in Poland coercive pressure was the primary mechanism for achieving isomorphism whilst prior literature indicates that in market economies mimetic mechanism was far more important. This coercive mechanism was particularly potent due to the strong influence of the state which was a legacy of the communist system leading to weak accountancy profession. In contrast, increasing influence of the global accountancy firms and EU regulation are forcing the changes to the accounting regulation, governance structures and education of accountants in Poland. The research finds that in spite of the fact that all companies examined purport to comply with IFRS there are significant deviations in de facto compliance. The findings provide strong evidence of decoupling through superficial compliance. Organisations are not however decoupling in a uniform manner but appear to selectively decide on areas where they comply or not. In particular lack of compliance with disclosure requirements appear to be related to cultural characteristics of secrecy and power distance which were prevalent in the communist era. Research confirms that companies compromise by making explicit statement of compliance with IFRS whilst in many cases failing to meet the spirit of IFRS in failing to fully provide useful information for the stakeholders. Even where there is compliance the introduction of IFRS has not improved uniformity due to the use of alternative treatments permissible under IFRS. The research utilises a mixed methodology to gain a deeper understanding of the complexity of the factors implicated in shaping of accounting. In order to identify the level of compliance with IFRS published financial data for 2005 for 40 Polish companies that are listed on the Warsaw Stock Exchange is analysed and then explained with in-depth interviews held with representatives of the institutions implicated in the study. The differences between Polish accounting regulation and IFRS were measured using comparability index first proposed by Gray (1980).