University of Ghana http://ugspace.ug.edu.gh UNIVERSITY OF GHANA COLLEGE OF HUMANITIES INSTITUTIONAL IMPEDIMENT TO INTERNATIONAL FINANCIAL REPORTING STANDARD (IFRS) ADOPTION BY MABEL LANI AMARTEY (10700789) THIS LONG ESSAY IS SUBMITTED TO THE DEPARTMENT OF ACCOUNTING, UNIVERSITY OF GHANA, LEGON IN PARTIAL FULFILMENT OF THE REQUIREMENT FOR THE AWARD OF DEGREE IN MASTER OF SCIENCE ACCOUNTING & FINANCE AUGUST, 2019 i University of Ghana http://ugspace.ug.edu.gh DECLARATION I hereby declare that this submission is my own work towards the award of Master of Science Degree (Accounting and Finance) and that, to the best of my knowledge it contains no work previously published by another person nor material which has been accepted for the award of any other degree of the University, except where due acknowledgement has been made in the text. .......................................... .................................. MABEL LANI AMARTEY DATE (10700789) i University of Ghana http://ugspace.ug.edu.gh CERTIFICATION I, hereby certify that the thesis was supervised in accordance with the laid down procedures by the University. ................................... ..................................... DR. IBRAHIM BEDI DATE (SUPERVISOR) ii University of Ghana http://ugspace.ug.edu.gh DEDICATION This work is dedicated to the Almighty God for His grace and mercy throughout the time of study, to my wonderful family especially my father Mr. Joshua Tetteh Amartey for his encouragement. Mr. Augustus Tagoe, Bernice Korkor Amartey, Dr.Kotei Dzani (Member- counsel of state), Mr. William Attor for their prayers and support, God richly bless them all . iii University of Ghana http://ugspace.ug.edu.gh ACKNOWLEDGMENT My ultimate appreciation goes to God for His Uncommon favor upon my life throughout my course of study with all its struggles. I really want to appreciate my supervisor Dr. Ibrahim Bedi for his criticisms and encouragements during this research work. I say a very big thank you. I want to applaud and appreciate the profound effort and support of my very special friend Pascal Kodjo Gadufia for his maximum effort to push me through this course and to my children Theresa, Samuel Mishidaa and Shekinah Naa Nyormoda thanks for your understanding and To all friends and love once I really appreciate you all. iv University of Ghana http://ugspace.ug.edu.gh TABLE OF CONTENTS DECLARATION....................................................................................................................... i CERTIFICATION .................................................................................................................. ii DEDICATION........................................................................................................................ iii ACKNOWLEDGMENT ...................................................................................................... iiv ABSTRACT ............................................................................................................................. xi CHAPTER ONE: INTRODUCTION .................................................................................. 1 1.1 Background of the study .................................................................................................. 1 1.2 Statement of Problem ....................................................................................................... 4 1.3 Research Objectives ......................................................................................................... 5 1.4 Research Questions .......................................................................................................... 6 1.5 Brief Methodology ........................................................................................................... 7 1.6 Scope and limitation of the study..................................................................................... 7 1.7 Organization of the study ................................................................................................. 8 CHAPTER TWO: LITERATURE REVIEW ..................................................................... 9 2.1 Introduction ...................................................................................................................... 9 2.2 Review of Empirical literature ......................................................................................... 9 2.3 Implications and Limitations of IFRS Adoption ............................................................. 9 2.4 Presentation and Compliance with IFRS ....................................................................... 10 2.5 Application of IFRS ....................................................................................................... 11 2.6 Accounting Principles .................................................................................................... 12 2.7 Impact of IFRS on Profit and Equity ............................................................................. 14 2.8 The Adoption of IFRS ................................................................................................... 14 v University of Ghana http://ugspace.ug.edu.gh 2.9 The Relevance of Accounting Information on IFRS ..................................................... 16 2.10 Challenges of IFRS Implementation ............................................................................ 16 2.11 Review of Theoretical Literature ................................................................................. 18 2.12 Institutional Theory ...................................................................................................... 19 Diffusion Theory ...................................................................................................................... 20 CHAPTER THREE: METHODOLOGY .......................................................................... 21 3.1 Introduction .................................................................................................................... 21 3.2 Research Design............................................................................................................. 21 3.3 Qualitative research methods ......................................................................................... 22 3.4 The case study ................................................................................................................ 22 3.5 Population ...................................................................................................................... 23 3.6 Sample Size and Sampling Technique ........................................................................... 23 3.6.1 Sample Size ............................................................................................................. 23 3.6.2 Sampling Technique ............................................................................................... 24 3.7 Types and Sources of Data ............................................................................................ 25 3.7.1 Primary Source of Data ........................................................................................... 25 3.7.2 Secondary Source of Data ...................................................................................... 26 3.8 Data Analysis ................................................................................................................. 26 CHAPTER FOUR: DATA ANALYSIS AND DISCUSSION OF RESULTS ............... 27 4.1 Introduction .................................................................................................................... 27 4.2 Response Rate ................................................................................................................ 27 4.3 Description of Demographic factors of Respondents .................................................... 27 4.3.1 Gender Distribution of Respondents ....................................................................... 27 4.3.2 Age Distribution of Respondents ............................................................................ 29 vi University of Ghana http://ugspace.ug.edu.gh PERCENTAGE........................................................................................................................ 29 4.3.3 Education Level of Respondents ............................................................................ 29 4.3.4 Professional Qualification ....................................................................................... 30 4.3.6 Role of Respondents within the Industry ................................................................ 33 4.3.7 Years of Experience ................................................................................................ 33 4.4 Analysis of Factors that influence the Adoption of IFRS in Ghana .................................. 34 4.4.1 Economic Development .......................................................................................... 35 4.4.2 Legal System ........................................................................................................... 36 4.4.3 External Environmental Factors ............................................................................. 37 4.4.4 Existence of Capital Market.................................................................................... 38 4.4.5 Effectiveness of the Previous Accounting System ................................................. 40 4.4.6 Summary of Factors that Influence IFRS Adoption ............................................... 41 4.5 Relationship between IFRS Implementation and Performance ..................................... 42 4.6 Mechanisms to monitor compliance .............................................................................. 46 4.6.1Mechanism to monitor compliance .......................................................................... 47 4.6.2 Training on IFRS .................................................................................................... 47 4.6.3 Stakeholders Awareness of IFRS............................................................................ 48 4.6.4 Harmonization with regulatory bodies.................................................................... 48 4.7 Problems Encountered During Compliance................................................................... 49 4.7.1 IFRS are Complex and Difficult ............................................................................. 50 4.7.2 Frequent changes on IFRS ...................................................................................... 50 4.7.3 Inadequate qualified accountants ............................................................................ 50 4.7.4 Cost associated with IFRS compliance ................................................................... 51 CHAPTER FIVE ................................................................................................................... 52 SUMMARY OF FINDINGS, CONCLUSIONS AND RECOMMENDATIONS ........... 52 vii University of Ghana http://ugspace.ug.edu.gh 5.1 Introduction .................................................................................................................... 