To Adopt Or Not To Adopt? The Transnational Adoption of International Financial Reporting ...

296 Pages·2015·5.65 MB·English

To Adopt Or Not To Adopt?
The Transnational Adoption of International
Financial Reporting Standards (IFRS) in Africa

Inauguraldissertation
zur
Erlangung des Doktorgrades
der
Wirtschafts-und Sozialwissenschaftlichen Fakultät

der
Universität zu Köln

2015

vorgelegt
von
Master of Science Solomon George Zori

aus

Wa(Ghana)
Referent: Prof. Dr. Sigrid Quack
Korreferent: Prof. Dr. Mark Ebers
th
Tag der Promotion: 20 January 2015
i
Acknowledgement
I would like to thank everyone who contributed knowingly or unknowingly to the
development, writing and completion of this dissertation. I would first like to thank the Max
Planck Institute for the Study of Societies (MPIfG) in Cologne for accepting me into the
International Max Planck Research School on the Social and Political Constitution of the
Economy (IMPRS-SPCE). I thank the co-director of the Institute, Prof. Dr. Wolfgang Streeck
and congratulate him on his retirement, and also to Prof. Dr. Jens Beckert for the generous
funding opportunities provided for this project.
I would like to particularly thank my supervisors, Prof. Dr. Sigrid Quack and Prof. Dr.
Mark Ebers for the enormous support they have given me especially in encouraging me to
work very hard on this project. I particularly recall our initial encounter at the interview and
the joint decision to supervise my dissertation. I appreciate the guidance Sigrid provided me
while I was in Africa collecting field data and the time she made to read even poorly written
field report I wrote in order to provide me with constructive feedback.
This dissertation could not have been completed without the unconditional support of
the people at the Max Planck Institute who ensured that I never lacked any resource in the
conduct of my research. From the lively and supportive people in the library who will comb
through all libraries in Germany and beyond to obtain rather rare literature on my discipline to
the smiling people at the IT department who would do everything to get my computers
working. I cannot forget the enthusiastic staff at the publications unit to whom I owe gratitude
in multiple magnitudes. I particularly thank Ruth Hanisch, Susanne Hilbring and Astrid
Duenkelmann for all their support in coordinating various logistics towards the completion of
the project.
I cannot underestimate the contributions of my academic colleagues who at every step
of the way helped shape my ideas through informal discussions at lunch and coffee times.
Markus Lang, Philip Mader, Sebastian Botzem, Paul Lagneau-Ymonet, Annette Hübschle, Jan
Christoph, Jiska Gojowczyk, Ana Alfinito, Irina Espana, Mark Lutter and Marcin Serafin who
all at some point engaged me in thought provoking conversations on my ideas which greatly
improved my way of thinking and developing ideas. I thank the members of the research group
on institutional governance across borders who provided me the platform to present my work
and who were so kind enough to provide valauable feedback on the dissertation. I cannot leave
out the contributions of Christopher Pelger at the Chair of Financial Accounting and Auditing
ii
of the University of Cologne and participants of the the IMPR-SPCE doctoral colloquium, the
IMPRS summer conference in Columbia Univeristy-New York, the Accounting and
Convergence conference in Cluj-Napoca-Romania, the European Accounting Association
conference in Istanbul, and the C2GC Workshop at ESSEC Business School in Paris.
I acknowledge the assistance of the many institutions and organizations which
contributed to the empirical chapters of this dissertation. Firstly, I thank the Institute of
Chartered Accountants Ghana (ICAG) especially the Techincal Director Mr. Augustine Addo
who gave me access to the archives of the institute and provided further interview contacts in
Ghana. I thank both the Chief Executive Officer and the Head of Audit Monitoring
Programme of the ICAG for their assistance. I extend my warm regards to the Head of
Banking Supervision of the Central Bank of Ghana, the Ghana Stock Exchange and all the Big
Four Audit Firms in Ghana without whose help this study would not have been possible. The
contributions of the local offices of the World Bank in Ghana, Nigeria and Cote d’Ivoire is
greatly acknowledged as they openly provided access to their officials for interviews. I thank
the Institute of Chartered Accountants of Nigeria (ICAN), and the Liberian Institute of
Certified Public Accountants (LICPA); particularly its president Mr. N’nem Mombo for his
wonderful support while in Liberia. Great thanks to Mr. Christian Migan, the President of the
OHADA Accounting Secretariat, who hosted me in Benin and provided materials for the case
of French West Africa.
Finally, my sincere appreaciation goes to my family to whom I dedicate this
dissertation. This dissertaiton could never have been completed without the undying support of
my wife and daughter (Gwen Delmwini Zori) who was born in the middle of writing the
dissertation. I thank them very much and want to remind them that they are the reason behind
my motivation to finish this dissertation. I thank my mother, my sister, my uncle friends and
family who all had to bear with my continuous absence from family events to complete this
dissertation. In particular, I acknowledge the overwhelming contributions of my uncle John
Lawson, my sister Yvonne Chabah and my close friends at the University of Bonn and most of
all my wife Irene Zori.

