The Process of Adaptation to International Financial Reporting Standards: the Example

THE PROCESS OF ADAPTATION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS: THE EXAMPLE OF TURKISH ACADEMICIANS AND PRACTITIONERS

Dr. HalukDuman

Accounting and Finance Department, Faculty of Business Administration and Economics Aksaray University, Email:

Abstract

IFRS have been established in an attempt to produce healthy and reliable information for comparison, analysis and assessment needed by society. Adaptation to IFRS makes it possible to compare financial information produced anywhere in the world, to remove consolidation problem and to minimize the inconsistency between countries’ judicial, fiscal and economic systems (KöroğluveDoğan, 2012: -1).

This study aims to define the attitudes of academicians and CPAs during the process of transmission to Turkish Accounting Standards published in pursuant of international financial reporting standards

Keywords:International Financial Reporting Standards, Convergence, Academician, CPA

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1. Introduction

The perception of globalization has resulted in that the obstacles to capital and knowledge disappearing, therefore, the world becoming an economically global village. The key point in that is where, when, in which field/s and scales the capital will turn to be an investment (Karabınar, Can ve Kaplan, 2012).

While finding an answer to this question, the following points play a crucial role: the investment to be done and feasibility studies as well as economical and financial data related to the area to be invested in. It is especially important that information produced by the financial system is healthy, complete, qualified, accurate and comparable. The accounting information system in which financial information is produced compulsorily and voluntarily shares financial and nonfinancial information as a part of the disclosure principle within the frame of

Basic accounting concepts
Generally accepted accounting principles
International and national financial reporting standards.

Basic accounting concepts are abstract and general, and describe common characteristics of accounting. Accounting principles established within the frame of basic accounting concepts form the theoretical structure. Standards are a guide to solve problems that may arise during the production and transmission process of financial information (Atabey,2012:23-29).

2.International Financial Reporting Standards and Convergence

Turkey signed a licence and copyright agreement with IFRS Foundations as a part of both EU harmonization laws and the adaptation process to the global accounting practices. In this context, Turkish Accounting Standards were published in the official gazette, which was declared to be effective as of 2006. 6102 Numbered Turkish Commercial Code that entered into force on 31 July 2012 requires theimplementation of Turkish Accounting Standards.

Accounting standards in Turkey are established by the Turkish Accounting Standards Board. Although there has been no amendment in the existing tax laws, the Board continues to operate in line with global developments. Ministry of Finance has lately commenced studies to update and gather corporate and income taxes under a single law.

This duality in legal regulations confuses academicians and practitioners both theoretically and practically since IFRS-focused accounting understanding will lead to inaccurate and incomplete practices as well as legal punishments.

However, for the healthy implementation of IFRS, it is necessary:

As global:

To allot time to all countries for transition and to encourage them,
To turn the IFRS's structure into a transparent, accountable and participative organizational structure,
To held briefings such as conferences and symposiums related to IFRS and auditing standards for all countries.

As a country:

To carry out theoretical and practical education at the level of bachelor degree and to provide documents for a healthy transition to IFRS,
To arrange training programs for CPAs and to encourage them,
To update accounting programs and to include CPAs in the practical education.

Regulatory authorities, academicians and practitioners must work in consensus and cooperation for a healthy and complete transition to IFRS. Otherwise, there will no harmony in practice.

3. Aim

4.Methodology

The study sample consists of academicians in the finance and accounting fields who serves in Turkish state and foundation universities and active workers registered in the professional chamber as Certified Public Accountants (CPA). The study conducted by face-to-face and mail surveys. The study used the survey of Rezaee et al (2010) as the scale.

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5. Results

5.1. Global Acceptance of IFRS

Table 5.1.1. Global Acceptance of IFRS
KMO and Bartlett's Test / Academician / CPA
Kaiser-Meyer-Olkin Measure of Sampling Adequacy. / ,784 / ,820
Bartlett's Test of Sphericity / Approx. Chi-Square / 410,008 / 428,155
df / 28 / 28
Sig. / ,000 / ,000

KMO tests resulted as 0,784 for academicians and as 0,820 for Certified Public Accountants (CPA). The data set is appropriate for factor analysis since the values of both groups are > 0, 50. Bartlett’s test is significant, which indicates that there is a high correlation between the variables of both groups.

