Why Do African Countries Adopt IFRS? An Institutional Perspective

We examine the institutional drivers of International Financial Reporting Standards (IFRS) adoption in Africa. The study covers all 54 African countries and relies on data from 2010 to 2015. Our results support the neo-institutional theoretical predictions that coercive, mimetic, and normative isomorphism influence IFRS adoption in Africa, although the circuits of isomorphic pressures differ from previous studies investigating adoption at the worldwide level and in emerging economies. Specifically, we find evidence of the influence by the World Bank and International Monetary Fund on African countries made subject to the Report on Observance of Standards and Codes – Accounting and Auditing program of assessment. We also found that the presence of global audit firms and the years of membership in the International Federation of Accountants are strongly associated with a country’s decision to adopt IFRS. Also, countries with a more structured and active professional accounting organization are more likely to adopt IFRS. Our findings provide insights into the significant role played by local professional accounting organizations in the promotion of IFRS. Furthermore, we provide empirical evidence that the nature of the isomorphic pressures in Africa is different from those suggested in prior studies, reinforcing the view that IFRS adoption is primarily driven by social and political dimensions, rather than the economic dimension usually professed by IFRS proponents. Our findings provide a number of implications. Firstly, it resonates with Chua and Taylor’s (2008) critical claims about the rapid “rise and rise” of IFRS adoption and the relevance of the social and political dimensions behind the “IFRS globalization” project, in contrast to the mainstream economic motivations and discourses of foreign investment and stock market development. Such motivations and discourses appear to be merely symbolic and deployed as a way to justify prompt and rapid adoption. From this perspective, there are, however, lingering questions as to the speed with which African countries might be expected to adopt IFRS and the extent of these countries’ preparedness for adoption (assuming it is at all needed). Secondly, and from a policymaking perspective, the results do reveal the relevance of crucial circuits by which the case for adoption can be made. Our evidence also indicates the important role of local accountants and PAOs in IFRS adoption. Hence, transnational governance bodies, international financial institutions, and national governments need to first consider the need for robust and in-depth capacity-building programs in accounting and enforcement expertise before proceeding towards IFRS adoption. One conjecture is that while IFRS adoption does appear to convey a strong legitimating signal for an African country and for its accounting community as a whole, the immediate benefits of such a rapid and unsupported adoption would most likely flow, almost exclusively, to a relatively small group of local IAF representatives and affiliate entities of IFRS-complying multinationals. This implies that relatively little benefit would come to the wider accounting profession and to the vast majority of local companies, which in turn may negatively impact a substantive, long-term, and in-depth national engagement with accounting standards.