Key Groups Using International Financial Reporting - Dissertation Example

?Dissertation Table of Contents 2 Research Objectives 7 Chapter The Problem and Its Background 1 Introduction The International Financial Reporting Standards or commonly known as IFRS is one of the most significant changes in the history of accounting. Many companies worldwide have adopted its standards and even American companies have bee allowed to format their financial reports according to IFRS (US Securities and Exchange, 2007). Differences in financial reporting is tantamount to transactions being recorded in various ways. Thus, financial reports recorded in this manner make it harder to compare financial reports. This issue has been said to be solved by implementing a standard reporting system or global accounting standards (Hawkins, 2000). Standardized financial reporting has been implemented based on the assumption that it can increase the comparability of financial statements, increase the quality of financial reports, and improve corporate transparency especially in terms of incentives. It has also been determined to be created as a result of the increase in the number of multinational companies or MNCs (Nobes and Parker, 2006). Moreover, Bolt-Lee and Smith (2009) included increase in reporting consistency, better global competition, and increase in the transparency of financial reporting as the benefits of international financial reporting. Moreover, the International Monetary Fund (IMF) in 1999 stated that the financial systems of developing crisis, especially those experiencing financial crisis, can be strengthened by enhancing the financial reporting regulations and practices. Jainkengit (2002) reported an improvement in the economy of Thailand as a result of enhanced financial reporting regulations and practices and transparency or greater disclosure on financial information. Similarly, a study by Daske, Hail, Leuz, and Verdi (2008) explored the effects and consequences of mandatory IFRS (International Financial Reporting Systems) reporting. The results of the study determined that mandatory IFRS reporting have positive benefits although such benefits are more pronounced among companies who voluntarily adopted IFRS reporting. Specifically, the study determined that companies in a financially rigid environment benefits more in financial reporting. The benefits include increase in stock market value, market liquidity, and lower capital costs. Lastly, the study determined that financial reporting standards are most effective under a strict and strong regulating environment. This is most evident in a study by Barrett (1996) where it was determined that financial reports among American and British companies are more comprehensive because of their disclosure requirements. However, there are factors that affect financial reporting among corporate companies. There is an immense role to be played by economic and political forces in what concerns the shaping of accounting. A study by Suttachai and Cooke (2009) enumerated several factors that affect international financial reporting. The important factors discussed are the environment and culture, wherein environment stands for the legal system, economic system, and other institutional factors. Cooke and Wallace (1990) agree by stating that the environment wherein the company is located can greatly affect financial reporting. Thus, despite the homogeneity in the standards for international financial reporting, it still varies depending on various factors, specifically and most especially in terms of its location and culture. It only imply that although they follow the same standards or format for reporting, the quality of data and the means on which they measure still varies (Suttachai and Cooke, 2009), which is ultimately the purpose of standardizing financial report systems: to decrease and eventually eliminate variation (Nobes and Parker,2006). On the other hand, Choi (2002) stated that harmonization or standardization of financial practices and reports increase the comparability and compatibility of financial reports by limiting the aspects on which they can vary. Walton (2003) agrees by stating that standardization is merely reducing their differences and variation, especially between companies of different locations. Moreover, the pace with which financial reporting practices in different countries convergences are also heterogeneous (Ding, et al., 2005). Bolt-Lee and Smith (2009) reported an occurring convergence between US GAAP (Generally Accepted Accounting Practices) and IFRS. Convergence between US GAAP and other national reporting standards with IFRS are occurring in US, however not the same can be said to other countries. The pace of convergence may be different in contrast to developed countries. It may also vary depending to the type of regulating environment. In 2010, an article by Topazio reported that convergence in the US have been successful however it is not as successful in Europe. Majority of European companies utilizes IFRS but not all re reported to satisfies with the current situation. Chinese companies are still adhering to Accounting Standards for Business Enterprises (ABSE), although it is somehow similar to IFRS. Japan has also been reported to adopt IFRS although making IFRS mandated for all companies are still under consideration. Indian companies are still under the transitional phase towards the adoption of IFRS-equivalent standard. This report not only