52 5.2 Summary of Major Findings .......................................................................................... 52 5.2 Conclusion……………………………………………………………………………………………………………………………..60 5.3 Recommendations…………………………………………………………………..…62 REFERENCES……………………………………………………………………………64 APPENDIX……………………………………………………………………………….66 viii University of Ghana http://ugspace.ug.edu.gh LIST OF TABLES TABLE 3.1 SAMPLE SIZE .................................................................................................... 24 TABLE 4.1 EDUCATIONAL LEVEL OF RESPONDENTS ................................................ 30 TABLE 4.2 SHOWS THE DISTRIBUTION OF THE RESPONDENTS. ............................. 32 TABLE 4.3 SOURCE: FIELD SURVEY, 2019 ..................................................................... 43 TABLE 4.6 SOURCE: FIELD SURVEY 2019 (NOTE: AR = AVERAGE RESPONSE) .... 46 TABLE 4.7 SUMMARY OF MECHANISMS TO ENSURE COMPLIANCE ..................... 47 TABLE 4.8 SUMMARY OF PROBLEM IN COMPLIANCE ............................................... 49 ix University of Ghana http://ugspace.ug.edu.gh LIST OF FIGURES FIGURE 4.1; GENDER OF RESPONDENTS (SOURCE; FIELD WORK, 2019) ................ 28 FIGURE 4.2 SHOWS AGE DISTRIBUTION OF THE RESPONDENTS ............................ 29 FIGURE 4.3 PROFESSIONAL QUALIFICATIONS OF THE RESPONDENTS ................ 31 FIGURE 4.4 ROLES OF RESPONDENTS ............................................................................ 33 FIGURE 4.5 YEARS OF EXPERIENCE (SOURCE: FIELD WORK, 2019) ....................... 34 FIGURE 4.6 ECONOMIC GROWTHS (SOURCE: FIELD WORK, 2019) ........................... 36 FIGURE 4.7 LEGAL SYSTEMS (SOURCE: FIELD WORK, 2019) .................................... 37 FIGURE 4.8 EXTERNAL ENVIRONMENT ......................................................................... 38 FIGURE 4.9 EXISTENCE OF CAPITAL MARKET (SOURCE: FIELD WORK, 2019) .... 39 FIGURE 4.10 EFFECTIVENESS OF PREVIOUS ACCOUNTING SYSTEM (SOURCE: FIELD WORK, 2019) ...................................................................................................... 41 FIGURE 4.11 FACTORS THAT INFLUENCE IFRS ADOPTION (SOURCE: FIELD WORK, 2019) .................................................................................................................. 42 x University of Ghana http://ugspace.ug.edu.gh ABSTRACT Before the adoption of IFRS among firms, every country had its own reporting accounting standards which brought about challenges when it comes to comparing financial statements from different countries. The move of business into the global economy has brought a lot of difficulties in comparability, reliability and objectivity; this has therefore increased the need to move accounting standards into globalization. The study was conducted to know whether companies listed on Ghana stock exchange were actually complying with IFRS in Ghana since 2007 when it was adopted. This study used both primary source of data and secondary source of data for the data collection.Primary source of data was administering of questionnaires and for the secondary source of data was published financial statements. The findings of the study show that, over the years since the usage of IFRS was made compulsory, the level of compliance is high among some listed companies and also was able to identify some factors that influences the adoption of IFRS. This study recommends that more training and education for both preparers and users of financial information be made and also develop these standards in curricula sectors such as the universities to create more awareness to accounting students. xi University of Ghana http://ugspace.ug.edu.gh xii University of Ghana http://ugspace.ug.edu.gh CHAPTER ONE INTRODUCTION 1.1 Background of the study The Council of the Institute of Chartered Accountants, Ghana (ICAG) on January 1,2007 elected to adopt International Financial Reporting Standards (IFRSs) in place of Ghana National Accounting Standards (GNAS) and in effect made a public commitment for a single set of high quality global accounting standards (IFRS Foundation, 2016). Prior to this regime, the Ghana Stock Exchange (GSE) listing rules required all listed companies to prepare financial statements in accordance with the Ghana National Accounting Standards (GNAS) issued by the Institute of Chartered Accountants, Ghana (ICAG). However, this was to change due to an amendment made to the listing rules which made it mandatory for listed entities to apply IFRSs in the preparation, presentation and publication of financial statements subject to other rules on disclosure underpinned in regulatory and legal frameworks. Accounting standards were developed to try to address subjectivity which results from the application of judgment in applying fundamental accounting assumptions and conventions in deriving figures for financial reporting (Institute of Chartered Accountants-Ghana, 2015). The International Accounting Standards Board (IASB) is the standard-setting body of the IFRS Foundation which is an independent, private sector, not-for-profit organization based in London, UK. The IASB has always aimed at promoting a single set of high quality global accounting standards for financial reporting and achieves this objective in the public interest by developing and issuing IFRS Standards in accordance with due process for financial reporting. Currently, there are 26 International Accounting Standards (IAS) and 17 International Financial Reporting Standards (IFRSs) in issue. 1 University of Ghana http://ugspace.ug.edu.gh However, it is submitted that the adoption and application of International Financial Reporting Standards (IFRSs) in the preparation and presentation of financial statements does not completely extinguish the problem of subjectivity in financial reporting. Subjectivity is inherent in the application of standards. This therefore implies that the extent of compliance with disclosure requirements likely varies from entity to entity. This is as a result of the context of financial reporting and the application of the standards. For instance, the Guide to Annual Financial Statements – Disclosure Checklist developed and published by KPMG, a leading auditing firm in the corporate world, emphasizes that the preparation of an entity’s financial statements requires judgement, in terms of the choice of accounting policies, how the disclosures should be tailored to reflect the entity’s specific circumstances and the materiality of disclosures in the context of the organization. The objective of general purpose financial reporting as stated in the IASB’s Conceptual Framework for Financial Reporting (2010) is to provide financial information about the reporting entity that is useful to existing and potential investors, lenders and other creditors in making decision. Accounting standards were developed on the fact that users of financial information rely on financial statements for economic decisions, makes it important for the acquisition of standards to regulate the preparation of such statements to enhance their reliability. The International Accounting Standards Board (IASB) has become increasingly influential in the world. Its principal objective is to issue International Accounting Standards (IAS) in order to increase comparability in financial reports produced by companies regardless of their country of origin (Choi et al. 2002). These standards were developed by different countries to regulate the accounting system peculiar to their environment. 2 University of Ghana http://ugspace.ug.edu.gh In line with the World Bank recommendations, in January 2007, Mr. Kwadwo Baah Wiredu, the then acting Minister of Finance & Economic Planning of Ghana, formally announced the launching of Ghana’s adoption of IFRS and the subsequent replacement of the local Ghana Accounting Standards (GAS). Ghana in its efforts to promote accelerated growth of the economy through private sector-led growth converge its outdated Ghana National Accounting standards (GNAS) to IFRS. International standards are now virtually accepted as the common yardstick for international reporting. The acceptance and use of IFRSs has become a global phenomenon. Massive international flow of investment capital and capital instruments across geographical boundaries has added a new impetus to the adoption of IFRS. Part of the reason to this is that investors prefer audited accounts to be prepared not only on timely basis but also to conform to global standards (Choi et al. 2002). A number of studies investigated the association between certain firm’s characteristics and the extent to which they comply with the disclosure requirements of IASs now Street & Bryant, 2000.The characteristics of a firm that affects its compliance rate include: size, profitability, auditor type, internationality, leverage, and industry type. The compliance of a firm to the disclosure requirements prescribed by particular accounting standards is affected by the profitability of the firm. Wagenhofer (1990) also argued that the less profitable firms might increase the level of disclosure in order to explain to the market the reasons for the decline in their profitability, for this reason, Owusu Ansah (1998) reported a significant positive relationship between profitability and extent of IFRS compliance. 3 University of Ghana http://ugspace.ug.edu.gh The study therefore tests the hypothesis that Companies profitability as measured by return on equity has a significant positive relationship with the rate of IFRS compliance. Companies’ profitability as measured by return on assets has a significant positive relationship with the rate of IFRS compliance. The objectives of IFRS on financial instrument are to enhance users’ understanding of the significance of financial instrument to an entity’s position, performance and cash flows, as well as to establish principles for recognizing and measuring financial assets and liabilities. 1.2 Statement of Problem The objective of every financial statement is to provide information about the financial position, performance and changes in the financial position of an organization that should be useful to a wide range of users making economic decisions. Due to globalization and international trade that exists between countries, financial information must be prepared and presented in a way that can be understood by all users both locally and internationally. This has led to the introduction of IFRS to help financial reports to be comparable among firms. According to Street and Gray (2001), it appears that there is an evidence of noncompliance with the various standards that the IASB has come up with a compilation of companies that claim to have adopted IFRSs. This was later ascertained and confirmed by Street and Bryant (2000) when they suggested that, the activities and enforcement bodies that are responsible for promoting IAS compliance have been questioned. 