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International Financial Reporting Standards Impact

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The adoption rate of International Financial Reporting Standards (IFRS) has been on the ascendency since its inception in 1973. The number of countries that have adopted IFRS as a basis for financial reporting are more than hundred with others agreeing to converge or adopt it by 2011 (Deloitte, 2008). The need for transparency and comparability of financial statement across countries has increased the desire to adopt a single set of global financial accounting reporting standards (IFRS Insight: IASplus, 2008). Trade liberalisation and globalisation of capital markets have given further impetus towards the adoption of IFRS as a single set of high quality globally accepted accounting and reporting standards as against national accounting standards. The contributions of high quality financial reporting systems in national jurisdictions that experience high economic growth, stable fiscal and monetary systems and access to international investment funds cannot be overemphasised (Wong, 2004). The need to ensure high quality reporting has forced both developed and emerging capital markets to adopt or converge with IFRS, their national accounting standards.

Emerging Capital Markets (ECMs), which constitute a significant part of the global financial market, compete with their developed counterparts for investment funds due to globalization of businesses and integration of capital markets. This exposes the financial reporting information in ECMs to international scrutiny. It has been suggested that ECM's ‘lag' behind the advanced capital markets in terms of adequacy and reliability of information disclose in annual reports (Ali et al, 2004).

The perceived low quality of financial reporting inhibits the growth of ECMs due to its ability to erode the confidence of investors (Enthoven, 1981) and can lower productivity in the economy. Sutton (1997) asserts that a high level of accountability and transparency in corporate dealings increases the confidence of investors in capital markets. It is imperative that high quality financial reporting must be provided to investors to reduce moral hazards as a result of the agency problems created by the separation of ownership from control.

Bekaoui (1999) suggests that the adoption of IFRS is the only way to trust accounting information from developing countries. Some ECMs have adopted IFRS to portray that they are following internationally best practice of financial reporting and to take advantage of the world's investment funds. However, IFRS which is believed to have been developed for the advanced capital markets may not be an ideal accounting standards for ECMs which are made up of small, medium and sometimes family-owned businesses. Nobes (1998) suggests that due to the nature and characteristics of firms in developing/emerging economies, “the full panoply of the rules of IASs may seem unduly complex; and the resulting financial statements unduly detailed and expensive”. Choi and Mueller (1984) and Belkaoui (2004) support the suggestion of Nobes (1998). In spite of these challenges many countries in emerging economies have allowed their companies to report on the basis of IFRS either mandatorily or voluntarily. Mandatory adoption of IAS/IFRS have the tendency to deprive firms the opportunity to choose accounting standards that reflect their information needs and the nature of their business. It has been suggested that IFRS adoption is costly but beneficial and at the same time poses challenges to companies (e.g.El-Gazzar, 1999; Jermakowicz, 2004; Barth et al, 2005; Daske and Gebhardt, 2006; Jermakowicz and Gornik-Tomaszewski, 2006; Daske et al, 2007; Tyrall et al, 2007; Hail et al, 2009). Ball (2001) suggests that companies will experience the impact of IFRS adoption differently due to different regulatory framework and institutional factors across different countries. Research into the costs, benefits and challenges of IFRS adoption to ECMs in sub-Saharan Africa, is non-existent to the best knowledge of this researcher. The adoption of IFRS in Ghana might challenge its neighbours to also follow suit. Therefore, research into the cost and benefits and implementation challenges is needed to guide other countries on the decision whether to adopt IFRS for financial reporting. It is in this light that this study is being undertaken.


The adoption rate of IAS/IFRS has been on the ascendency since its inception in 1973 (IASB.org, 2004). Capital Markets have been forced to adopt IAS/IFRS by the World Bank, International Organisation of Securities Commissions (IOSCO) and World Trade Organisation (WTO), THE European Union (EU) and the International federation of Accountants (IFAC) due to globalization of trade and liberalization of capital markets.

