Diffusion of IFRS using innovation diffusion models

• DOI: https://doi.org/10.1108/IJAIM-01-2020-0002
• Pages: 685-701
• Date: 29 May 2020
• Published date: 29 May 2020
• Author: Niharika Dayyala,Syed Kashif Raza Zaidi,Kallol Bagchi
• Subject Matter: Accounting/accountancy,Accounting methods/systems

Dif‌fusion of IFRS using innovation

dif‌fusion models

Niharika Dayyala

Department of Accounting, College of Business, Illinois State University, Normal,

Illinois, USA

Syed Kashif Raza Zaidi

Department of Accounting and Business Law, College of Business,

Louisiana State University Shreveport, Shreveport, Louisiana, USA, and

Kallol Bagchi

Department of Accounting and Information Systems,

College of Business Administration, The University of Texas at El Paso,

El Paso, Texas, USA

Abstract

Purpose –This study aimsto examine the diffusion pattern of InternationalFinancial Reporting Standards

(IFRS) into the countriesand identif‌ies the channels of diffusion.

Design/methodology/approach –Data includes 98 countries that made a public commitment to IFRS

adoption from 2000 to 2016. Adoptee countries are categorized based on Rogers’adopter categorizations to

understand countrycharacteristics. Innovation diffusion models suchas internal inf‌luence, external inf‌luence

and bass diffusionthat explain diffusion patterns are appliedto the cumulative adoption of IFRS. Coeff‌icients

of internal and external diffusion are obtainedusing the models to explain the mode of diffusion pattern of

IFRS. Furthertests are done to identify the best model that explains IFRSdiffusion.

Findings –Findings show that IFRS diffusion is a result of external inf‌luence through vertical

communication from a centralized body (IASB) and internal inf‌luence due to imitation and interpersonal

communication between countries. Imitation effect among the countries has a stronger effect on the IFRS

adoptioncompared to the communication obtained fromIASB.

Practical implications –Findings obtained can help standards-setting bodies, organizations and

countries to understand the potential future of adopters and non-adopters. It facilitates the standard-

setting bodies to manage IFRS diffusion by implementing measures to spread the word on the benef‌its

of IFRS.

Originality/value –The study generates valueby modeling a successive increase in the number of IFRS

adopteecountries using empirical methods and identif‌iesthe reasons for the diffusion life cycle of IFRS.

Keywords IFRS, Diffusion, Innovation diffusion models, Rogers’adoption categorization

Paper type Research paper

1. Introduction

Globalization has bridged several economicbarricades over the past two decades leading to

an unremitted push for accounting harmonization. The thrust for reliable and comparable

accounting statements acrossthe countries incited widespread adoption of the International

Financial Reporting Standards (IFRS) (Felski, 2015;Trabelsi, 2016). Approximately, 120

nations and reporting jurisdictions permit or require IFRS for domestic listed companies

among which 90 countries have fully conformed to IFRS by issuing a statement

acknowledgingtheir conformity in audit reports (AICPA, 2016).

Dif‌fusion of

IFRS

685

Received3 January 2020

Revised12 March 2020

Accepted4 April 2020

InternationalJournal of

Accounting& Information

Management

Vol.28 No. 4, 2020

pp. 685-701

© Emerald Publishing Limited

1834-7649

DOI 10.1108/IJAIM-01-2020-0002

The current issue and full text archive of this journal is available on Emerald Insight at:

https://www.emerald.com/insight/1834-7649.htm

The widespread adoption of IFRS has drawn great interest on investigating the

determinants and consequences of adopting IFRS (Zaidi and Huerta, 2014;Zaidi and Paz,

2014;Jung et al.,2016;Houqe, 2018). Researchers f‌ind the after-effects of accounting

standard harmonization as transparency in accounting statements (Bhat et al.,2016),

f‌inancial market integration (Dhaliwal et al., 2019), audit eff‌iciency and accuracy (Zhang,

2018) and reduced earnings management(Dayanandan et al.,2016). Thus, a great number of

studies explain the nuancesof implementing common accounting standards at the f‌irm level

(Ipino and Parbonetti, 2017;Onali et al., 2017;Bassemir, 2018;Neel, 2017) and country-level

(Juhmani, 2017;Mazzi et al., 2019;Zeng, 2019;Guermazi and Halioui, 2020), but do not

explain the spread of IFRS across countries over time. Dufour et al. (2014) note that a

majority of IFRS studies focuson IFRS adoption and ignores IFRS diffusion. In other words,

the evolution of the system as a whole is ignored. Koning et al. (2018) postulate that the

drivers of institutional changes in the accounting standards are yet to be explored. Tawiah

and Boolaky (2019) propose the adaptation of diffusion theories to explain why countries

adopt IFRS.

Any incepted novel innovation or an idea must be adopted and diffused to people,

organizations and countries. Diffusion studies can provide valuable insights about the

prediction of the continued development of the adoption process of an innovationover time.

They facilitate the explanation of diffusion dynamics in terms of general characteristics.

According to Peres et al. (2010,p. 92), innovation diffusion is the:

[...] process of market penetration of new products and services, which is driven by social

inf‌luences, such as, interdependencies among consumers that af‌fect various market players with

or without their explicit knowledge

In this study, we identify IFRS as an accounting innovation in accordance with the Rogers’

(2003, p. 12) def‌inition of innovationas “any idea, practice or object that is perceived as new,

by an individual or other unit of adoption.”

To date, very few studies (Dufour et al., 2014;Koning et al.,2018;Elmghaamez, 2019;El-

Helaly et al.,2020) have explored the diffusion process of IFRS. Given the presenceof a very

few studies, we deem that the evolution and spread of the system over time is yet to be

explored from a diffusion perspective. Therefore, to f‌ill the void found in accounting

literature, we apply mathematicalmodels of innovation diffusion theories to investigate the

diffusion pattern of IFRS. Our study examines the adoption of IFRS from an outward view

of countries by identifying communicationchannels between the actors in the IFRS system

rather than countries’institutional and economic theory perspective. Communication

channels are the means by which information about the innovation is transmitted within a

social system. To the best of our knowledge, no study is conductedto examine the diffusion

of IFRS using innovationdiffusion theories.

This research explains the dynamics of the global diffusion of IFRS by classifying the

countries based on Rogers adopter categorization and identif‌ies the communication

channels of IFRS diffusion leveraging on the innovation diffusion theory. Country

classif‌ication helps examine the characteristics of countries that have a high propensity to

adopt IFRS and helps the standard-setting bodies to target prospect countries for adoption.

Identifying the drivers of diffusion with innovation diffusion models will assist in

understanding the major reasons for the continued spread of IFRS at the global level,

developing strategiesfor further penetration and predicting continued acceptance of IFRS.

Thus, we address the following researchquestions:

RQ1. Which inf‌luencemodel best explains the adoption process of IFRS?

IJAIM

28,4

686