shows that although there is a linear movement towards convergence to IFRS, not everyone is in the same phase. Some are already successful while some are still using IFRS equivalent (Ball, 2006). As a consequence, it is almost inevitable that there is an integration of financial reporting standards, given the globalised world in which these economic and political factors become more and more important in the context of business, and therefore in the context of accounting practices and reporting. To that extent, it has mostly contributed to decreasing communications and information processing costs (Ball, 2006). The practice of reporting accounting techniques and a company’s accounts has therefore to be the most homogeneous for a series of reasons, but mostly to facilitate and improve the transparency of markets. These are two main issues in what relates the international financial reporting practices: the homogeneity of these practices and the key actors to which this convergence matters most; the international users of accounting reports. One can argue that the more transparent and homogeneous these international reporting systems are, the more transparent markets become and the process of investment internationally is eased. Despite the necessity of a highly integrated and converged international reporting system, it seems that problems still persist in regards to the convergence of these practices, as can be seen in the work by Ball (2006, p. 5): ‘But most market and political forces will remain local for the foreseeable future, so it is unclear how much convergence in actual financial reporting practice will (or should) occur. Furthermore, there is little settled theory or evidence on which to build an assessment of the advantages and disadvantages of uniform accounting rules within a country, let alone internationally’. 1.2 Research Objectives The main objective of this research is to identify whether a common accounting model can be followed in the different markets throughout the world. There are several sub-objectives that are required to be attained in the process of achieving this main objective. Some of the important sub-objectives are as follows To identify cultural issues of adopting one accounting system To identify arguments and evidences on accounting are culturally based and the moves towards harmonisation would lead to discomfort and possibly fail To identify arguments and evidences on accounting is economic based and the movement to harmonization would not lead to discomfort and failure 1.3 Research Questions What are the cultural barriers to the internationalization of accounting standards? What are cultural issues faced by western countries and developing countries? Can western accounting practices be applied successfully in developing countries? In order to achieve the research aims and answer the research objectives, the study will use a qualitative research approach, specifically a descriptive research design. Being qualitative in approach, the study will not be using any statistical tests or primary data but will rather focus on utilizing secondary data. The secondary data used in the study are mainly from journals, although institutional data, official statistics, and newspapers reports are also used. 1.4 Scope and Limitation The purpose of the study is to explore the financial reporting practices and identify whether a single financial reporting standard can be used or applied for companies worldwide. The companies are categorized in terms of size, private or public, listed or unlisted, and international or domestic. The study will be descriptive in nature, thus it will not identify or determine the effects, whether positive or negative, of financial reporting practices. Also, the study will be limited in terms of the data used: the study will focus and solely use secondary data. No primary data will be utilized. 3.0 Methodology 3.1 Introduction This section discusses the research methodologies that will be employed by the researcher to be able to answer the questions put forth in the first chapter. This section includes the research approach, research design, a description of the sample and sampling technique to be used. Each was discussed individually and in detail, emphasizing the rationale why the design and procedures are appropriate for use in the study. This is very important because choosing the correct and proper research approach, design, sample, and procedure acts as a binding agent that will connect and bridge all the chapters in the study (Trochim, 2006). 3.2 Research Approach The current study utilizes a qualitative research approach. Qualitative research approach by definition is a type of research that is commonly used for qualitative phenomena. By nature it is non-numerical, meaning, it does not make use of statistical tests or analysis. A qualitative research on the other hand utilizes reasoning. Its data are commonly in the form of words thus analysis can be achieved thru reasoning. The main purpose of a qualitative research is to observe and study patterns. It can also act as an instrument to explore and study human behavior and the world thru descriptions of experiences. This kind of qualitative research requires skills in describing and illustrating (Myers, 2002). A qualitative research also has the following characteristics: first, the research aim of a qualitative research is detailed, complete, and descriptive. Second, its data are in the form of words, not