The Institute of Chartered Accountants (Ghana) is the body responsible for the issuance of accounting standards in Ghana. Prior to the mandatory adoption of IAS/IFRS 2007, two sets of accounting standards were in use in Ghana; the Ghana Accounting Standards (GAS) issued by the Ghana National Accounting Standards Board(GNASB), and the International Accounting Standards (IAS/IFRS). The Ghana Accounting Standards were adaptation of the International Accounting Standards. Ghana, being a member of the International Federation of Accountants (IFAC), allowed companies to issue financial report based on International Accounting Standards.

The credibility and quality of financial reporting in emerging capital market have not been able to match the high standards of reporting in developed capital market and Ghana, an emerging economy, is no exception. In 2004, the World Bank commissioned a report into accounting and auditing in Ghana. The report painted a gloomy picture of financial reporting and auditing in Ghana. The World Bank (ROSC-Ghana, 2004, p1) noted that;

“The accounting and auditing practices in Ghana suffer from institutional weaknesses in regulation, compliance and enforcement of standards and rules. Various weaknesses were indentified in the laws and regulation governing financial reporting”.

The report observed an inadequate compliance with the Ghana Accounting Standards and also made mention of the fact that some companies claim to comply with the International Accounting Standards in their annual reports but fail to do so.

Consequently, the ICA (GHANA) in January 2007 adopted IFRS as the basis for financial reporting for all listed companies beginning 31st December 2007 due to the recommendation made by the World Bank. However, first time IAS/IFRS reporting date for all companies was extended to 2008 due to companies' unpreparedness to migrate from Ghana Accounting standards to international standards.

In spite of the world-wide acceptance of IAS/IFRS for financial reporting, the jury is still out about the costs and benefits of IFRS implementation to listed companies that adopt IAS/IFRS either voluntary or mandatory (e.g. El-Gazzar et al, 1990; Jermakowicz, 2004; Hoogendoorn, 2006; Jermakowicz and Gomik-Tomaszewski, 2006; Daske et al, 2007; Hail et al, 2009).

Generally, little empirical evidence has been provided on whether the costs of IAS/IFRS adoption outweigh the benefits. Specifically, literature on the costs and benefits of IAS/IFRS implementation to listed companies in ECMs in Africa is limited.

This study seeks to investigate out the costs and benefits of IFRS adoption to listed companies in Ghana.


Ghana, in a bid to develop its capital markets, established the Ghana Stock Exchange (GSE) in 1989. The GSE became operational in 1990. Currently, there are thirty-four listed companies in Ghana. The adoption of IFRS for financial reporting became mandatory in Ghana after its official launch in 2007 by the Minister of Finance and Economic Planning. However, listed companies were given additional year to fully implement IFRS. These events provide the opportunity to access the impact of IFRS adoption on listed companies in Ghana.

The main purpose of the study is to access the costs and benefits of IFRS adoption to listed companies. Primarily, the issue focused on are costs, benefits, and implementation challenges to listed companies in Ghana.

The specific research questions pursued in this study are follows:

  1. What are the benefits of IFRS adoption to companies in Ghana?

  2. What are the costs of implementing IFRS?

  3. What challenges do companies in emerging capital markets face as results of IFRS adoption?

  4. What are the effects of retrospective application of IFRS (IFRS1) on financial prior period's financial statements?


Two research techniques are used to collect data on the cost, benefits and IFRS implementation challenges. Interviews and content analysis of some selected annual reports are used in this study.

The interviews are used to ascertain the opinions on the costs, benefits and implementation challenges of IFRS adoption from ( ) finance directors/chief finance officers/ finance managers whose firm's are all listed in Ghana. Interviews were conducted with the Big 4+1 auditing firms in Ghana. These audit firms provide audit and other accountancy services to about 95 % of the listed companies in Ghana. The interviews with auditors were necessary to seek additional insight and to validate the results of the interviews conducted with FD/CFO/FM.


This study is undertaken bearing in mind the following contributions it intends to achieve:

  1. To the best knowledge of this researcher, this study is the first of its kind in Sub-Saharan Africa and could inform policy makers in other ECMs about the costs, benefits and implementation challenges when companies are forced to adoption IFRS as a bases of financial reporting.

