Has the harmonisation of accounting practices improved? Evidence from South Asia

• Pages: 327-348
• DOI: https://doi.org/10.1108/IJAIM-12-2014-0082
• Published date: 05 October 2015
• Date: 05 October 2015
• Author: Kamran Ahmed,Muhammad Jahangir Ali
• Subject Matter: Accounting & Finance,Accounting/accountancy,Accounting methods/systems

Has the harmonisation of

accounting practices improved?

Evidence from South Asia

Kamran Ahmed and Muhammad Jahangir Ali

Department of Accounting, La Trobe University, Melbourne, Victoria, Australia

Abstract

Purpose – This paper aims to examine whether the level of harmonization of accounting measurement

practices in three South Asian countries – Bangladesh, India and Pakistan – has improved since 1998 as

a result of the changes, in recent years, globally in accounting measurement practices due to the

substantial efforts of the International Accounting Standards Board (IASB). South Asian countries

have taken a number of steps and made changes in accounting regulations to support the IASB’s

harmonization programme.

Design/methodology/approach – In all, 370 non-nancial companies for the nancial years

1997-1998 and 2007-2008 were used, and consistent with Ali et al. (2006), Van der Tas’s (1988) I index

and Archer et al.’s (1995) modied C index were used to measure the extent of harmonization.

Findings – It was found that the level of measurement harmonization has signicantly improved over

the years in selected South Asian countries.

Originality/value – The results suggest that the harmonization of accounting will most likely ensure

a greater level of transparency and uniformity in corporate reporting practices (measurement) in South

Asian countries and throughout the world as promoted by the IASB.

Keywords South Asia, Harmonization of accounting methods, Regulatory changes

Paper type Research paper

1. Introduction

The purpose of our study is to examine whether the level of accounting measurement

harmonization has improved over time in three South Asian countries. Measurement

harmonization can be dened as limiting the differences in the number of alternative

accounting methods available for measuring the impact of similar economic

transactions (Van der Tas, 1988). According to Tay (1989), harmonization is a

movement away from total diversity of practices (a state in which each rm uses

accounting methods that differ from those used by all other rms).

The mandatory adoption of the International Financial Reporting Standards (IFRS)

is one of the most signicant events in nancial reporting in recent decades following

the establishment of the IASC in 1973 (later replaced by the International Accounting

Standards Board [IASB] in 2001) to harmonize accounting standards throughout the

world. To achieve harmonization of accounting and reporting practices globally, the

The authors would like to acknowledge the nancial support of La Trobe University and helpful

comments and suggestions from Darren Henry. They would also like to thank Alamgir Hossain

Sarkar and Iftekhar Hasib for their assistance with data collection. Any remaining errors are the

authors’ alone.

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

www.emeraldinsight.com/1834-7649.htm

Harmonisation

of accounting

practices

327

Received 22 December 2014

Revised 18 January 2015

Accepted 19 January 2015

InternationalJournal of

Accounting& Information

Management

Vol.23 No. 4, 2015

pp.327-348

©Emerald Group Publishing Limited

1834-7649

DOI 10.1108/IJAIM-12-2014-0082

IASB has been gradually promulgating IFRS for all countries to adopt. The claimed

benets of harmonized accounting standards are to:

• facilitate international transactions;

• produce high-quality nancial reporting; and

• to increase efciency of capital markets by reducing information asymmetry and

lowering the cost of capital (Ball, 2006;Choi and Meek, 2005;Bae et al., 2008).

Since 2005, more than 120 developed and emerging economies have adopted IFRS for all

reporting their entities (Deloitte Touche Tohmatsu, 2012).

While some countries have adopted all IFRS as their national accounting standards

in a particular year, for example all European Union (EU) countries and Australia in

2005, many others decided to harmonize their national accounting standards with IFRS

gradually over several years. In the latter case, South Asian countries such as India,

Pakistan and Bangladesh have taken steps and made changes in their national

accounting regulations and standards in collaboration with regional professional

accounting bodies to align with IFRS before their full implementation. For example,

while India’s accounting standards are developed following International Accounting

Standards (IAS), Bangladesh and Pakistan have already adopted IAS/IFRS. Recently,

India nally decided to adopt IFRS in 2015 after years of gradual alignment since the

late 1990s.

In the past few decades, several researchers have argued that international

harmonization could be achieved through regional harmonization. For example,

Mathews and Perera (1996) suggest that regional harmonization leads to global

harmonization if the various harmonizing agencies operating in different parts of the

world cooperate with one another in developing harmonized accounting standards and

procedures. To this end, a number of global and regional organizations have attempted

to harmonize accounting standards on a regional basis. For example, the International

Federation of Accountants (IFAC) has encouraged the formation of regional agencies,

and the EU being the most prominent among the regional agencies to promote

harmonization in accounting practices in their respective member countries. Besides the

EU, there are several other regional agencies such as the Federation des Experts

Comptables Europeens, the Confederation of Asian and Pacic Accountants and, in the

developing nations, the African Accounting Council, the ASEAN Federation of

Accountants and the South Asian Federation of Accountants (SAFA).

The SAFA was established in 1984 as an apex body of the South Asian Association

for Regional Cooperation (SAARC) and a Regional Grouping of IFAC to develop

accounting profession in the region. A major objective of the SAFA is to harmonize

nancial reporting practices in South Asia. This is consistent with Raman (2011), who

contends that regional and international harmonization of accounting methods is vital

to develop intra- and extra-regional investment. This is due to the fact that intra-regional

cross-border investment is growing signicantly in SAARC countries. He also stresses

that South Asian countries require substantial amounts of equity investments if they are

to be a signicant hub of global growth. It is posited that harmonization of accounting

methods will likely help investors to make their investment decisions in this region. As

a result of such efforts by national and regional accounting bodies, it is expected that

differences in reporting practices in and between countries will decline signicantly.

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