numbers. Third, the type of data analysis in a qualitative research is subjective which implies that the judgment and reasoning skills of the researcher is very important because the interpretation greatly relies on the researcher’s interpretation on the events that transpired (Neil, 2007). Moreover, a qualitative research focuses primarily on the research process and not on the outcome of the study. It aims to observe and understand behavior and how people make sense of the world they are living in. As such, it requires direct communication and interaction with the group of people being observed. Field works are common in a qualitative research because the researcher needs to personally observe, interact, and immerse himself into the field (Neil, 2007). According to Polit and Beck (2004) a qualitative research aims to answer the questions ‘why’ and ‘how’ for phenomena like people’s attitudes, value systems, concerns, motivations, aspirations, cultures or lifestyles, thus data gathered thru qualitative research approach may serve as information for business decisions, policy information, communication and researches. It greatest difference from quantitative research is its independence from statistical tests and statistical analysis, or simply the use of numbers. Data are usually gathered from focus groups, in-depth interviews, content analysis, ethnography, or evaluations. Qualitative research is divided into five types: case study, grounded theory, phenomenology, ethnography, and historical qualitative research. A case study explores cases about an individual, event, groups, or institutions, in-depth in order to answer questions about a phenomenon. Grounded theory, on the other hand, uses induction and data gathered by a participant-observer. Phenomenology describes experiences without the help of theories, deduction or assumptions while ethnography focuses on meaning through close field observation of a phenomenon. Its primary focus is communities. Lastly, historical qualitative research tests hypotheses, causes, and effects through systematic collection and objective evaluation of past data. It helps understand present phenomenon and anticipate future phenomenon (O’Brien, 2009). Marshall and Rossman (2006) on the other hand did not focus on the advantages of a qualitative research but rather on common problems that are encountered when conducting a qualitative research. The first problem is making a framework that is fit and appropriate for the study. Second is finding a research design that is systematic, concise and at the same time flexible. Lastly, is making the study coherent and will connect or bind all the important factors of the research. 3.3 Research Design Lankshear (2009) also stated four points underscoring the importance of a proper research design. First, it was emphasized that a research study is a logical process: thus, the procedure on how to collect data and the data itself should be coherent with the questions asked in the study and the problems that the study is trying to explore. Second, the research design helps in clarifying the questions, purpose of the study, problems and what are already known about the problem. Third, is that a proper research design allows the researcher to collect and gather the correct data to be used in the study as well as the proper quantity or amount of the data needed. Lastly, it allows the researcher to properly analyze the data gathered. According to Kerlinger (2009), a research design is the plan, structure, and strategy of a research study that is conceived to answer questions and problems related to the study. The current study will use a descriptive research design. A descriptive research design wherein the main focus is exploring the phenomenon by specifically answering questions like who, what, when, where, and how. It is factual and simple although it demands great scientific skills on the part of the researcher. A descriptive research design is also structured, rigid, and not flexible, thus it is important that the questions, data gathering procedure, and type of data collected are coherent. A descriptive research design is limited to describing events, phenomenon or the characteristics of a group of people or institutions. It cannot identify cause and effect relationships between variables, thus it has to be used for definite purposes. For example, it can describe the type of consumers of a certain product, their educational background, income, and sex, but it cannot identify if there is a relationship between sex and the consumption of the product (Kerlinger, 2009). There are two types of descriptive research, cross-sectional and longitudinal. Cross-sectional descriptive research commonly utilizes field studies and surveys. Cross-sectional studies which utilizes field studies commonly focuses on life situations like organizations or institutions. In this type of study, the researcher has to immerse his or herself on the field and observe the variables in a real setting. It counts the occurrences of the phenomenon being observed simultaneously. Although direct observation is one of the strengths of this type of cross-sectional study, it is by far inferior in contrast to laboratory experiments (Kerlinger, 2009). Longitudinal cross-sectional research on the other hand is focused on panel methods and panel data. In this type of research the data is gathered not just once but in a series of data gathering using the same sample, thus it is able to identify if there