  2. The study is of tremendous use to the International Accounting Standards Board (IASB) to evaluate the costs and benefits of its standards to companies and the implementation challenges to take steps to reduce the costs and challenges and improves on the benefits. This will help the IASB to achieve its aim of standardisation of financial reporting around the globe.

  3. The study could also help inform companies worldwide which decide to adopt IFRS voluntarily about the costs, benefits and implementation challenges before venturing into such initiative.


This study has been structured into six chapters. The content of each chapter is detailed below:


The background of the study, which comprises the introduction, and the statement of the problem are stated. The appropriate research objectives and specific research questions used to achieve the objectives are specified. The contributions of the study are expressed. The chapter ends with the organization of the entire study.


This chapter starts with the discussion of emerging capital markets. Land and people of Ghana, the economy of Ghana, forms of business ownership, the evolution and the role of the Ghana Stock Exchange, and sources of financial reporting regulation in Ghana are covered in this chapter. The chapter ends with the summary of issues covered in the chapter.


This chapter discusses the role of capital markets, the importance of financial reporting in capital markets. The role of listed companies in promoting financial reporting, the history of the International Accounting Standards, recent trends towards worldwide adoption of IFRS, and the importance of IFRS adoption, prior empirical research, and gaps in the literature are covered under this chapter. All these are studied to put the topic in context. The chapter ends with a summary of the issues discussed.


The methods and techniques used to collect the data and their advantages and limitations are discussed. The issues studied in this chapter are: justification for the choice of Ghana, definition of the period studied, profiles of companies and research instruments. The primary data collected through questionnaire and interviews are quantified using descriptive statistics. The chapter ends with the summary of activities undertaken.


This chapter analyses and discusses the results obtained from the descriptive statistics conducted in previous chapter.


This chapter reminds of the research objective and questions studied including the procedure for data collection and analysis. The chapter presents the key findings of the study undertaken. The chapter also presents the limitation of the study and suggestions for future research. It ends with the coverage of the overall conclusion of the study.




The environment within which a study is undertaken influences the methodology to be used and the weight readers should put on the conclusion drawn from the study. Therefore, understanding the social, political, cultural, and economic within which this study is undertaken is important. This chapter puts the research environment in context. The location and peoples of Ghana is provided in section 2.2. Section 2.3 presents political development in Ghana. Section 2.4 outlines the structure of the Ghanaian economy. The financial reporting system in Ghana is presented in section 2.5. Section 2.8 summaries the issues studied in the chapter.


Ghana is sub-Saharan African country located along the Atlantic Ocean with a total land area of 238,539 square kilometres. Ghana shares borders with Togo, Cote d'Ivoire and Burkina Faso. There are ten regions in Ghana. These regions are broadly categorised into two: Northern and Southern sector. The major vegetation of the northern sector is savannah but the southern sector is predominantly rainforest belt. The population of the country as at the last population census in 2000 was 18.91 million with an annual growth rate since 1984 - 2000 of 2.7% (GSS.2007).The population density of the country is 79.3% with greater concentration in the southern part of the country. The temperature is generally between 21-32°C (70-90°F). The Ghana Statistical Service puts the literacy rate in the country at 34.2%. There are about 56 different languages in Ghana due to the many ethnic groups. The English language is the official language of the country.


Ghana was the first country in sub-Saharan Africa to gain independence from the British in 6th March, 1957. Ghana became a republic in 1 July, 1960. Ghana is a member of many notable international organisations some of which are as follows: the Africa Union, the World Bank Group, the Commonwealth, ECOWAS, International Monetary Fund, Africa Development Bank, the African Peer Review Mechanism and the Economic community of West Africa States.

Ghana after going through four successful coup d'états return to democratic rule in 1992 under executive presidency. The nation has enjoyed an uninterrupted democratic regime since 1992. The last election of the country was held on the 7th of December 2008. National Democratic Congress, a party with social democratic ideology took over the reigns of government from the New Patriotic Party- a party with capitalist philosophy.

