Compliance level with IFRS disclosure requirements across 12 African countries: do enforcement mechanisms matter?
| DOI | https://doi.org/10.1108/JFRC-09-2020-0094 |
| Published date | 06 October 2021 |
| Date | 06 October 2021 |
| Pages | 60-81 |
| Subject Matter | Accounting & finance,Financial risk/company failure,Financial compliance/regulation |
| Author | Hela Borgi,Yosra Mnif |
Compliance level with IFRS
disclosure requirements across
12 African countries: do
enforcement mechanisms matter?
Hela Borgi
Department Accounting, College of Business and Administration,
Princess Nourah Bint Abdulrahman University, Riyadh, Saudi Arabia, and
Yosra Mnif
Department Accounting, Taxation and Law in High Institute of Business
Administration of Sfax, Sfax, Tunisia
Abstract
Purpose –The purpose of this study is to investigate the effect of enforcement, and more particularly
governmentquality and the stock market development, on compliance withInternational Financial Reporting
Standards(IFRS) disclosure requirements in 12 African countries.
Design/methodology/approach –The authors use a self-constructed compliance index from content
analysis and apply panel regressions for a sample of 606 firm-year observations during the period2012 to 2014.
Findings –This analysis illustrates a high level of disparity of information provided by companies,
possibly due to the complexity of the selectedstandards and the depth of information required. The findings
reveal that government quality and stock market development have a positive and significant effect on
compliance with IFRS disclosure requirements in Africa. This implies that enforcement playsa key role in
improvingthe compliance level across African countries.
Practical implications –These findings should be of interest to government policymakers, professional
bodies, regulators and standard setters who areconcerned with compliance and financial reporting transparency
at a country level. It should be a signal to call for more effort to strengthen the enforcement of accounting
standards and capital market supervision by putting in places omedisciplinary actions for non-compliance with
IFRS. The authors also believe that the results may help Africanpolicymakers and regulators enhance the level
of compliance with IFRS disclosurerequirements by enforcing accounting standards.
Originality/value –This research contributes to the compliance literature by investigating the effect of
enforcement on compliance with IFRS disclosure requirements in the African countries, an understudied
contextwhere enforcement is a challenge.
Keywords Financial reporting, Disclosure, IFRS, Compliance, Government
Paper type Research paper
1. Introduction
International Financial Reporting Standards (IFRS) are required for all or most domestic
listed companies and financial institutions in 166 jurisdictions (IFRS Foundation, 2019).
Such countries have mandated IFRS adoption to have a common language of financial
reporting internationally, and therefore, to attain the benefits promised by the International
Accounting Standard Board (IASB) such as improved transparency and comparability.
Nevertheless, the lack of harmonised enforcement leads to national differences in
compliance with and enforcement of IFRS (Brown and Tarca, 2005). As shown by Glaum
JFRC
30,1
60
Received29 September 2020
Revised23 May 2021
Accepted16 July 2021
Journalof Financial Regulation
andCompliance
Vol.30 No. 1, 2022
pp. 60-81
© Emerald Publishing Limited
1358-1988
DOI 10.1108/JFRC-09-2020-0094
The current issue and full text archive of this journal is available on Emerald Insight at:
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et al. (2013), whether the IFRS adoption truly enhances transparency and comparability
depends on how the standardsare implemented.
A detailed analysis by Zeff (2012) reveals that more rigorous enforcement mechanisms
are needed to strengthen the effort to ensure compliance with IFRS. Some compliance
studies show the important role of the standards’enforcement in enhancing compliancewith
IFRS (Al-Shammari et al., 2008; in Gulf Cooperation Council (GCC) member states; Cascino
and Gassen, 2015; in Germany and Italy; Glaum et al.,2013; across 17 European countries;
Sarquis et al.,2021; across 26 developed and emerging countries). However, these studies
ignore the effect of government quality as an enforcement mechanism. In developing
countries and more particularly the African ones, the enforcement of IFRS is a challenge
(Samaha and Khlif, 2016). Consequently, the intervention of governments may be
fundamental to ensure the higher reliabilityof financial reports. Previous studies show that
government plays a keyrole in enhancing financial reporting quality (Houqe et al.,2012)and
in enforcing accountingstandards (Chen and Zhang, 2010;Avram et al., 2015). In the context
of Africa, Sellami and Borgi (2020) provide evidence that countries with high-quality
governments are more likely to strongly enforce International Accounting Standards (IAS)
24 “Related party disclosures”. These studies measure government quality in terms of rule
of law, regulatory quality, political stability and absence of violence/terrorism, government
effectiveness, voice and accountability and control for corruption based on governance
dimensions developedby Kaufmann et al. (2008).
The African context is drawing significant attention from researchers, practitioners and
policymakers given the noticeable economicgrowth in Africa. In addition, mandatory IFRS
adoption and the transition to democratic governance in many African countries present
research opportunities for accounting and public policy research. Indeed, reforms were
introduced presumably to improve transparency, accountability and performance.
Moreover, some African countries have made great efforts to strengthen auditing and
reporting standards and a number of African countries have also published national codes
of corporate governance including Ghana, Kenya, Malawi, Mauritius, Tanzania, Uganda,
Zimbabwe and Zambia (Rossouw, 2005;Waweru, 2014). Despite these reforms and
achievements in accounting and audit standards, the enforcement of accounting standards
is a challenge in many developing countries (Mande, 2014;Samaha and Khlif, 2016;Sellami
and Borgi, 2020), which makes theAfrican context a unique setting worthy of consideration.
Tawiah and Boolaky (2019) also invite researchers to conduct empirical studies on the
African context, as it is typical in its socio-economic,cultural and business set-ups.
In their review of literature on IFRS in the continent of Africa, Tawiah and Boolaky
(2019) call for more investigationson the enforcement of IFRS in Africa to discover how best
to ensure compliance. In addition, Mnif and Borgi (2020) suggest that researchers look into
the country-level factors of compliance with IFRS disclosure requirements in the African
context to complement their study on the association between corporate governance and
compliance with IFRS in 12 African countries. Concerning compliance literature in the
context of Africa, Sellamiand Borgi (2020) provide evidence that countries with high-quality
governments are more likelyto strongly enforce IAS 24 “Related party disclosures”in eight
African countries.However, this study only focusses on one standard in only eightcountries
in Africa.
The present study fills the gap in the compliance literature and aims at examining the
effect of enforcement and more particularly the effect of government quality and stock
market development on IFRS compliance across 12 African countries. The importance of
this study arises from the fact that the standards setters and the regulators are concerned
with non-compliance with mandatory disclosure requirements (Schipper, 2005;Abdullah
IFRS
disclosure
requirements
61
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