4 University of Ghana http://ugspace.ug.edu.gh Since 2005, over 90 countries around the world claim to have made IFRS compliance mandatory (IASB, 2005) and Ghana claimed to have adopted IFRS in financial reporting since 2007. This has become necessary to ensure financial statement comparability among countries are globally accepted. Dwelling on past experiences, there is always a significant gap between claiming to have complied and actually complying with accounting standards among most of the listed companies who claim to have complied. A study from Street and Gray (2001) discovered that Ghana also has its share of perceived non -compliance with IASs by companies who claimed to have adopted them voluntarily. There is evidence of non-compliance by listed companies who claim to have complied. Compliance gap can be referred to as the difference between actual practice and applicable accounting standards available. In a report, which had sampled companies who claim compliance with IFRS had evidence of non- compliance. Street and Bryant (2000) revealed that companies frequently noted in their annual reports that they are in full compliance with IFRS, when in fact there are material nonconformities with IFRS. There is therefore the need for investigations to be carried out into the level of compliance with the adoption of IFRS by listed companies who claim voluntary compliance and the formal adoption of IFRS in Ghana. 1.3 Research Objectives The main objective of this research is to examine the institutional impediments of the adoption and implementation of International Financial Reporting Standards (IFRS) in 5 University of Ghana http://ugspace.ug.edu.gh Ghana. Specifically, the study will seek to achieve the following objectives: I. To find out the mechanisms used to monitor and enforce IFRS. II. identify the factors that influence the level of compliance with IFRS among listed companies. III. Determine the extent to which listed companies in Ghana comply with IFRS. IV. To examine the relationship that exists between IFRS adoption and performance. V. Challenges of IFRS implementation among listed companies. 1.4 Research Questions I. To what extent do listed companies in Ghana comply with IFRS? II. What are the factors that influence the level of compliance with IFRS? III. What are the formal mechanisms used by regulatory bodies to monitor and enforce IFRS Compliance in Ghana? IV. How to examine the relationship that exists between IFRS and performance? V. What are the implementation challenges of IFRS among listed companies? 6 University of Ghana http://ugspace.ug.edu.gh 1.5 Brief Methodology The study takes the form of a descriptive research. As explained by Maxwell, (2012) descriptive research studies are designed to obtain information concerning the current situation and other phenomena to draw valid conclusion from the facts discussed. Also descriptive research studies are based on some previous understanding of nature of the research problem (Krishnaswamy, 2009) this study will be conducted using the quantitative research method. This approach used in analyzing data would enable statistical analysis of data collected as well as reduce the subjectivity of the findings and allow for generalization of the findings of the study (Clark &Ivankova, 2016). Target population refers to the entire objects to which researchers are interested in generalizing the conclusions. Quite a number of researchers have shown that, companies claiming to have adopted IFRS have had their financial statements and notes to their accounts showing otherwise. The researcher finds it necessary to determine how the situation defers with respect to companies complying with IFRS in Ghana. The study will also add to the body of knowledge on IFRS compliance in Ghana. 1.6 Scope and limitation of the study The scope of this study is influenced by; the context, geographical coverage, and the research design. Contextually, the study is to assess companies who have adopted IFRS with compliance level. Geographically, the study will focus on Accra metropolis. In terms of design, the study will deploy an exploratory research which makes subsequent research very imperative. Other limitations of the study relate to financial constraints, inadequate measures of variables, loss or lack of participants, small sample sizes, errors in measurement, and other factors typically related to data collection and analysis. 7 University of Ghana http://ugspace.ug.edu.gh 1.7 Organization of the study This research is organized into five chapters. Chapter One is the introduction, this entails the background of the study including previous studies on the topic, the problem statement, research questions, the objectives of the study, significance of the study, limitations of the research, and the organization of the study. Chapter Two includes review of relevant literatures and the conceptual framework relevant to the study. Chapter Three also deals with the methodology of the study. It will include the research design, source of data, target population, sampling methods and techniques, research instrumentation, data analysis plan as well as issues from the field and how they will be addressed. Chapter Four has to do with the analysis and interpretation of results with the aid of Statistical Package for Social Sciences (SPSS). Chapter Five summaries the key findings and conclusions of the study and an indication of their relevance and policy making implications. Recommendations will also be made on IFRS adoption in Ghana and other areas for further research 8 University of Ghana http://ugspace.ug.edu.gh CHAPTER TWO LITERATURE REVIEW 2.1 Introduction This chapter explores the extent to which scientific and empirical literature surrounding the adoption and implementation of International Financial Reporting Standards (IFRSs) in corporate institutions. The theoretical Literature discusses the conceptual framework of financial reporting under IFRSs and the level of compliance with disclosure requirement. The chapter seeks to review scholarly articles and working papers published by researchers on the topic area. The empirical literature is organized by taking guidance from the research and objectives. It is based on observed and measured phenomenon that is derived from knowledge of actual experience rather than from theory or beliefs. How do you know if a study is empirical, subsequently, the chapter seeks to review scholarly articles and working papers published by researchers on the topic area and also to provide a clear-cut gap in previous research works. 2.2 Review of Empirical literature 2.3 Implications and Limitations of IFRS Adoption An analysis of the current reporting practices under IFRS shows that majority of European banks choose to report on financial information by using IAS 39 measurement in their financial statements. They analyze the effect of this practice on individual investors’ risk perception based on their financial information. The results of our two experiments suggest that a presentation by measurement categories has an impact on individual risk perception. Our results also show that the impact arises in two different ways. 9 University of Ghana http://ugspace.ug.edu.gh First, that the measurement categories have a direct labeling effect. Without knowledge about the type of the underlying investment, investors’ risk perception varies with the balance sheet classification of financial information. This effect is particularly pronounced for a firm’s reporting of the fair value option and is even stronger for professional investors. This gives a signal that there is the need for improvement in professional education on fair value measurement. Second, there is an indirect effect, in that investors seem to form certain predictions about which type of financial product is reported under a specific measurement category. For example, when investors learn that the fair value category does not comprise financial derivatives, they judge that a firm reporting of the fair value category is significantly less risky. These results imply that the product-specific biases in the risk judgment of financial derivatives identified in the earlier accounting literature (e.g., Koonce, Lipe, and McAnally (2005)) also shine through when instruments are presented by measurement. Moreover, our findings suggest that footnote information about the type of financial investment that accompanies reporting by measurement categories is relevant to individual investors’ risk judgment. 2.4 Presentation and Compliance with IFRS Every organization wishes that their financial statement presents true and fair view of their financial situation, financial enactment of cash flows. Fair presentation involves the demonstration of the effects of transactions, other occurrences and conditions in agreement with the recognition criteria for classifying information that is provided into assets, liabilities, income and expenses by the organization which was set out by the IASB. The true and fair view of financial reporting coupled IFRS, with added disclosures when 10 University of Ghana http://ugspace.ug.edu.gh necessary, results in proper financial statements presentation. In terms of compliance, IAS 1 states that an organization whose financial statements comply with IFRS shall make a categorical and unreserved statement of such compliance in their notes. An organization shall not define its financial statements as one complying with IFRS unless they conform with all the requirements of IFRS. Fair presentation also requires an organization to: To apply accounting policies in reference with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. IAS 8 sets out a pyramid of guidance that management must consider in the non-existence of an IFRS that may apply to an item. To present accounting information and policies in a manner that will provides relevant, reliable, comparable and understandable information to users. To provide additional disclosure requirements when compliance with other requirements in IFRS is inadequate to enable users to understand the impact of a transactions, conditions on the organizations financial position and financial performance. 2.5 Application of IFRS IASB standards are currently being applied in many more countries for their financial reporting within the various organizations. For some countries their national GAAP has been switched with the IFRS, while other countries have had a substantial degree of mergence towards IFRS. These standards are primarily applied to private companies, but in some countries they are applied by all organizations for public reporting. 11 University of Ghana http://ugspace.ug.edu.gh Companies changing to IAS must first apply IFRS 1 First-time Adoption of International Financial Reporting Standards so they can restate their opening balances at the start of their comparative period and make disclosures about the financial effect of the transition. 