Table:5.1.2. Total Variance Explained / Academician / Academician
Comp. / Initial Eigenvalues / Extraction Sums of Squared Loadings / Rotation Sums of Squared Loadings
Total / % of Vai. / Cum. % / Total / % of Var. / Cum. % / Total / % of Var. / Cum %
1 / 4,090 / 51,127 / 51,127 / 4,090 / 51,127 / 51,127 / 3,392 / 42,401 / 42,401
2 / 1,175 / 14,692 / 65,818 / 1,175 / 14,692 / 65,818 / 1,873 / 23,417 / 65,818
3 / ,741 / 9,261 / 75,079
4 / ,624 / 7,794 / 82,873
5 / ,526 / 6,577 / 89,451
6 / ,387 / 4,835 / 94,285
7 / ,270 / 3,373 / 97,658
8 / ,187 / 2,342 / 100,000
Component: Compt, Variance: Var, Cumulative: cum

The questions meant for the global acceptance of IFRS have two factors for academicians. The first and second factors explain 42, 401 % and 23, 417 % of the total variance, respectively, and both factors explain 65, 818 % of it.

Table 5.1.3.Total Variance Explained / CPA / CPA
Compt. / Initial Eigenvalues / Extraction Sums of Squared Loadings / Rotation Sums of Squared Loadings
Total / % of Var. / Cum. % / Total / % of Var. / Cum. % / Total / % of Var. / Cum. %
1 / 3,864 / 48,301 / 48,301 / 3,864 / 48,301 / 48,301 / 3,400 / 42,495 / 42,495
2 / 1,238 / 15,476 / 63,776 / 1,238 / 15,476 / 63,776 / 1,702 / 21,281 / 63,776
3 / ,777 / 9,707 / 73,483
4 / ,628 / 7,851 / 81,334
5 / ,544 / 6,795 / 88,129
6 / ,418 / 5,219 / 93,348
7 / ,324 / 4,049 / 97,397
8 / ,208 / 2,603 / 100,000
Component: Compt, Variance: Var, Cumulative: cum, Extraction Method: Principal Component Analysis.

The questions meant for the global acceptance of IFRS have also two factors for CPAs. The first and second factors explain 42, 495 % and 21, 281 % of the total variance, respectively, and both factors explain 63, 776 % of it.

Table 5.1.4.Communalities / Academician / CPA
Initial / Extraction / Extraction
1.Investors would benefit if companies worldwide prepared their financial statements using a single set of high-quality accounting standards. / 1,000 / ,764 / ,689
2. Uniform globally accepted accounting standards will produce comparable financial reporting worldwide. / 1,000 / ,690 / ,786
3. IFRS are achieving global acceptance as a reputable set of standards for global financial reporting / 1,000 / ,632 / ,604
4. An appropriate framework for the global acceptance and enforcement of IFRS should be agreed on. / 1,000 / ,676 / ,672
5. Convergence to a single set of global accounting standards requires all countries to adopt IFRS as issued by the IASB. / 1,000 / ,531 / ,454
6. Complete convergence is not possible because of differing cultural, legal, regulatory, and economic environments. / 1,000 / ,748 / ,699
7. A transition option period should be given to ensure preparers, auditors, and accounting Programs, obtain sufficient education and training in IFRS. / 1,000 / ,636 / ,575
8. The FASB should eventually become a branch of the IASB. / 1,000 / ,588 / ,622

The Communalities Table shows that the data set is sufficient for both academicians and CPAs and the study have determined sufficient factors.