are differences on the factors being observed. Panel data have been determined to be more accurate than data gathered through surveys however its limitations include keeping the interest of the panel member in participating in the study. Since it will be a series of data gathering, some panel member loses interest and leaves the panel. The present study uses a cross-sectional,descriptive, qualitative research approach in determining a common accounting model that can be followed in the different markets throughout the world. This is carried out through the qualitative analysis of secondary data. 3.3.1 Secondary Data The study uses a qualitative approach, and the data that will be used would be secondary data. Secondary data are a type of data gathered and collected by another person for different purposes Coming form the name itself, it is a second-hand data. Secondary data includes medical records, administrative records, official statistics, diaries, video recordings, transcripts, and data from existing journals. This type of data is appropriate for research whose focus is to test hypothesis using existing data (Boslaugh, 2009). Using secondary data has many advantages, the first of which is that it is more economic, that is it cost less and is also less time consuming. Secondary data have already been gathered thus the researcher need not invest on data gathering. Other means of gathering data like interviews are also comparatively cheaper than gathering primary data. Moreover, it saves time because the data are already collected (Boslaugh, 2009). Another advantage of using secondary data is the wide range of available data. Various journals are available on online databases like EbscoHost and are very accessible. Newspaper clippings and official statistics are also very accessible. Moreover, secondary data are collected and gathered by experts and professionals. However, despite various advantages, there are also disadvantages in using secondary data, one of which is data fit. Since the data are collected by a different person for different purposes, it is not easy to gather data that would fit the purpose of your study. Another disadvantage of secondary data is that because the researcher did not actually gather the data, he/she is not knowledgeable on the process on how the data was gathered (Marshall and Rossman, 2006). Secondary data is also divided into internal and external secondary data. Internal secondary data are data that already exist within an organization or institution. It usually comes in the forms of financial data, personnel data, production data, and sales and marketing data. It may come from a different department or location of an organization. It is commonly collected for the organization’s purposes. External secondary data are the opposite of internal secondary data. This type of data already exists but was gathered or collected outside of the organization (Marshall and Rossman, 2006). Data Gathering Being qualitative in nature, the study will be using data from previous researches, or what is commonly termed as secondary data. No primary data were used in the study and only secondary data that will be able to satisfy the inclusion criteria will be included in the study. The inclusion criteria are as follows: 1. It must be data in the forms of journals, newspapers articles, official statistics, and institutional data. 2. If it is in the form of journal, it must be complete. Abstracts only are not acceptable. 3. It is relevant to the study. 4. The data are recent. The secondary used in the study will range from academic journals, industry reports, press articles, newspapers, and internet sources. Although the study used a wide range of data, the researcher will check if the data are relevant to the purpose of the study, as well as its authenticity. The study will limit the use of internet sources but will focus on data from academic journals from databases like EbscoHost. These databases are available online and are very accessible. However, not all databases offer complete articles. The researcher will use specific keywords and read the abstract to ensure that it is relevant and that the data is fir for the study. Once the adequate quantity of data is gathered, the researcher will do an in-depth analysis of the data. Similarities, differences and gathering procedure will be compared and contrasted. Diagrams and tables may be used to emphasize differences and similarities. Documentary Analysis After gathering data, the researcher will then analyze the data gathered. Since the study used a qualitative research approach the study cannot utilize statistical tests in analyzing the data gathered. In order to analyze the data gathered, the study will utilize the method of documentary analysis. Documentary analysis is a useful method or means when investigating decision making within an organization (Forster, 1994). It is very useful because of its ability to utilize existing data, an unobtrusive means of gathering and analyzing data. It is a useful tool when focusing on socio-historical research. Documentary analysis covers a wide range of data like statistics, photographs, text, and even visual data. It included newspapers, books, magazines and even government minutes as a source of data. However, despite the wide range of possible sources of data, the researcher must look into the relevance of each data. This method of analyzing data commonly consists of comparing existing data, identifying