2.6 Accounting Principles Accounting principles are rules set by regulators that are to be followed by the companies registered in their respective countries. These rules are qualified as the General Accepted Accounting Principles (GAAP) and since each country has its own rules, the GAAP is often referred to with the country code. For United Kingdom it is UK GAAP and for the Netherlands for example, Dutch GAAP. Each country has its own regulatory bodies, which are responsible for the issuance of these principles and they consist of accountants. The preparation of financial statements for foreign users means that one must refer to the same bunch of financial statement to all users , secondly, convert the financial statement sent to foreign users into the language of the foreign nations users or translate the financial statement sent to foreign users into the foreign nations language and currency, prepare two sets of financial statement one in the home country language, currency and accounting principles and the other in the language, currency and standards of the foreign country and finally to prepare one set of financial statements based on worldwide accepted accounting principles. The International Accounting Standards Committee (IASC)In 1973 was founded and they were accountable for developing the International Accounting Standards (IAS). The foundation of IASC was initiated by the arrangement between the national accounting bodies of nine countries. The purpose of the committee was to develop and promote the 12 University of Ghana http://ugspace.ug.edu.gh international accounting standards, which were not obliged for use in that time, but could be voluntary, adapted for use. In the early 70’s the IASC board was compounded of public accountants only, with three main objectives: To develop and circulate for public interest accounting standards to be observed in the presentation of financial statements and to promote their worldwide approval and adherence. To implement for public interest, a high quality, easily understood and enforceable accounting standards of entities and countries who have accepted the use of international accounting standards. Their performance generally is in respect of the enhancement and the harmonization of accounting regulations, standards and measures relating to the presentation of financial statements. During the last decades of the 20th century, concerning companies’ globalization became more important and the country boarders did no longer limit companies. Because in addition the government borders no longer limited the investors (shareholders), the need concerning harmonization in the accounting standards became more important As at January 2001, almost 120 countries were using IFRS and more are expected to join. Companies listed on the Euro next stock exchanges are obliged to file the financial 13 University of Ghana http://ugspace.ug.edu.gh statements in agreement with IFRS. In addition, it is important to note that although IASC in its beginning years was run by public accountants, nowadays IASB decision making process and involvement of others has changed. 2.7 Impact of IFRS on Profit and Equity IFRS 1 states that companies who are using the standards for the first time are to produce a reconciliation of both the equity and profit/loss of both standards thus the national GAAP and the IFRS. Samples that were used were mostly based on the financial statements with content analysis, but some companies were excluded because it was not possible to analyze their reconciliation statements. These reconciliation statements were used as index of conservatism to calculate and assess the variances in profits and equity reported under IFRS as compared to the national GAAP. 2.8 The Adoption of IFRS The transition process of IFRS has seen a lot of irregularities and inconsistencies even though over 100 countries now adopted it (KPMG, 2007). For instance, the EU and Australia adopted IFRS during 2005, New Zealand during 2007, and Canada has been committed to the implementation process of IFRS by 2010. Since the formation of the IASC, a significant number of IASs and IFRSs have been delivered. Nevertheless, the levels of non-compliance with these standards have been noted. Street et al. (1999) conducted and studied the 1996 annual reports of 49 sample companies in 12 different countries chosen from a total of 221 companies that had complied with IAS. The report came out that the degree of compliance with IAS varied extensively, their willingness to fulfill all of the requirements involved. Quite a number of researches have noted that the 14 University of Ghana http://ugspace.ug.edu.gh lack of consistency in the use of IAS and IFRS usually results in reporting overstated income (Street and Gray, 2002; Prather-Kinsey and Meek, 2004). Additional, there is lack of inconsistencies in the implementation of international standards due to many cultural differences that runs across different countries that have adopted these standards, this has had an influence in the interpretation of standards and led to substantial dissimilarities in reported amounts (Schultz and Lopez, 2001). KPMG (2006) scrutinized about 26 IFRS options within 22 countries and noted that the alternatives chosen were influenced by the previous national GAAP. In addition, Ernst & Young (2006) made further research on alternatives that were determined on a country basis too, assuming a UK company decides to choose the functional approach in the income statement, showing cost of sales, distribution costs and administrative costs, whereas an Italian company chooses to disclose the nature of costs such as purchases, employee costs and depreciation. The PwC (2006) also conducted a study using 26 European insurance companies, the alternative of accounting policy chosen was based on whether or not the previous GAAP was in use or not Even though the standards have been acknowledged by many jurisdictions, such as the EU, some countries have still not signed in to its usage. The US was amongst the major economies that had not decided to adopt IFRS yet, instead they held on to their own standards instituted by the Financial Accounting Standards Board (FASB) (Zeff, 1999). Nevertheless, the Securities and Exchange Commission (SEC), who supervises the FASB, has been very conductive for the coordination between the IASB and FASB in minimizing the irregularities that exist between the different accounting rules (Street et al., 2000). In 15 University of Ghana http://ugspace.ug.edu.gh 2002, a Memorandum of Understanding was signed between the IASB and the FASB known as the Norwalk Agreement (Street, 2006), which affirmed that the two boards would co-operate in the convergence of US GAAP and IFRS. 2.9 The Relevance of Accounting Information on IFRS In (2008) Negash conducted a study on the IAS adoption and its effect on the Johannesburg Securities Exchange (JSE) for the listed companies who were using the book value plus earnings and dividends. He used a four- year period to observe the value relevance of accruals in accounting information before liberalization thus, pre IAS adoption period of 1989-1993 and post IAS adoption period (1998-2004). The study had an integration viewpoint and concluded that when the scale effects were controlled the difference in panel regression r-squares vanished, signifying that the value relevance of accounting information did not get better in the post IAS implementation period. A number of studies conducted shows that for economies and Euro zone countries companies do influence their financial statements to show small increases in profits or avoid reporting losses. 2.10 Challenges of IFRS Implementation Throughout the world every implementation process has its own challenges and IFRS cannot be an exception. There are a number of factors in the adoption process of IFRS which may necessarily not be technical but rather cultural, legal, educational and political influences (Obazee, 2007). Rong- Ruey Duh in 2006 said that compliance challenges may comprise of interpretation of standards, continuous modification of IFRS, accounting knowledge available and expertise in relation tousers of financial statement its preparers 16 University of Ghana http://ugspace.ug.edu.gh and regulators. Furthermore, Soderstrom & Sun in 2007 noted that cultural, political and business differences may continue to impact negatively towards the achievement of a single global financial communication system. Since a single set of accounting standards cannot replicate the differences in national business practices arising from alterations in institutions and cultures. The perception of IFRS quality by users is critical to its implementation. In a recent survey by McEnroe & Sullivan in 2011, “investors felt content with the current US accounting model and did not desire to move towards the implementation of IFRS, likewise, Winney et al (2010) also found out that small businesses in the US had not made up their mind to join the IFRS train for the reason that they did not see benefits in moving from GAAP to IFRS. IFRS has its own problems as it gives way to essential alterations to a country’s regulatory, legal and economic structure. Due to the application of laws and tax issues, the IFRS must be conformed to meet the legal system of every country. The implementation of IFRS must involve the empowerment of some institutions that will enhance its effective implementation such as; management, auditors who per their status will be independent, regulators such as legal systems or courts, accounting boards, shareholders, analysts, rating agencies, accounting professional bodies, tax authorities and capital market regulators, educational institutions, financial market” (Ball, 2006). 17 University of Ghana http://ugspace.ug.edu.gh 2.11 Review of Theoretical Literature Several theories can be used to explain the relationship between IFRS and its implementation in the corporate institution. However, this study adopts the institutional theory and diffusion theory to explain IFRSs adoption and its implementation. The choice is premised on the assumption that IFRS increases disclosure requirement which requires expertise and experience people such as chartered accountants to comply with the standards. The theoretical theory is structured to hold or support a theory of a research study and also introduce the theory that explains why the research problem under study exists. Institutional theories of organizations provide a rich, complex view of organizations. In these theories, organizations are influenced by normative pressures, sometimes arising from external sources such as the state, other times arising from within the organization itself. Under some conditions, these pressures lead the organization itself. Under some conditions, these pressures lead the organization to be guided by legitimated elements, from standard operating procedures to professional certification and state requirement, which often have the effect of directing attention away from task performance. Adoption of these legitimate elements, leading to isomorphism with the institutional environment, increases the probability of survival. Institutional theories of organization have spread rapidly, a testimony to the power of the imaginative ideas developed in theoretical and empirical work. As rigor increases, with better specification of indicator and models, it is likely to attract the attention of an even larger number of organizational researchers. Institutional theory is inherently difficult to explicate, because it taps taken-for-granted assumption at the core of social action. The main goal of this review, then, is to make institutional theory more accessible. The review begins with a brief summary of the two current theoretical approaches to institutionalization in organizations, moves to identification of indicators of central concepts and then progresses to a review of empirical research. It concludes 18 University of Ghana http://ugspace.ug.edu.gh with two short sections, one on points of insertion with other theories of organization, the other on the “new institutionalism”. 