Table 5.1.5.Rotated Component Matrix(a) / Academician / CPA
Component / Component
1 / 2 / 1 / 2
1.Investors would benefit if companies worldwide prepared their financial statements using a single set of high-quality accounting standards. / ,874 / ,016 / ,885 / ,056
2. Uniform globally accepted accounting standards will produce comparable financial reporting worldwide. / ,823 / ,116 / ,822 / ,118
3. IFRS are achieving global acceptance as a reputable set of standards for global financial reporting / ,753 / ,254 / ,797 / ,191
4. An appropriate framework for the global acceptance and enforcement of IFRS should be agreed on. / ,760 / ,313 / ,756 / ,180
5. Convergence to a single set of global accounting standards requires all countries to adopt IFRS as issued by the IASB. / ,680 / ,262 / ,653 / ,167
6. Complete convergence is not possible because of differing cultural, legal, regulatory, and economic environments. / ,087 / ,861 / ,078 / ,833
7. A transition option period should be given to ensure preparers, auditors, and accounting Programs, obtain sufficient education and training in IFRS. / ,551 / ,576 / ,135 / ,777
8. The FASB should eventually become a branch of the IASB. / ,181 / ,745 / ,533 / ,540

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Table 5.1.5 shows the Rotated Component Matrixfor academicians and CPAs. In the analysis aimed at academicians two variables were especially effective under the first factor. The first variable is that investors would benefit from high-quality financial tables with the global acceptance of financial reporting standards (0, 874). The second one is that these financial tables would be comparable worldwide (0, 823).

As for the second factor, academicians stated that there was no possible complete convergence because of differing cultural, legal, regulatory and economic environments. The factor loading of this variable is 0, 861.

According to the results of the Global Acceptance of IFRS Analysis, academicians stated that

financial information produced in pursuant of international financial reporting standards was necessary every segment of society,
the information produced in pursuant of these standards would enable to reach qualified and comparable information,
there was a set to be accepted by every country,
adequate education and time were needed for a healthy and consistent transmission,
there was, however, no possible complete convergence because of differing in cultural, legal, regulatory and economic environments .

When examining the analysis results of CPAs showed in Table 4, it is seen that variables effective under the first and second factors are same as the ones of academicians. Under the second factor, CPAs stated that education and training needed to be given, accounting programs needed to be received, and an appropriate process of transmission needed to be provided for the adaptation of preparators and supervisors to IFRS apart from the variable of academicians - there was no possible convergence because of differing in cultural, legal, regulatory and economic environments (0, 833). The factor loading of this variable is 0, 777.

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5.2. Complete Convergence to IFRS

Table 5.2.1. Complete Convergence to IFRS
KMO and Bartlett's Test / Academician / CPA
Kaiser-Meyer-Olkin Measure of Sampling Adequacy. / ,873 / ,909
Bartlett's Test of Sphericity / Approx. Chi-Square / 1,900E3 / 1,843E3
df / 190 / 190
Sig. / ,000 / ,000

KMO test resulted as 0, 873 for academicians and 0, 909 for CPAs. The data set is appropriate for factor analysis since the values of both groups are > 0, 50. Bartlett’s test is significant, which indicates that there is a high correlation between the variables of both groups.

Table 5.2.2.Total Variance Explained / Academician / Academician
Comp. / Initial Eigenvalues / Extraction Sums of Squared Loadings / Rotation Sums of Squared Loadings
Total / % of Var. / Cum. % / Total / % of Var. / Cum. % / Total / % of Var. / Cum. %
1 / 10,956 / 54,779 / 54,779 / 10,956 / 54,779 / 54,779 / 5,035 / 25,177 / 25,177
2 / 1,590 / 7,948 / 62,727 / 1,590 / 7,948 / 62,727 / 4,879 / 24,393 / 49,570
3 / 1,180 / 5,902 / 68,629 / 1,180 / 5,902 / 68,629 / 3,812 / 19,059 / 68,629
4 / ,972 / 4,859 / 73,488
5 / ,804 / 4,020 / 77,508
6 / ,744 / 3,721 / 81,229
7 / ,550 / 2,751 / 83,980
8 / ,491 / 2,453 / 86,433
9 / ,397 / 1,984 / 88,416
10 / ,385 / 1,925 / 90,342
11 / ,301 / 1,504 / 91,845
12 / ,286 / 1,429 / 93,274
13 / ,255 / 1,273 / 94,547
14 / ,235 / 1,174 / 95,721
15 / ,212 / 1,062 / 96,783
16 / ,192 / ,959 / 97,741
17 / ,168 / ,839 / 98,580
18 / ,137 / ,683 / 99,263
19 / ,082 / ,409 / 99,673
20 / ,065 / ,327 / 100,000
Component: Compt, Variance: Var, Cumulative: cum. Extraction Method: Principal Component Analysis.