points of similarities, areas where they are different, and the process on which the data was gathered. When using documentary analysis it is very important to use journals with complete information on data gathering, thus abstracts of journals are not sufficient. The data will be analyzed based on guide questions (Critical Appraisal Skills Program, CASP) categorized into questions for critical appraisal on the research design, conduct of research, and outcomes of the research. CASP is a guide and at the same time a process, thru which a researcher may be able to evaluate, appraise, and analyze a research study. It specifically measure if the material is valid, if it has been conducted properly, and if the data is applicable. The most important part of a research study that will be appraised is the methodology part, thus journals containing only the abstract cannot be used in the current study. Although abstracts have information on the process and methods used, it simply is not comprehensive. The first category focusing on the research design, the data will be criticized based on the following questions: 1. Is the research title defined and apt? Does it give you a clear idea about the research? 2. Is the research purpose, aim, and objectives well defined? 3. Is the literature review comprehensive and related to the topic of the study? 4. Are the references used in the study cited appropriately? Are they published recently and are updated? 5. Are the tools, procedures, and methodologies utilized in the study valid and reliable? 6. Are the statistical tests utilised in the research expounded on enough and clearly? Are the way the data presented defined and useful in comprehending the outcomes of the study? The second set of questions focusing on the conduct of the research is composed on the following questions: 1. Did the study transpire as planned? 2. Are the outcomes of the research clearly and comprehensively expounded on? 3. Are the outcomes of the statistical tests generated and analyzed properly? 4. Were significant differences and associations tested and discussed? 5. How accurate, valid, and reliable are the research outcomes? 6. Are ethical considerations addressed well during the course of the study? And lastly, the third category focusing on the research outcomes includes the following questions: 1. Are the main outcomes and highlights of the findings clearly, properly, and comprehensively tackled? 2. How is the research hypotheses given meaning based on the research outcomes? 3. Are the conclusions valid and properly supported by the other data in the research? 4. Are the conclusions consistent with the research objectives? 5. How did the study compare the primary findings to other data? Were they similar or not? 6. What are the applications and practical significance of the research outcomes? Using this guide, the researcher will be able to analyze the data systematically and more easily. It may also avoid bias since all data are subjected to the same questions. Using this guide, the researcher will be able to analyze the data systematically and more easily. It may also avoid bias since all data are subjected to the same questions. Summary In summary, the study will be using a qualitative approach, specifically a descriptive research design. A qualitative research approach does not utilize statistical analysis but rather data that are in the form of words and reasoning. A descriptive research design on the other hand is focused on exploring and describing a phenomenon rather than determining relationships and cause and effect relationships. Using this research approach and design, the study will be using only one type of data: secondary data. Secondary data are basically data gathered by different people fro different purposes. It may take various forms like diaries, video recordings, interviews, official statistics, and even newspaper articles. The study will be focusing more on journals that are available online, which will significantly reduce data gathering costs as well as time consumption. The data are randomly chosen although a search strategy is also used. The data to be used are subjected to an inclusion criteria and its relevance will be checked by reading thru the abstract. Once an adequate amount of data is gathered it will be analyzed using a process called CASP, which is composed of a series of questions divided into research design, research conduct, and research outcomes. The next chapter of the study, the results and discussion, will focus on the data gathered, the researchers interpretation, and the answers to the research questions on Chapter 1. Graphs and diagrams may be used to better understand the results or findings of the data. Thematic table and spider diagrams are specifically helpful in illustrating the points of convergence, areas or similarities, and points of divergence between studies. References Alexander, D, Britton, A & Jorissen, A 2007, International financial reporting and analysis. Thomson. Abdallah, WM 2001, Managing multinationals in the Middle East: accounting and tax issues, Greenwood Publishing Group. American Institute of Certified Public Accountants. n.d. International Financial Reporting Standards (IFRS). Available at: http://www.pcfr.org/downloads/06_08_Meeting_Materials/IFRS_Backgrounder_AICPA.pdf [Accessed on November 20, 2010]. Anonymous (n.d.) International accounting patterns, culture, and development. 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