2.12 Institutional Theory DiMaggio and Powell (1983) identify three isomorphic mechanisms as the main drivers of convergence in economic and organizational contexts: coercive, mimetic and normative isomorphism. Coercive isomorphism emerges from enforced social norms and formal pressure that are exercised, for example, by governmental institutions and powerful international organizations (DiMaggio & Powell, 1983; Scott, 2008). Studies from various fields of management have demonstrated coercive isomorphism may force companies to adopt internationalization strategies (Cheng & Yu, 2008). Mimetic isomorphism occurs when firms imitate the practices, processes or structures employed by successful and acknowledged organizations to counteract uncertainty or respond to socially constructed expectations (Brown, 2011; Haveman, 1993). When managers face uncertainty or ambiguous goals, they tend to assume that their peers and particularly the leading competitors have already developed appropriate solutions (Benders et al., 2006). Normative isomorphism results from business professionalization and the creation of standards in social networks (Galaskiewicz, 1985). DiMaggio and Powell (1983) define professionalization as ‘‘the collective struggle of members of an occupation to define the conditions and methods of their work’’. 19 University of Ghana http://ugspace.ug.edu.gh Diffusion Theory Diffusion of innovation theory, developed by E.M Rogers (1962), is one of the oldest social science theories. Tt originated in communication to explain how, over time, an idea or product gains momentum and diffuses or spreads through a specific population or social system. This theory also has influence on the adoption and implementation of IFRS. Diffusion theory is a specialized form of communication that focuses on dissemination of information; it is also how quickly and how easily corporate institutions adapt to change in using IFRSs in preparing financial statement. 20 University of Ghana http://ugspace.ug.edu.gh CHAPTER THREE METHODOLOGY 3.1 Introduction This chapter deals with the methodology adopted for the study. This chapter encompasses research design, research strategy, population of the study, sampling size and sampling techniques have been discussed. The sources (primary and secondary) of data, data collection, data analysis data collection instruments as well as the profile of the study area had also been outlined. 3.2 Research Design Research design is the structure that guides researchers in their investigation into a phenomenon (Kotzar, Seuring, Muller, & Reiner, 2005). Inductive research calls for an author to gather and analyze data, conclusions will be drawn based on these findings. In relation to the differences between IAS/IFRS and GNAS there has not been any current standards and qualitative characteristics, thus there has not been an actual research on this issue. Besides, a limited number of researches on Ghanaian professionals’ points of view towards IAS/IFRS merging. Therefore, the researcher wishes at utilizing the inductive approach to grasp the essential differences in terms of the current standards and qualitative features. Moreover, such an approach is used to understand the professionals’ viewpoints concerning the adoption of IAS/IFRS, the factors that affect its implementation and the related challenges. 21 University of Ghana http://ugspace.ug.edu.gh 3.3 Qualitative research methods Qualitative research adopts basically subjective view of knowledge of the real world. A qualitative research is a means for discovering and understanding the meaning individuals or groups or attributes to a social problem (Creswell, 1997). The purpose of qualitative research is more open-ended where the respondents express their own views on issues more than quantitative studies where more close-ended items are used (Creswell, 2005). This method was applied to enable the comparability of IFRS and GNAS. In this regard to assess Ghanaian Companies Level of Compliance with International Financial Reporting Standards (IFRS). Qualitative tools such as questionnaires, interviews, field observations as well as content analysis were used in this study. 3.4 The case study With reference to Yin (2003), the case study is usually suitable when how and why questions are given for respondents to answer, the researcher has little or no control over procedures and the focus is on current occurrence within some real life context. This study focused only on Ghanaians Companies listed on the Ghana stock exchange, hence the case study approach was considered as ideal under the context. The key strength of the case study method involves using numerous sources in the data collection process. In spite of the many benefits available by the submission of the case study approach in research studies few shortcomings have been recognised thus; generally, academic knowledge is more valuable than material and practical knowledge. Also, a general conclusion cannot be given on the basis of an individual case, therefore, the case study approach cannot add to scientific development. 22 University of Ghana http://ugspace.ug.edu.gh 3.5 Population The population of the study was based on staff and management of most of the companies listed on the stock exchange. From (Mason et al., 1997), the population of a study usually consists of all the individuals whose measurements are being taken for the study (Cooper et al, 2001). The study was organized empirically to assess the adoption of IFRS by Ghanaian companies, their level of compliance with reference to Financial Statement Preparation. The study population comprises the major companies on the Ghana stock exchange. 3.6 Sample Size and Sampling Technique In reference to (Strydom et al, 2005) sampling means taking any portion of a population as characteristic of that population. If population is comparatively small, the model should comprise a reasonably larger percentage of the population. Large samples enable the investigator to draw more accurate assumptions and more precise predictions than in smaller samples. 3.6.1 Sample Size For simplicity and ease of getting the needed data for this study, companies that are listed on Ghana stock exchange formed the sample size for this study. Companies listed on other stock exchanges aside Ghana stock exchange were also omitted. This was done to avoid an incidence of the effect of group accounting preparation. In all twenty-nine (29) companies were used for this study. The researcher adopted the purposive sampling technique to specifically select only listed companies because these companies by regulations prepare their financial statements to conform to internationally acceptable accounting standards hence make it easy for comparison and as such accounting staff in such an organization will be able to provide more adequate information for this study. 23 University of Ghana http://ugspace.ug.edu.gh 3.6.2 Sampling Technique Purposive sampling was used for the key informant’s interviews because the choices concerning the individuals involved in the sample were derived by the researcher, based upon a variety of conditions which include expert knowledge of the research issue, their readiness to participate in the research. Some types of research design demands the researcher taking a decision about the individual participants who would want to add up suitable data, both in terms of significance and depth. Simple random sampling was also used by the researcher to give equal chance to all the respondents who were included in the study. The following are the list of sample companies and their respective industries; Table 3.1 Sample Size NO NAME OF COMPANY INDUSTRY 1 African Champion Industries Paper 2 Aluworks Metal 3 Ayrton Drug Manufacturing Pharmaceutical 4 Benso Oil Palm Plantation Palm Oil Extraction 5 CAL Bank Finance 6 Clyde stone (Ghana) It Services 7 Camelot Ghana Security Printing 8 Cocoa Processing Company Food Processing 9 Ecobank Ghana Finance 10 Enterprise Group Conglomerate 11 Fan Milk Food Processing 12 Ghana Commercial Bank Finance 13 Guinness Ghana Breweries Beverage 14 Ghana Oil Company Oil 15 Golden Web Food 24 University of Ghana http://ugspace.ug.edu.gh 16 Republic Bank (Ghana) Finance 17 Mechanical Llyod Company Automobile 18 Mega African Capital Finance/Investment 19 Produce Buying Company Food/Cocoa Processing 20 Pioneer Kitchenware Kitchenware 21 PZ Cussons Ghana Health Care And Consumer Goods 22 Standard Chartered Bank Ghana Finance/B anking 23 SIC Insurance Company Finance/Insurance 24 SocieteGenerale Ghana Banking/Finance 25 Sam Woode Publishing 26 Total Petroleum Ghana Oil 27 Transaction Solutions (Ghana) Electronics 28 Unilever Ghana Food Processing 29 UT Bank Finance 3.7 Types and Sources of Data This research used both primary and secondary of data to run the required responses to the research questions. 3.7.1 Primary Source of Data Primary Source of data were obtained from the field using questionnaires and structured interview guides. Questionnaires were administered to some of the twenty-nine (29) listed companies on Ghana stock exchange. Considering the nature of the topic, it was appreciated that questionnaires would be the most suitable instrument to use for the study. This is because questionnaire has been identified as the best economical means for gathering data from a possibly large number of respondents at a moderate cost, careful thoughts were given to each wording of individual questions. This was done to ensure that respondents gave objective responds to the questions. There were both open and closed ended questions. 25 University of Ghana http://ugspace.ug.edu.gh 3.7.2 Secondary Source of Data Secondary data used for this study were gathered from both distributed and unpublished sources. This forms both academic and theoretical foundation of this research. The sources of data included published financial statements from the internet, papers, articles, and published accounts of the sample companies. Due acknowledgements has been given to all the cited materials where necessary. 3.8 Data Analysis For this study, data was analyzed by the use of Data Entry Screens developed in SPSS for Data Entry. This applied to the quantitative data collected. The qualitative data was coded and entered into MS Excel before being transported to Predictive Analytic Software (PASW) formerly Statistical Package for Social Scientist (SPSS). SPSS Windows Version 20 was used for the analysis. This is due to its modified features and accessibility. 26 University of Ghana http://ugspace.ug.edu.gh CHAPTER FOUR DATA ANALYSIS AND DISCUSSION OF RESULTS 4.1 Introduction The chapter talks about the data analysis and discussion of research findings. The analysis and discussions were done with understanding of research objectives which includes; mechanisms for monitoring and enforcing IFRS compliance, problems companies encounter in complying with IFRS, factors that influence the level of IFRS compliance, relationship between IFRS adoption and Performance and the Challenges of IFRS implementation. 