There are three factors for the complete implementation of IFRS (convergence) in all countries according to the results of analysis performed to define factors belonging to academicians. The first, second and third factors explain 25, 177 %, 24, 393 % and 19, 059 of total variance, respectively, and all three factors explain 68, 629 % of it.

Table 5.2.3.Total Variance Explained / CPA / CPA
Comp. / Initial Eigenvalues / Extraction Sums of Squared Loadings / Rotation Sums of Squared Loadings
Total / % of Var. / Cum. % / Total / % of Var. / Cum. % / Total / % of Var. / Cum. %
1 / 10,032 / 50,162 / 50,162 / 10,032 / 50,162 / 50,162 / 4,722 / 23,608 / 23,608
2 / 1,735 / 8,674 / 58,836 / 1,735 / 8,674 / 58,836 / 4,537 / 22,686 / 46,294
3 / 1,165 / 5,826 / 64,662 / 1,165 / 5,826 / 64,662 / 3,674 / 18,368 / 64,662
4 / ,926 / 4,632 / 69,294
5 / ,889 / 4,447 / 73,740
6 / ,677 / 3,385 / 77,125
7 / ,597 / 2,984 / 80,109
8 / ,534 / 2,668 / 82,777
9 / ,514 / 2,569 / 85,346
10 / ,437 / 2,184 / 87,529
11 / ,408 / 2,039 / 89,568
12 / ,368 / 1,841 / 91,410
13 / ,325 / 1,627 / 93,036
14 / ,273 / 1,363 / 94,399
15 / ,246 / 1,232 / 95,631
16 / ,227 / 1,134 / 96,764
17 / ,218 / 1,089 / 97,853
18 / ,165 / ,825 / 98,679
19 / ,146 / ,728 / 99,407
20 / ,119 / ,593 / 100,000
Component: Compt, Variance: Var, Cumulative: cum . Extraction Method: Principal Component Analysis

There are three factors for the complete implementation of IFRS (convergence) in all countries according to the results of analysis performed to define factors belonging to CPAs. The first, second and third factors explain 23, 608 %, 22, 686 % and 18, 368 of total variance, respectively, and all three factors explain 64, 662 % of it.

Table 5.2.4. Comnualıtıes / Academician / CPA
Initial / Extraction / Extraction
1. Initial cost of convergence / 1,000 / ,752 / ,647
2. Required changes in regulatory regime / 1,000 / ,791 / ,744
3. Required changes in the legal system / 1,000 / ,808 / ,739
4. Required changes in auditing standards / 1,000 / ,783 / ,717
5. Coordination and collaboration among global regulators / 1,000 / ,747 / ,763
6. Global acceptance of IFRS as a highquality set of accounting standards / 1,000 / ,565 / ,493
7. Needed improvement in governance structure of the IASB / 1,000 / ,678 / ,733
8. Needed improvement in public accountability of the IASB / 1,000 / ,806 / ,741
9. IASB funding and membership / 1,000 / ,676 / ,712
10. Objectivity and independence of the IASB in establishing IFRS / 1,000 / ,708 / ,684
11. Perceived uncertainties surrounding IFRS / 1,000 / ,545 / ,622
12. Flexibility in adopting various versions of IFRS (e.g., EU endorsed) / 1,000 / ,661 / ,549
13. Lack of sufficient involvement of global regulators in the IASB standard-setting process / 1,000 / ,642 / ,530
14. Assurance of the long-term sustainability and infrastructure of the IASB / 1,000 / ,623 / ,592
15. Transition plan and issues pertaining to IFRS / 1,000 / ,649 / ,652
16. Lack of education, understanding, and experience by preparers of financial reports with the use of IFRS / 1,000 / ,634 / ,630
17. Lack of uniformity in the application of IFRS in all jurisdictions / 1,000 / ,703 / ,685
18. Lack of coverage of IFRS in financial accounting textbooks / 1,000 / ,755 / ,550
19. Lack of coverage of International Standards on Auditing (ISAs) in auditing textbooks / 1,000 / ,688 / ,617
20. Perceived threat to the continuing existence of the FASB / 1,000 / ,511 / ,533

