title: Adoption, compliance, and consequences of International Financial Reporting Standards in Africa
Creators: name: Tawiah, Vincent K.
Publisher: name: Griffith University
Year: 2019
Subjects: subject: Africa
subject: Adoption
subject: Audit market
subject: Compliance
subject: Consequences
subject: IFRS
subject: Institutional pressures
subject: Stakeholder salience

description: This thesis investigates the adoption, compliance and consequences of International Financial Reporting Standards (IFRS) in Africa, a continent which has mostly been ignored in prior studies due to the use of generic proxies. Drawing on DiMaggio and Powell (1983), this thesis examines the institutional pressures of IFRS adoption in Africa. Stakeholder salience theory, developed by Mitchell, Agle and Wood (1997), is employed to analyse the determinants of IFRS compliance outside the traditional capital market settings. As regards to the consequences of IFRS in Africa, this thesis analyses the impact of IFRS on audit fees, audit reporting lags and auditor switch. The study used panel data from 54 countries and 205 firms covering the financial years 2003-2016. Secondary data was sourced from reputable database and annual reports of sample companies. Different analytical tools such as ordinary least squares, logit and multinomial regressions were used based on their suitability to address the research questions. The study found that only 18 out of the 54 countries required all listed and large companies to report per IFRS, while 25 did not permit IFRS. The results supported the theoretical prediction that coercive, mimetic, and normative isomorphism influenced IFRS adoption in Africa. Specifically, the World Bank (WB) and International Monetary Fund’s (IMF) influence on African countries in adopting IFRS was not through foreign aid and grants; instead, their recommendations made in the Report on Observance of Standard and Codes (Accounting and Auditing) initiatives. The finding(s) also demonstrated that the presence of global audit firms and the number of years of IFAC membership had a strong association with a country’s decision to adopt IFRS. Moreover, countries with strong professional accounting organisations (PAO) were more likely to adopt IFRS. On IFRS compliance, the study found that the average compliance score among the companies over the period was 70.94%, with a minimum score of 58.59% and a maximum of 83.55%. The findings reported a significant positive association between audit committee competence (ACC) and compliance, and between chartered accountants on board (AOB) and compliance. The thesis also documented that compliance has been increasing over the years. Regarding the impact of IFRS on the audit market, the findings suggested IFRS was positively and significantly associated with an increase in audit fees regardless of early or late adoption. Also, on average, ARL increased by 26% across all samples, with late adopters experiencing 28% and earlier adopters 22% during the adoption year. Contrary to the late adopters, early adopters experienced a significant increase in audit fees during the pre-IFRS period due to the set-up and implementation at the time. In addition, IFRS adoption was likely to cause companies to switch from small audit firms to the Big 4. The findings on adoption suggest that global accounting agencies such as IFAC and IASB should focus on building vibrant national level accounting institutions such as PAOs to facilitate the adoption of IFRS in Africa. The thesis, therefore, adds to the adoption literature the finding that the isomorphic pressures in Africa are different from those suggested in prior studies. The results on compliance imply that companies that appoint more professional accountants to their boards are more likely to comply with the requirement of IFRS. Therefore, it is suggested that companies should engage more chartered accountants in their governance. Also, corporate boards must strive to strengthen their audit committees by appointing more NEDs and CAs to the committee. The findings also provide valuable information for professional accounting organisations on the role of its members (professional accountants) in the effectiveness of IFRS compliance. The findings of the consequences of IFRS on the audit market alert small and medium practitioners (SMPs) in non-IFRS countries of the possible loss of clients to the Big4 due to the adoption of IFRS. To mitigate this effect, the national PAO should build the capacity of their local accountants through training and education to handle the complexities and continuous upgrading of IFRS. Such training is seen as being crucial for SMPs in OHADA countries, Ethiopia, Djibouti and other countries which are in the process of implementing IFRS.