4.2 Response Rate A total of 145 questionnaires were administered to accounting staff of some of the twenty- nine (29) listed companies on Ghana stock exchange. All the 145 questionnaires were returned giving a response rate of 100%. 4.3 Description of Demographic factors of Respondents The respondents’ demographic features included five key features which were: the respondents, gender, age, educational level, and industry they worked in. 4.3.1 Gender Distribution of Respondents The study also wanted to discover the Gender of the respondents and the results is shown in the diagram below 27 University of Ghana http://ugspace.ug.edu.gh GENDER FEMALE 43% MALE 57% Figure 4.1; Gender of Respondents (Source: Field Work, 2019) Figure 4.1 shows that out of the 145 respondents, 83 representing 57.2% were males whiles 62 representing 42.8% were females. This shows that males dominate the accounting profession in Ghana. The reason for men dominating the accounting profession in the study area could partly be explained by traditional stereotype of business/accounting education which most women are not accustomed to. Also not much premium is placed on women education in Ghana; women therefore tend to have very low educational background and employable skills which would guarantee them employment in the formal sector. Women therefore resort to self-employment as a source of livelihood to complement their husbands’ efforts in providing for their families. 28 University of Ghana http://ugspace.ug.edu.gh 4.3.2 Age Distribution of Respondents PERCENTAGE 45 40 35 30 25 20 ■ PERCENTAGE 15 10 5 0 Less than 25-30 years 31-40 years 41-50 years more than 25 years 51 years Figure 4.2 shows age distribution of the respondents (Source: Field Work, 2019) From figure 4.2 majority of the respondents were above 51 years. This age group contributed 42.1% of the total respondents. The total percentage of Respondents who were aged less than 25 years were 11.7%, 25 to 30 years but 31 years and above were 32.4%, from 31 to 40 were 9.0%, and 41 to 50 years were 4.80%. The overall intuition is that most of the respondents were above 51 years. However, there are indications of younger age groups taking considerable participation given the 32.4% of those between 25-30 years. 4.3.3 Education Level of Respondents Another demographic measure used in this study is the education level of the respondents. The response on the educational level of respondents is summarized in the table below; 29 University of Ghana http://ugspace.ug.edu.gh Table 4.1 Educational level of Respondents Valid Educational level Frequency Percent High school certificate 11 7.6 Diploma 21 14.5 Bachelor’s Degree 42 29.0 Master’s Degree 51 35.2 Others 20 13.8 Total 145 100.0 Source:( Field Work,2019) The formal educational levels of the respondents were typically at the tertiary level, as more of the respondents 51 (35.2%) had master’s degree. Those who had bachelor’s degree were 42 representing 29.0% of the respondents whiles 14.50% of the respondents representing 21 of the sample size surveyed had attained Diploma level education. 7.6% of the respondents had attained High school education with 13.8% of the respondents claiming to have other form of education. Education and literacy are critical parts of socio-economic advancement in Ghana. The upgrading and obtaining of information, abilities, qualities and states of mind that encourage the improvement of individuals limits socio-economic prosperity. From the analysis, most of the accounting staff has attained high level of education with 35.2% attaining master’s degree. 4.3.4 Professional Qualification The study also sought to find out the professional qualification of the respondents. Since most professional bodies expects their members to adhere to certain standards, the researcher sought to find out the professional bodies the respondents belong to, the researcher expect 30 University of Ghana http://ugspace.ug.edu.gh the respondents to be conversant with the IFRS regulations. The professional bodies the respondents belong to are captured in Fig 4.3 Professional Qualification 29 16.6 ■ ICA GHANA _ - ■ ACCA 6.2 J 1 CIMA 11 1 ■ ICAEW 24.8 1 CPA (USA) 1 OTHERS Figure 4.3 Professional qualifications of the Respondents (Source: Field Work, 2019) Fig 4.3 shows that majority of the respondents belongs to professional accounting bodies, with 29% belong to ICA Ghana, 24.80% associating themselves with CIMA, whilst 16.6% hold membership in CPA (USA). 12.4% of the respondents also stated that, they belong to other professional bodies. The intuition here is that most of the respondents belong to professional bodies, as such members are expected to be familiar with IFRS implementation in Ghana hence they are good sample for this study. 31 University of Ghana http://ugspace.ug.edu.gh 4.3.5 Industry Distribution of Respondents Table 4.2 shows the distribution of the respondents. Valid Industry Frequency Percent Manufacturing 13 9.0 Mining 10 6.9 Banking 15 10.3 Education 19 13.1 Service 19 13.1 NGO 20 13.8 Securities and Exchange Commission 21 14.5 Others 28 19.3 Total 145 100.0 The industry in which the respondents belong is mainly categorized into manufacturing, Banking, Mining, Education, Service, Non-governmental organization (NGO), Securities and Exchange Commission of Ghana among others. The information in the table above demonstrate that larger part of the respondents worked in industries such as Securities and Exchange Commission, NGO, Service, Banking, among others. Their respective percentages are 14.5%, 13.80%, 13.1%, 10.3%, whilst manufacturing had the lowest number of respondents of 9%. This shows an even distribution of respondents across all the major sectors of the economy, bringing diversity into the study. 32 University of Ghana http://ugspace.ug.edu.gh 4.3.6 Role of Respondents within the Industry The Figure 4.4 shows the role of all the respondents within the industry in which they are working. ROLE OF RESPONDENTS ■ Manager ■ Accountant ■ Auditor ■ Investor ■ Fund Manager ■ Financial Analyst ■ Others Figure 4.4 Roles of Respondents (Source: Field Work, 2019) Results of the research shows that majority of respondents are financial analyst, they accounted for 21.2% of the total respondents, and this was followed by fund managers having 17.2%. Investors, accountants and auditors were 13.9%, 13.2% and 11.9% respectively while managers of organization were 11.3%. This therefore shows the level of influence the implementation of IFRS has on organizations that have adopted the standards and their knowledge acquired in the standards. 4.3.7 Years of Experience Figure 4.5 This shows the distribution of number of years a respondent has worked within the industry, it helped the researcher to know the respondents level of experience and how they have made use of the standards available to the industry to which they belong. 33 University of Ghana http://ugspace.ug.edu.gh Figure 4.5 Years of Experience (Source: Field Work, 2019) The study showed that greater part of the respondents have worked in their various industries between 2 to 6 years making 58%, followed by those who had worked for more than 10 years consisting 19.9%. For those who worked for less than a year were about 7.3%. 4.4 Analysis of Factors that influence the Adoption of IFRS in Ghana Many factors in the adoption of IFRS in Ghana. These are; I. Economic Development II. Economic Growth III. Legal System IV. Existence of Capital Market 34 University of Ghana http://ugspace.ug.edu.gh V. Effectiveness of Previous Accounting System 4.4.1 Economic Development Economic factors are one of the main contributing factors with socio economic development of every nation. As such it is also, a rare factor in the development of a country’s accounting system. As a country develops and moves from one state to other, the base of the economy changes which demands changes in the entire computation of economic variables such as gross domestic product and its accounting system. Accounting as a means of communication must be able to show the through state of affairs of every economic activity. This clearly shows that a country’s state of development will determine its appropriate accounting system that it should adopt. The bar chart below depicts the responses from the respondents on whether economic development had some impact on the adoption of IFRS in Ghana. 35 University of Ghana http://ugspace.ug.edu.gh Figure 4.6 Economic Growths (Source: Field Work, 2019) The Fig 4.6 shows that about 89 (55 agree and 34 strongly agree) of the respondents agree to the assertion that economic development has influence on Ghana’s IFRS adoption whiles 56 (14 strongly disagree and 42 disagree) disagrees with it. From the above, it can be justifiably be say that economic growth affected the adoption of IFRS in Ghana. 4.4.2 Legal System Ghana inherited most of its laws after in-dependence from British legal framework and its common law system. Under these laws autonomous expert articulate and legalize the accounting practices in Ghana. The Companies Code of Ghana which was formulated in 1963 is based on United Kingdom legislation. This regulation permits these free bodies to take certain choices without government interference so far as it's inside their lawful mandate. The Institute of Chartered Accountants Ghana (ICAG) and Securities and Exchange Commission (SEC) bear the principle obligations of putting all the accounting altogether. Despite the fact that without an unmistakable legitimate mandate, the ICAG, plans and guarantee the execution of accounting standards in Ghana whiles SEC sees to the agreeability of recorded organizations with fitting reporting standards. Below is the detailed response from the respondents on whether legal system has any effect on IFRS adoption in Ghana. 36 University of Ghana http://ugspace.ug.edu.gh Figure 4.7 Legal Systems (Source: Field Work, 2019) The results from the bar chart above shows that approximately 49% of the respondents think that legal system has a meaningful effect on the IFRS adoption whilst 51% disagrees Ghana’s legal system has any effect on the IFRS adoption. It can therefore be concluded that there is weaker relationship between legal system and IFRS adoption in Ghana. 4.4.3 External Environmental Factors External environmental pressures exercised by institutions such as international monetary fund (IMF), World Bank, international Accounting firms can have influence on the adoption of a particular accounting policy when foreign investors are present. The level of openness of economy to any of the aforementioned bodies can result in the adoption of accounting policy that is globally acceptable and recognized. In the instance of Ghana, the World Bank is on record to have recommended the adoption of IFRS. This study was also designed to find out the opinions of the respondents on their take on the degree to which external environmental factors can influence IFRS adoption. The results are shown in the figure below. 