iii
List of Tables
Table 1: Comparing Logics of Policy Adoption
 ....................................................................................
 29

Table 2: Logics of IFRS Adoption
 .........................................................................................................
 31

Table 3: Eco-Structure of International Accounting
 ..............................................................................
 34

Table 4: Phrases used to reference IFRS Adoption
 ................................................................................
 42

Table 5: Conceptualizing IFRS Adoption as a process
 ..........................................................................
 44

Table 6: ROSC Reports from Africa as at 2014
 .....................................................................................
 48

Table 7: Spread of ACCA membership in Sub-Saharan Africa
 .............................................................
 58

Table 8: International Accounting Firms Funding to the IASB
 .............................................................
 59

Table 9: Continental Split on IFRS adoption
 .........................................................................................
 65

Table 10: Sample Research Design and main findings
 ..........................................................................
 72

Table 11: Ghana Historical lending Arrangement with IMF
 ...............................................................
 85

Table 12: Qualifying Rate of Accountants by ICAG
 .............................................................................
 99

Table 13: Top 6 Accounting Firms in Ghana
 .......................................................................................
 101

Table 14: Choosing from alternatives. Approaches to IFRS Adoption in Ghana
 ................................
 107

Table 15: Financial Incentive for Accounting Standardization
 ............................................................
 114

Table 16: Institutional effects on IFRS adoption decision in Ghana
 ....................................................
 125

Table 17: Institutional Drivers of IFRS Adoption in Ghana
 ................................................................
 128

Table 18: Debt and Credit Arrangements with the World Bank (1960-2012).
 .........................................
 135

Table 19: Size of the Nigerian Banking Sector
 ....................................................................................
 136

Table 20: Development of listed companies on the Nigerian Stock Exchange
 ....................................
 141

Table 21: Market Capitalization in US$ of the Nigerian Stock Exchange
 ................................................
 141

Table 22: Market Capitalization as a percentage of GDP,
 .......................................................................
 141

Table 23: Size of ICAN Community in Nigeria
 ...................................................................................
 150

Table 24: Top 5 Audit Firms in Nigeria by Country of Origin
 ............................................................
 152

Table 25: Institutional effects on IFRS adoption decision in Nigeria
 ..................................................
 173

Table 26: Institutional Drivers of IFRS Adoption in Nigeria
 ...............................................................
 174

Table 27: Composition of Listed Companies on the BRVM
 ...............................................................
 181

Table 28: Institutional effects on IFRS adoption decision in Cote d’Ivoire
 .........................................
 202

Table 29: Institutional Drivers of IFRS Adoption in Cote d’Ivoire
 .....................................................
 204

Table 30: Timeline of Political Regime Change in Liberia
 ..................................................................
 207

Table 31: Post-War Public Debt of Liberia
 ..........................................................................................
 216

Table 32: Institutional effects on IFRS adoption decision in Liberia
 ...................................................
 225

Table 33: Institutional Drivers of IFRS Adoption in Liberia
 ...............................................................
 226

Table 34: Adoption Motivation over Time. Classical Two-Stage Model
 .................................................
 236

Table 35: IFRS Adoption in Ghana and Nigeria: A case comparative Analysis
 ..................................
 238

Table 36: Comparing IFRS Non-Adopters
 ..........................................................................................
 242

Table 37: Institutional Pressures and the Diffusion of IFRS
 ................................................................
 247