The Communalities Table shows that the data set is sufficient for both academicians and CPAs and the study have determined sufficient factors.

Table 5.2.5. Rotated Component Matrix(a) / Academician / CPA
Component / Component
1 / 2 / 3 / 1 / 2 / 3
1. Initial cost of convergence / ,872 / ,108 / ,182 / ,827 / ,219 / ,099
2. Required changes in regulatory regime / ,783 / ,165 / ,190 / ,811 / ,226 / ,054
3. Required changes in the legal system / ,737 / ,288 / ,226 / ,775 / ,204 / ,301
4. Required changes in auditing standards / ,697 / ,263 / ,307 / ,678 / ,397 / ,186
5. Coordination and collaboration among global regulators / ,666 / ,252 / ,240 / ,596 / ,389 / ,340
6. Global acceptance of IFRS as a highquality set of accounting standards / ,638 / ,293 / ,360 / ,497 / ,283 / ,407
7. Needed improvement in governance structure of the IASB / ,603 / ,524 / ,152 / ,131 / ,776 / ,257
8. Needed improvement in public accountability of the IASB / ,168 / ,844 / ,103 / ,214 / ,738 / ,165
9. IASB funding and membership / ,161 / ,811 / ,353 / ,321 / ,655 / ,133
10. Objectivity and independence of the IASB in establishing IFRS / ,375 / ,793 / ,147 / ,395 / ,628 / ,282
11. Perceived uncertainties surrounding IFRS / ,253 / ,726 / ,439 / ,382 / ,610 / ,119
12. Flexibility in adopting various versions of IFRS (e.g., EU endorsed) / ,305 / ,662 / ,465 / ,523 / ,539 / ,345
13. Lack of sufficient involvement of global regulators in the IASB standard-setting process / ,429 / ,582 / ,430 / ,518 / ,528 / ,212
14. Assurance of the long-term sustainability and infrastructure of the IASB / ,519 / ,537 / ,290 / ,488 / ,503 / ,240
15. Transition plan and issues pertaining to IFRS / ,214 / ,160 / ,827 / ,471 / ,489 / ,263
16. Lack of education, understanding, and experience by preparers of financial reports with the use of IFRS / ,201 / ,158 / ,789 / ,170 / ,203 / ,818
17. Lack of uniformity in the application of IFRS in all jurisdictions / ,307 / ,481 / ,615 / ,356 / ,023 / ,785
18. Lack of coverage of IFRS in financial accounting textbooks / ,317 / ,396 / ,613 / ,047 / ,202 / ,777
19. Lack of coverage of International Standards on Auditing (ISAs) in auditing textbooks / ,416 / ,318 / ,520 / ,253 / ,454 / ,668
20. Perceived threat to the continuing existence of the FASB / ,398 / ,363 / ,470 / ,156 / ,561 / ,651

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Rotated Component Matrix Table 5.2.5. shows the results of questions about the complete implementation of IFRS in all countries (convergence) for academicians and CPAs. In the analysis aimed at both academicians and CPAs first three variables were especially effective under the first factor. The amendment of regulation regime and legal system related to UFRS for the complete adaptation to IFRS as well as the cost of these amendments is an important variable. It indicates that structural reforms must be made across the country for the complete adaptation to IFRS and costs must be calculated in real terms.