37 University of Ghana http://ugspace.ug.edu.gh Figure 4.8 External Environment (Source: Field Work, 2019) The figure 4.8 shows that 38.6% of the respondents disagree with the assertion that external environmental factors influenced IFRS adoption, whilst 13.1% also strongly disagree with the assertion. However, 30.30% agree with the assertion and 17.9% of the respondents in strong agreement with the assertion. The overall effect from this observation is that external environmental factors did not actually influence the adoption of IFRS adoption in Ghana. 4.4.4 Existence of Capital Market Today, many countries in the world compare their economies based on the functioning and performance of their capital markets. Capital market plays an important role in economic growth and economic prosperity of a country. Most developing countries, in Eastern and Central Europe, have implemented reforms in the financial sector, in terms of restructuring and privatization of public companies and the establishment or development of capital markets. 38 University of Ghana http://ugspace.ug.edu.gh At the core of these changes is the significance of taking an interest institution towards monetary improvement as a rule, and performance of capital markets specifically. Capital markets in developing nations do not have meaning of activating domestic resources for financing, additionally giving or attracting foreign direct investment. Capital markets will impact on enhancing the preparation of domestic resources to finance and advance the efficient utilization of capital. The results from the study on whether or not existence of capital market indeed induced the adoption of IFRS in Ghana are shown in the figure below; Figure 4.9 Existence of Capital Market (Source: Field Work, 2019) The measurements portrays that more than ninety four percent (94.5%) of the respondents agree, or strongly agree with the attestation that the presence of capital markets influenced the adoption of IFRS in Ghana, with just 5.6% of the respondents not in agreement with the affirmation that presence of capital market surely instigated the adoption of IFRS in Ghana. The presence of capital market consequently impacted extraordinarily the adoption of IFRS 39 University of Ghana http://ugspace.ug.edu.gh in Ghana. 4.4.5 Effectiveness of the Previous Accounting System As part of its over sight responsibility the World Bank in 2004 set up a body to study and report on the effectiveness of Ghana National accounting and audit standards. The commission was among other things was to recommend the standards conformity with international standards and its effectiveness in meeting the challenges and expectations of the 21st century. In this study a number of discrepancies were recognized in the Ghanaian Accounting and Audit standards. These discrepancies involved old standards, non-adherence of a few standards with international standards, no execution guide on the Ghana National Accounting Standards; furthermore there were no measures to implement compliance with the current Ghana National Accounting Standards (Gyasi, 2010). The researcher therefore sought to find out from the respondents on their views on the effectiveness of previous accounting system in Ghana; the results are shown in the Figure 4.10, 40 University of Ghana http://ugspace.ug.edu.gh Figure 4.10 Effectiveness of Previous Accounting System (Source: Field Work, 2019) From Fig 4.10 around 59.3% of the respondents agreed that unsuccessful past standards impacts on the adoption of IFRS whilst 40.7% oppose the idea that previous accounting that were unsuccessfully in the past has impact on the adoption of IFRS in Ghana. 4.4.6 Summary of Factors that Influence IFRS Adoption It must be noted that majority of the variables identified had varying degrees of influence on IFRS adoption. The figure below summarizes the elements that impact IFRS adoption in Ghana. 41 University of Ghana http://ugspace.ug.edu.gh Figure 4.11 Factors That Influence IFRS Adoption (Source: Field Work, 2019) Fig 4.11 shows that 61.3% of the respondents agree with the assertion that economic growth indeed influences IFRS adoption. 51.0% of the respondents affirms the assertion on legal system and IFRS adoption, whilst the a whopping 94.5% of the respondents affirms existence of capital market to be a major influence on IFRS adoption and the effectiveness of the previous accounting system accounted for 59.3% of the respondents. However, 51.7% of the respondents disagree those external environmental factors such as World Bank, IMF, and foreign investors etc. influence IFRS adoption. From the above we can conclude that existence of capital market had the highest weight on the elements that influence the implementation of IFRS in Ghana. 4.5 Relationship between IFRS Implementation and Performance The study was also designed to capture the relationship between IFRS implementation and Performance. The table below captures the responses from the respondents. This is followed with regression and correlation analysis to understand the extent of such relationship if any. This was based on four optional responses from which respondents were expected to choose from. The responses are Strongly Agree (SA), Agree (A), Disagree (D), and Strongly 42 University of Ghana http://ugspace.ug.edu.gh Disagree (SD). Pearson Product Moment Correlation Coefficient was used for data analysis; Table 4.3 Source: Field survey, 2019 r = nExy - (Ex) (Ey)/V n [Ex2 - (Ex) 2] [nEy2 - (Ey2) S/N Variables Preparers of Financial Users of Financial Response (%) Statement Statement SD D A SA SD D A SA 1 IFRS improves the quality of 1 2 10 18 20 5 14 23 43 financial statements and 20 17 30 33 6% 16 27% 51% increase % % % % % 2 aIFccReSss a tdoo gpltoibonal ecnaspuirtaesl mthaer ukseet 10 9 20 21 13 6 19 44 of 17 15 33 35 15% 7% 22% 52% one standard for both parent % % % % 3 aIFnRd S has positive effect on the 11 12 17 20 15 6 14 50 isnufbosrimdiatriyo nc ofmorp caonnietrso l and 18 20 28 33 18% 7% 16% 59% decision making by financial % % % % statement like investors. 4 IFRS adoption has significant 10 7 8 35 13 8 38 26 effect on FDI in flows 17 12 13 58 15% 9% 45% 31% % % % % 43 University of Ghana http://ugspace.ug.edu.gh Calculation of Correlation Question 21 (21) the relationship between IFRS implementation and Foreign Direct Investment (FDI) inflows Table 4.4 Source: Field Survey 2019 Preparers of Financial Statement Users of Financial Reports (UFS) Options Point Respons Xy x2 y2 Point Respons x2 y2 (x) e (x) e SA 4 (3y5) 140 16 1,225 4 2(y6) 16 676 A 3 8 24 9 64 3 38 9 1,444 D 2 7 14 4 49 2 8 4 64 SD 1 10 10 1 100 1 13 1 169 £ 10 60 180 30 1,438 10 85 10 2,356 Calculation of FDI Correlation based on Average Response Table 4.5 Source: Field Survey 2019 (Note: AR = Average Response) Options Point (x) Average Xy (x2) (y2) Response AR (y) SD 1 11.5 11.50 1 132.25 D 2 7.5 15.00 4 56.25 A 3 23 69.00 9 529.00 SA 4 30.5 122.00 16 930.25 £ 10 72.5 217.5 30 1,647.75 Using Pearson’s Correlation function; 44 University of Ghana http://ugspace.ug.edu.gh r = nExy - (Ex) (Ey)/V n [Ex2 - (Ex) 2] [nEy2 - (Ey) 2] Where; N = 4 Exy=217.5 (Ex)=10 (Ey)=72.5 Ex2=30 Ey2=1,647.75 r = (4 x 217.5) - (10 x 72.5)/ 4 (30) - 10 x10) (4x 1,647.75) - 5,256.25) r = (870 - 725) /V (120 - 100) - (6,591 - 5,256.25) r = (145)/ V20 -1,334.75 r = 145/ V-1,314.75 r = 145/ -36.26 r = -3.99 The calculation of r was -3.99 which less than 0.5 level of significance is. Hence there is a negative relationship between IFRS adoption and FDI inflows. 45 University of Ghana http://ugspace.ug.edu.gh Calculation of Correlation based on firm Performance Table 4.6 Source: Field Survey 2019 (Note: AR = Average Response) Option Point (x) Average Xy (x2) (y2) Response AR (y) SA 4 33 132 16 1,089 A 3 55.5 55.5 9 342.25 D 2 21.6 21.6 4 116.64 SD 1 11 11 1 121 E 10 73.3 220.1 30 1,668.89 Using Pearson’s Correlation function; r = nExy - (Ex) (Ey)/V n [Ex2 - (Ex) 2] [nEy2 - (Ey) 2 r = (4 x 73.3) - (10 x 73.3)/ V (120- 100) (6,675.56 - 5,372.89) r = (293.2 - 733) / 161.41 r = 2.72 The calculation r was 2.72 is more than 0.5 level of importance, hence there is a positive relationship between firm performance and IFRS adoption in Ghana. 4.6 Mechanisms to monitor compliance Respondents views on mechanisms to ensure IFRS compliance in their respective sectors was also analyzed. The responses gathered on this are summarized in the table below; 46 University of Ghana http://ugspace.ug.edu.gh Table 4.7 Summary of Mechanisms to Ensure Compliance Research Question FREQUENCY (PERCENTAGE) Strongly Disagree Agree Strongly TOTAL Training on IFRS 13 (9.0%) 35 (24.1%) 50 (34.5%) 47 (32.4%) 145 (100%) Disagree Agree Stakeholders 35(24.1%) 48(33.1) 36(24.8%) 26(17.9%) 145(100%) awareness Pofr oIFviRdSin g guidelines 13(9.0%) 40(27.6%) 53(36.6%) 39(26.9%) 145(100%) on Himaprlmemoneinztiantgio wni th 21(14.5%) 63(43.4) 39(26.9%) 22(15.2%) 145(100%) regulatory bodies Establish efficient 31(21.4%) 44(30.3%) 41(28.3%) 29(20.0%) 145(100%) enforcement mechanisms to ensure compliance Develop a supported 27(18.6%) 29(20.0%) 54(37.2%) 35(24.1%) 145(100%) version of IFRS to make it user friendly 4.6.1Mechanism to monitor compliance The table 4.7 is to enable the researcher answer the first research objective of mechanisms that can be used to monitor and enforce IFRS compliance; the researcher was able to identify 5 of the mechanisms. 4.6.2 Training on IFRS Training of staff on IFRS by organizational heads was one of the mechanisms that was identified to help in the compliance of IFRS. The study showed that since adoption in 2007 there has been series of training sessions on IFRS, its adoption and compliance. Out of 145 respondents 35.8% of them disagree to the fact that more education should be given in relation 47 University of Ghana http://ugspace.ug.edu.gh to IFRS, but on the contrary 19.9% agreed to the fact that training must still be given because more and more people keep coming into the industry. 4.6.3 Stakeholders Awareness of IFRS The first step to achieve success is to create awareness on the standard, when stakeholders are made to know and understand the reasons and benefits they will derive from working with the IFRS that have been introduced to them. These standards are reviewed time after time but before an organization can derive its full benefit after adoption, the review must be well circulated and understood so that full compliance can be achieved. From the study conducted respondents who agreed to the fact that stakeholders’ awareness is actually being practiced were about 17.2% out of the total sample size. For those who disagree to this were 31.8% and respondents who toke a neutral stand were 23.8%, this means that this mechanism is actually being practiced by fewer companies who have registered on the Ghana Stock exchange although all companies have complied.. 4.6.4 Harmonization with regulatory bodies Harmonization with regulatory bodies was another mechanism identified by the researcher. Only 14.6% agree that harmonization with regulatory bodies is fully practiced in their organization. This means that majority of these companies do not harmonize with regulatory bodies, this is due to the cost incurred during compliance. Regulatory bodies are there to implement supervisory roles that may be in the form of enforcing requirements and constraints, also coming out with guidelines in respect of any activity, and obtaining compliance. 