Enforcement and accounting quality in the context of IFRS: is there a gap in the literature?

• DOI: https://doi.org/10.1108/IJAIM-08-2020-0126
• Published date: 29 January 2021
• Date: 29 January 2021
• Pages: 345-367
• Subject Matter: Accounting & finance,Accounting/accountancy,Accounting methods/systems
• Author: Adriana Silva,Susana Jorge,Lúcia Lima Rodrigues

Enforcement and accounting

quality in the context of IFRS:

is there a gap in the literature?

Adriana Silva

Faculty of Economics and Centre for Business and Economics Research,

University of Coimbra, Coimbra, Portugal

Susana Jorge

Faculty of Economics, University of Coimbra, Coimbra, Portugal and

Research Centre in Political Science, University of Minho, Portugal, and

Lúcia Lima Rodrigues

School of Economics and Management and Centre for Research in Economics and

Management, University of Minho, Braga, Portugal

Abstract

Purpose –Existing research has concludedthat accounting quality is influenced not only by the quality of

accounting standards,but also by enforcement systems. Therefore,enforcement is one of the key factors for

ensuring International FinancialReporting Standards’(IFRS) compliance and achieving accountingquality.

However, one still does not know what has been studied about this relationship in scientific literature.

Accordingly, the purpose of this paperis to identify, recap and evaluate the current state of research on the

relationship betweenIFRS enforcement and accounting quality, to providea critical overview of publications

in this field andto identify future areas of interest.

Design/methodology/approach –Supported by a structured literature review, this paper fills in a

research gap by conducting a scientometric analysis of papers on the relationshi p between IFRS

enforcement and accounting quality construed in a broad sense. It reviews papers published between

2006 and 2019 selected from the Web of Science database, particularly analyzing main journals, authors,

geographic areas of study, methods used, specific topics explored and future lin es of research to be

developed.

Findings –Main findings show a shortage of studiesanalyzing IFRS enforcement practices in individual

countries and, in turn, the impact these practices may have on the accounting quality. This gap calls for

furtherresearch to know the effectiveness of the IFRS-related enforcementmechanisms.

Originality/value –To the best of the authors’knowledge, no previousscientometric studies focused on

the enforcement of IFRS and accounting quality. This study fills this research gap and improves the

understandingabout what has been published on the topic, also proposing an agendafor future research that

can help regulatorsto adjust policies for the implementation and enforcement of IFRS.

Keywords Contentanalysis, Structuredliteraturereview, Accountingstandards, Researchdescription,

Scientometric study

Paper type Literature review

This study was supported by the Portuguese Foundation for Science and Technology (FCT) and

the Portuguese Ministry of Education and Science through national funds, being jointly funded

by the Research Center in Political Science, University of Minho (UIDB/ CPO/00758/2020), the

Centre for Research in Economics and Management, University of Minho (UIDB/03182/2020),

and the Centre for Business and Economics Research, University of Coimbra (UIDB/05037/2020).

Accounting

quality in the

context of

IFRS

345

Received6 August 2020

Revised24 November 2020

22December 2020

Accepted31 December 2020

InternationalJournal of

Accounting& Information

Management

Vol.29 No. 3, 2021

pp. 345-367

© Emerald Publishing Limited

1834-7649

DOI 10.1108/IJAIM-08-2020-0126

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

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

1. Introduction

Accounting quality has been defined by several researchers considering different

perspectives: the extent which the accounting information reflects the company’s

performance and/or financialposition (Barth et al.,2008;Chen et al., 2010;Hribar et al.,2014);

the extent which accounting information makes it possible to estimate the expected cash

flows (Callen et al.,2013); or the accomplishment of the qualitative characteristics of the

financial information (Legenzova,2016;IASB –International Accounting Standards Board,

2018). In this paper,all these perspectives are considered, meaning thataccounting quality is

understood in a broad sense, including but also going beyond the concept of financial

reporting quality, to encompass earnings management, value relevance and timely loss

recognition concepts,among others (Robu et al.,2016).

Soderstrom and Sun (2007) identified the determinants of accounting quality following

the adoption of International Financial Reporting Standards (IFRS) in the European Union

(EU). They concluded that, apart from the quality of the accounting standards, accounting

quality is also influenced by management,political and legal factors. Other authors, such as

Holthausen (2009),Hope (2003),Kabirand Laswad (2015) and Guerreiro et al. (2020), argued

that accounting qualityis only possible with a rigorous IFRS enforcementmechanism.

Enforcement is considered as a “compliance analysis”of the financial information

reported by an entity to ensure that the accounting standards, namely, IFRS, are being

properly implemented.It is a system to prevent, identify and take the necessary measures,in

cases of material error or omission in the applicationof IFRS (ESMA, 2014). The authorities

or bodies who control standardimplementation are called “enforcers”.

Over the past few years, IFRS enforcement has been acknowledged as increasingly

important (Anagnostopoulou, 2017;Daher, 2017;Duru et al., 2018;Eutsler et al., 2016;

Preiato et al., 2015). It is also recognized that enforcement plays a very important part in

encouraging the production of high quality financial information (Alexandre and Clavier,

2017;Brown et al., 2014;Christensenet al.,2013;Gu et al., 2019;Kavanagh, 2017;Leuz, 2010;

Oz and Yelkenci, 2018;Peña and Franco, 2017), hence playing a key role in accounting

quality.

Accordingly, it is important to assay whether the standards are being enforced and to

understand if this mechanism of control leads to an improvement in the quality of

accounting information. Previous literature reveals that the adoption of IFRS is important

for improving the quality of accounting information only if properly enforced (Guerreiro

et al.,2020). Enforcement is also necessary to enhance comparabilityand transparency of the

accounting informationdisclosed by companies.

Accounting quality (considering the different perspectives mentioned before) and IFRS are

vastly studied areas in the literature, especially if considered separately. On the other hand,

although the concept of enforcement appeared after the wide acceptance of IFRS (in the EU,

particularly from 2005), enforcement mechanisms have not yet been implemented in some

countries or, where implemented, the consequences and impacts of enforcement on the quality

of accounting information have not been empirically assessed (ESMA, 2017;Mantzari and

Georgiou, 2019). This may justify the scarcity of literature about enforcement and IFRS.

Given the significance of accounting information for society in general, IFRS

enforcement and accounting quality turns out to be a very relevant topic. It is, therefore,

important to provide researcherswith an overview of what has, or has not yet, been done in

terms of research in these areas. A structured literature review is appropriate to provide

critical insight into this field, allowing to improve understanding of IFRS enforcement and

accounting quality, to gain a broad view of the current situation and to explore research

opportunities for the future. According to Massaro et al. (2016), it is necessary to scrutinize

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