Table 38: Funding IFRS adoption in developing countries by the World Bank.
 .................................
 248

Table 39: Comparative Deterministic Institutional Variables of IFRS Adoption in Africa.
 ................
 250

Table 40: IFRS Adoption Actors and Motivation
 ................................................................................
 260

Table 41: Key Standards for Global Financial Stability
 ......................................................................
 263

iv
List of Figures
Figure 1: Calculative interactive effects of deterministic variables in IFRS adoption, adaption and non-
adoption in Africa.
 .................................................................................................................................
 12

Figure 2: EU IFRS Adoption Timeline
 ....................................................................................................
 45

Figure 3: Actors in the diffusion of IFRS
 .................................................................................................
 46

Figure 4: Completed and Published ROSC Reports.
 ..............................................................................
 48

Figure 5: Conceptualizing World Bank Poverty Reduction Strategy through Accounting
Standardization.
 .....................................................................................................................................
 50

Figure 6: Cumulative IFRS Adoption in Africa
 .....................................................................................
 63

Figure 7 IFRS Adoption status in Africa ................................................................................................. 64

Figure 8: Conceptual Framework in Analysing Research Question
 ..........................................................
 75

Figure 9: FDI Inflows in US dollars
 .........................................................................................................
 77

Figure 10: GDP Growth Rates
 ................................................................................................................
 77

Figure 11: Historical Development of Inflation in Ghana
 ......................................................................
 82

Figure 12: Stock Traded on the GSE, Total Value
 .................................................................................
 90

Figure 13: Historical Development of Companies Listed on the Ghana stock Exchange
 ......................
 91

Figure 14: Number of Qualifying Accountants Per annum
 ..................................................................
 103

Figure 15: Structure of Accounting Standard Setting in Ghana
 ..............................................................
 105

Figure 16: Timeline of critical events leading to IFRS Adoption in Ghana.
 ........................................
 108

Figure 17: Actor network, funding arrangements of the World Bank and Government of Ghana in the
adoption of IFRS
 ..................................................................................................................................
 116

Figure 18: Invitation Letters to Big Four Accounting Firms
 ...................................................................
 121

Figure 19: Responses to Invitation
 .......................................................................................................
 122

Figure 20: Nigeria Oil Rent as a percentage of GDP
 ...........................................................................
 131

Figure 21: Nigeria Trade Matrices as percentage of GDP.
 ......................................................................
 133

Figure 22: Nigeria GDP per capita.
 ........................................................................................................
 133

Figure 23:Nigeria Inflation Development.
 .............................................................................................
 133

Figure 24: Nigeria External Balance on Trade as percentage
 ..................................................................
 133

Figure 25: Evolution of Banking Regulation in Nigeria
 ......................................................................
 136

Figure 26: Development of the Nigerian Stock Exchange
 ...................................................................
 140

Figure 27: Mr. Akintola Williams. First Chartered Accountant in Nigeria.
 .........................................
 147

Figure 28: Number of Qualified Accountants at Independence in Nigeria
 ..........................................
 148

Figure 29: Specimen of the Nigerian Accounting Standards.
 ..............................................................
 154

Figure 30: Timeline of Critical Events leading to IFRS Adoption in Nigeria.
 ..........................................
 155

Figure 31: Framework for IFRS Adoption Transition in Nigeria
 ........................................................
 160

Figure 32: Structure of Accounting Standard Setting in Nigeria
 .........................................................
 161

Figure 33: Official Announcement of IFRS Adoption in Nigeria
 ........................................................
 163

Figure 34: Funding Arrangement from the World Bank for IFRS Adoption in Nigeria.
 .........................
 167

Figure 35: External Debt Stock of Cote d'Ivoire.
 ...................................................................................
 179

Figure 37: Cote d'Ivoire GDP per capital.
 ..............................................................................................
 180

Figure 37: Cote d'Ivoire financing arrangement with IMF, World Bank
 .................................................
 180

Figure 38: Development of the BRVM since 1988 Data
 ........................................................................
 181

Figure 39: Economic integration as a driver of diffusing accounting standards.
 ......................................
 188

Figure 40: Inter-Regional Arrangements on Accounting Standards Setting in SYSCOA-OHADA
 .........
 189