Four variables were effective under the second factor belonging to academicians. These are the provision of accountability, objectivity and independence; the regulation of financing and membership structure and the removal of uncertainties perceived within the frame of IFRS.

Two variables were effective under the second factor belonging to CPAs. These are to improve IASB's organizational structure and to make its structure accountable. Accountability is the important common factor of two groups.

Two variables were effective under the third factor belonging to academicians. These are transition plans of countries, questions about IFRS, financial report practitioners' being untrained about the healthy implementation of IFRS and resultant lack of understanding and experience.

Two variables were effective under the third factor belonging to CPAs. These are financial report practitioners' being untrained about the healthy implementation of IUFRS and resultant lack of understanding and experience, the nonexistence of unity related to implementation in any countries and Turkish general accounting literature's not being arranged according to IFRS.

Facing problems in practice because of the lack of education and documents is the important factor for both groups. It suggest that although Turkey has involved in some legal regulations, information and experience are not shared, which is essential for a complete and healthy transition. It indicates that incomplete and inaccurate financial information may be produced depending on the lack of resource and information in first practices.

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5.3. IASB 's acceptance, transparency, governance

Table 5.3.1. KMO and Bartlett's Test / Academician / CPA
Kaiser-Meyer-Olkin Measure of Sampling Adequacy. / ,775 / ,837
Bartlett's Test of Sphericity / Approx. Chi-Square / 186,764 / 299,497
df / 15 / 15
Sig. / ,000 / ,000

KMO test resulted as 0, 775 for academicians and 0, 837 for CPA. The data set is appropriate for factor analysis since the values of both groups are > 0, 50. Bartlett’s test is significant, which indicates that there is a high correlation between the variables of both groups.

Table 5.3.2. Total Variance Explained / Academician
Component / Initial Eigenvalues / Extraction Sums of Squared Loadings
Total / % of Var. / Cum. % / Total / % of Var. / Cum. %
1 / 2,964 / 49,408 / 49,408 / 2,964 / 49,408 / 49,408
2 / ,967 / 16,113 / 65,522
3 / ,726 / 12,101 / 77,622
4 / ,537 / 8,952 / 86,575
5 / ,426 / 7,097 / 93,672
6 / ,380 / 6,328 / 100,000
Table 5.3.3. Total Variance Explained / CPA
Component / Initial Eigenvalues / Extraction Sums of Squared Loadings
Total / % of Var. / Cum. % / Total / % of Var. / Cum. %
1 / 3,338 / 55,640 / 55,640 / 3,338 / 55,640 / 55,640
2 / ,995 / 16,582 / 72,222
3 / ,475 / 7,918 / 80,139
4 / ,418 / 6,962 / 87,101
5 / ,408 / 6,799 / 93,901
6 / ,366 / 6,099 / 100,000

Extraction Method: Principal Component Analysis.

There is only one factor related to the questions about the structure of IASB according to the results of analysis performed to define factors belonging to academicians and CPAs. This factor explains 49, 408 % of total variance belonging to academicians and 55, 640 % of total variance belonging to CPAs.

Table 5.3.4. Comnualıtıes / Academician / CPA
Initial / Extraction / Extraction
1. A uniform and broad-based funding regime / 1,000 / ,433 / ,460
2. Global public hearings and input on establishing accounting standards / 1,000 / ,465 / ,498
3. Close working relations and collaborations with securities regulators throughout the world / 1,000 / ,579 / ,676
4. Establishment of multilayered and multifaceted accountability mechanisms / 1,000 / ,582 / ,686
5. Global involvement of all national standard-setting and regulatory bodies / 1,000 / ,476 / ,534
6. Full adoption of IFRS as issued by the IASB without any exceptions / 1,000 / ,429 / ,485

The Communalities Table shows that the data set is not sufficient for both academicians and CPAs and the study have not determined sufficient factors.