48 University of Ghana http://ugspace.ug.edu.gh 4.7 Problems Encountered During Compliance For the researcher’s second objective to be met thus problems companies encounter during the compliance of IFRS, the following were identified. The associated frequencies and percentage responses from the respondents are captured in the table 4.8 Table 4.8 Summary of Problem in Compliance RESEARCH QUESTION FREQUENCY (PERCENTAGE) Strongly Disagree Agree Strongly Disagree Agree IFRS are complex and difficult 16(11%) 54(37.2%) 58(40%) 17(11.7%) 145(100%) Frequent changes on IFRS 23(15.9%) 57(39.3%) 37(25.5%) 28(19.3%) 145(100%) Inadequate number of 24(16.6%) 49(33.8%) 52(35.9%) 20(13.8%) 145(100%) professional accountants in the country Inadequate technical 26(17.9%) 69(47.6%) 23(15.9%) 27(18.6%) 145(100%) competence in applying IFRS Inadequate regulatory bodies to 19(13.1%) 47(32.4%) 62(42.8%) 17(11.7%) 145(100%) monitor and ensure compliance with Cost assorted with IFRS 37(25.5%) 32(22.1%) 51(35.2%) 25(17.2%) 145(100%) compliance is high compared to IFRS benefit 49 University of Ghana http://ugspace.ug.edu.gh 4.7.1 IFRS are Complex and Difficult Due to the nature and complexity of the accounts to be prepared and the requirements that are demanded under IFRS, professionals would have to prepare the accounts by themselves meaning that they cannot delegate. Under IFRS, a multinational company has a lot of requirements to meet since they would have to prepare a consolidated group account as well as each subsidiary making it tedious. From the data collated by the researcher 46.4% of the total sample size disagrees to this while 11.3% agrees that account preparation under IFRS looks complex and difficult 4.7.2 Frequent changes on IFRS Frequent changes occur due to the fact that the IASB has a research team who always conduct research to find out lapses in the various standard set so modification can be made. The standard setters have also given room for uses of the standard to make their recommendation as and when they see any problem or have any difficulty during the implementation and application of the standards. After the recommendations, the boards sit down to access and test if it can make the standard easier to understand and apply. The IFRS is then circulated to all centers to be applied by stakeholders who have adopted the standard. The study shows that majority agreed to that yes frequent changes to occur and the world being a dynamic place changes would always come but those changes must be communicated well to all stake holders. This gave the researcher 52.9% who agreed and 18.5% who did not agree. Below is a table to depict the above information. 4.7.3 Inadequate qualified accountants From the study conducted it came to knowledge that the process involved in attaining the qualification to be called a Chartered accountant is tedious and takes a long time for this reason there are inadequate qualified accountants in Ghana. This is due to the fact that individuals who want to charter must go through the process of writing professional exams which is quit involving to pass 50 University of Ghana http://ugspace.ug.edu.gh and requires individuals to be fully prepared and understands the principles. It was also observed that most of the chartered accountants lack adequate competence in relation to the application of IFRS. 4.7.4 Cost associated with IFRS compliance The cost involved is largely dependent on the size and nature of the organization, and for those that are listed on Stock Exchange are multinationals. Cost can be in relation to staff training and the implementation of IT support system and financial reporting in relation to operation. It is always the expectation of any organization to gain some benefits after having incurred some cost in a form of comprehensive training for new staff or existing staff members in case any review is done on the standards. 51 University of Ghana http://ugspace.ug.edu.gh CHAPTER FIVE SUMMARY OF MAJOR FINDINGS, CONCLUSIONS AND RECOMMENDATIONS 5.1 Introduction This chapter considers three main components which are the major findings drawn from the research, necessary recommendations to the field of study and final conclusion. 5.2 Summary of Findings Investigations made identified some key factors that have influenced the adoption and implementation of IFRS. These were economic development which had about 90% of the respondents agreed to the fact that economic division has an influence on the adoption of IFRS. For the legal system in Ghana the relationship between the two thus IFRS implementation and legal system of Ghana was weak, the data collected had 51%of the respondents disagreed to the assertion that the Ghana’s legal system has an impact on the implementation of IFRS.As to whether external environmental factors influences IFRS implementation was about 43.48% of the respondents who agreed while the rest disagreed to external environmental factors. The statistic depicts that over 94.5% of respondents agrees that the existence of capital market has a constructive impact on the acceptance of IFRS in Ghana. Respondents who agreed that the effectiveness of previous accounting system does not have an effect on the adoption of IFRS was about 59.3%, form the above facts presented the indicator that had the highest percentage was the existence of capital market which had 94.5% of the total score. That is to say that the existence of capital market has the greatest influence when it comes to the adoption of IFRS. 52 University of Ghana http://ugspace.ug.edu.gh The relationship between performance and IFRS implementation, two main factors were used to determine that, first of all checking the results of relationship that existed between IFRS implementation and foreign direct investment showed negative relationship between the two components. The correlation calculated was – 3.99 which is below 0.5 significance level. The second sections used three indicators for the correlation determination these were: The use of IFRS as a means of improving quality financial statement increased access to global capital market, the percentage released was 51%. Also using IFRS adoption to ensure the usage of one principle for both parent and subsidiary firm’s statement preparation carried about 52%. Finally whether IFRS has an outcome on the information provided for control purposes and decision making through users of financial statement was about 59% of respondent who strongly agreed to the above indicators. When the three above indicators were combined in the correlation calculation, there was an improvement of positive relationship which was 2.72. This is showing that an organization’s performance using the above indicators has a positive impact on the adoption of IFRS. Also mechanisms to help maintain compliances of IFRS were identified as follows: Training on IFRS by the board to all stakeholders was one of the mechanisms identified which had about 66.9% of respondent agreeing. The next indicator that was identified is for the IASB to provide guidelines on IFRS implementation. Creating more awareness of IFRS by stakeholders especially for students to understand and really appreciate the standards on their field. Furthermore about 61.3% of the respondents agreed that the IASB can develop a supported version of IFRS to make it more user friendly to help stakeholders be conversant with the standards so its 53 University of Ghana http://ugspace.ug.edu.gh application would be easier. 5.3 Conclusion The accounting regulatory authorities throughout the world have sought to improve the quality of financial disclosure and communication in a wide context of economic globalization. This has resulted in introduction of new reforms into the accounting practice a means of communicating with the various interested stakeholders, and its subsequent adoption of the international financial reporting standards. These standards among other issues seek to bring convergence in the global accounting practices. It has subsequently been adopted by many countries both developed and developing as a means of bringing congruence into their reporting. Hence, the research objectives which seek to analyze the institutional impediment of IFRS of listed companies by analyzing the views of interested parties. The results of the empirical analysis have shown that IFRS adoption in Ghana was positively influenced by economic growth rate, existence of financial market, weakness of previous accounting system, and a common law based on legal systems. Other factors such as external environmental factors, influence of the world bank and international monetary fund has no significant effect on IFRS adoption in Ghana. These agencies have collectively considered these results leading us to concede with the decision to adopt the international standard which is closely related to developing countries’ institutional environment as well as to their macroeconomic data (i.e. their economic and educational growth level). This allows us to identify the existence of the trend in the developing countries vis-a-vis the international accounting standards. This findings highlight’s the difference that distinguishes between the results achieved by similar studies relevant to the developed countries and that of the developing countries. On the relationship between IFRS 54 University of Ghana http://ugspace.ug.edu.gh adoption and Performance, the value of r calculated (Pearson correlation) shows that there is a positive relationship between IFRS adoption and overall performance. Finally, on compliance by the listed companies, the study revealed that all the companies surveyed are using IFRS as the standard of reporting, since Institute of Chartered Accountants, Ghana (ICAG) made it compulsory for all listed companies to switch to the standard in 2007, hence there has been efficient and effective compliance with the standard. The overall intuitions gathered from this study shows that, there is a high level of compliance by listed companies with regards to IFRS adoption and implementation by organizations in Ghana. 5.4 Recommendations The ISAB must set up more regulatory bodies; preferably every country must have a body to monitor all activities by companies listed on the stock exchange concerning the implementation of IFRS. Every country must ensure that their regulatory bodies are up and doing, thus strict measures for compliance should be put in place. These regulatory bodies must be strengthened from time to time. Independent monitory bodies must be set to monitor objectively compliance by companies who are listed on the stock exchange and also institutions must provide all the available resources which would enhance the adoption and implementation of IFRS in Ghana. 55 University of Ghana http://ugspace.ug.edu.gh There must be more educational seminars and forums conducted by standard setters to help stakeholders understand each standard, how and when to apply these standards. The educational institutions must make students understand the debt of each standard to make its application with more ease. 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