Figure 41: Timeline of Accounting Reforms in Cote d'Ivoire
 .................................................................
 190

v
Figure 42: Accounting Standard Setting Structure in OHADA
 ...............................................................
 194

Figure 43: Cumulative Growth in Expert Comptable and Accountancy firms in Cote d'Ivoire
 ...............
 201

Figure 44: Liberia GDP per capita
 .........................................................................................................
 208

Figure 46: Liberia External Balance on
 ..................................................................................................
 209

Figure 46: Liberia Trade metrics as a percentage of GDP.
 .....................................................................
 209

Figure 47: Liberia. Borrowing Relationship with IMF and World Bank.
 ............................................
 210

Figure 48: United States Aid to Liberia during civil war from (1990-2001)
 .......................................
 213

Figure 49: Timeline of Accounting Reforms in Liberia.
 ..........................................................................
 218

Figure 50: Structure of Accounting Standard Setting in Liberia.
 .............................................................
 220

Figure 51: Case Study Countries
 ..........................................................................................................
 264

vi
Abbreviations
Acronym Definition
A&A Accounting and Auditing
AAN Association of Accountants of Nigeria
AASB Australian Accounting Standards Board
ABWA Association of Accounting Bodies in West Africa
ACCA Association of Chartered Certified Accountant
AfDB African Development Bank
BIS Bank for International Settlement
BRVM Bourse Régionale des Valeurs Mobilières SA
CBL Central Bank of Liberia
CBN Central Bank of Nigeria
CNC National Accounting Council
CPD Continuing Professional Development
ECOWAS Economic Community of West African States
EEC European Economic Community
ERGP Economic Recovery and Governance Programme
EU European Union
FASB Financial Accounting Standards Board of the US
FINSAP Financial Sector Adjustment Programme
FRC Financial Reporting Council
FRCN Financial Reporting Council of Nigeria
FRS Financial Reporting Standards
G20 Group of 20 Countries
GAAP Generally Accepted Accounting Standards
GAS Ghana Accounting Standards
GDP Gross Domestic Product
vii
Acronym Definition
GNASB Ghana National Accounting Standards Board
GNI Gross National Income
GNP Gross National Product
GoG Government of Ghana
GSE Ghana Stock Exchange
HIPC Heavily Indebted Poor Countries
IAASB International Auditing and Assurance Standards Board
IAESB International Accounting Education Standards Board
IAS International Accounting Standards
IASB International Accounting Standards Board
IASC International Accounting Standards Committee
ICAEW Institute of Chartered Accountants of England & Wales
ICAG Institute of Chartered Accountants Ghana
ICAN Institute of Chartered Accountants of Nigeria
IFAC International Federation of Accountants
IFC International Finance Corporation
IFI International Financial Institutions
IFRS International Financial Reporting Standards
IMF International Monetary Fund
IOSCO International Organizations of Securities Commission
IPSAS International Public Sector Accounting Standards
ISA International Standards on Auditing
ISAR Inter-governmental Working Group of Experts on Accounting and
Reporting
JSE Johannesburg Stock Exchange
LICPA Liberian Institute of Chartered Public Accountants
viii
Acronym Definition
LSE London Stock Exchange
NASB Nigerian Accounting Standards Board
NGOs Non-Governmental Organizations
NSE Nigerian Stock Exchange
OCAM Africaine, Malagache et Mauricienne
OECD Organization for Economic Co-operation and Development
OHADA Organisation pour l'Harmonisation en Afrique du Droit des
Affaires
OPEC Organization of the Petroleum Exporting Countries
PAFA Pan African Federation of Accountants
PCG Plan Comptable General
ROSC Report on the Observance of Standards and Codes
SAICA South African Institute of Chartered Accountants
SAP Structural Adjustment Programme
SAS Statement of Accounting Standards
SEC Securities and Exchange Commission
SMEs Small and Medium-Sized Entities
SMOs Statement of Membership Obligations
SOEs State Owned Enterprises
SSNIT Social Security and National Insurance Trust
SYSCOA The West African Accounting Systems
ToT Training of Trainers
TQM Total Quality Management
UDEAC Economic Community of Central African States
UEMOA West African Economic and Monetary Union
UN United Nations
ix