Internationally, Ghana is seen as a beacon of hope on the continent of Africa because of her democratic credentials.


The economy of Ghana depends predominantly on agriculture, mining and quarrying and forestry. The economy has been designated in three major sector-agriculture, service and industrial sector. Agriculture is the main economic activity and currently accounts for about 34.3 of GDP, followed by 31.0% from the Services sector (GSS, 2007). Ghana relies mostly on Cocoa and Gold for its foreign currency earnings. The industrial sector contributes. Ghana has recently discovered oil in commercial quantities with first lifting expected in the year 2010.

The GDP growth rate of the country between 2005 and 2008 are as follows: 5.9%, 6.4%, 6.3% and 7.2% percent respectively (World Bank, 2008). The currency of the country was re- denominated in July 1, 2007 by setting ten thousand Cedis to one Ghana Cedi. This was done to remove dead weight zeros of the old cedis as the volume and value of transaction keeps increasing to make recording easier (GOG, 2008). In 2007, Ghana successfully raised US $750M from the Euro Bond Market. The bond was oversubscribed by the international community. The oversubscription and the quality and internationality of the investors were attributed to the confidence of the international community in the Ghanaian economy (MoFEP, 2008).


2.5.1 Sources of Financial Reporting Regulation in Ghana

The government and the private sector are responsible for financial reporting regulation in the country. The government exercise its responsibility through the department and the agencies under its purview - namely: Registrar General's Department, Securities and Exchange Commission, Bank of Ghana and the Insurance Commission. The Ghana Stock Exchange (GSE) and the Institute of Chartered Accountants (Ghana) (ICAG) are the private sector institutions responsible for financial reporting regulation in the country.

2.5.2 The Registrar General's Department (RGD)

Every company in Ghana is expected to registrar with the Registrar of companies in accordance with the Companies Code 1963, Act 179. The Registrar General's Department in Ghana is responsible for the issuance of certificate of incorporation and commence before a company can start its operating activities. Companies are expected to submit their annual account to the (RGD). The RGD has the power to exempt a company from disclosure requirements.

2.5.3 Bank of Ghana

The Banking Law 1989, PNDC 225 gives the Central Bank, Bank of Ghana (BoG) an oversight responsibility over the banking and non-banking financial services institutions in Ghana. Banks and non-banking financial institutions are suppose to comply with financial reporting requirements in Ghana in addition to Manual of Accounting and Auditing specified by the BoG. The BoG regularly visits the banks and nonbanking institutions in the country. Financial and nonfinancial banking institutions are supposed to file their annual returns with the BoG.

With the adoption of IFRS Ghana, banking and non-banking financial institutions are required to comply with IFRS in addition to the Accounting and Auditing Manual specified by the BoG and the requirements of the Companies Code 1963, Act 179.

2.5.4 Internal Revenue Service

The Internal Revenue Service is empowered by the Government of Ghana to develop the forms and basis of taxation in Ghana. Taxes, which affect corporate financial reporting, are as follows: corporate tax, capital gains tax, stamp duty, gift tax and national reconstruction levy, value added tax and now the Economic Stabilisation Levy.The Customs Excise and Preventive Services (CEPS) levy imports and Exports duties on companies.

2.5.5 Institute of Chartered Accountants (Ghana)

An Act of Parliament, Act 170, established the Institute of Chartered Accountants (ICA) (Ghana) in 1963. The Act 170 empowers the ICA (Ghana) as the regulator of financial reporting in Ghana. The members of ICAG are only persons recognised under the Companies Code, Act 179, for the purpose of audit of company's account. Until the adoption of IFRS in Ghana, the Ghana Accounting Standards (GAS) that was in used was adaptation of the IASC standards after the each IASC standard was reviewed. The ICAG is a member of the International Federation of Accountants and Association of Accountancy Bodies in West Africa.

1. Ghana Companies Code 1963, Act 179

The companies' code 1963, Act 179 prescribes the nature and form of information which must be provided in the annual reports and accounts of corporate entities in Ghana. The Companies Code defines annual reports and accounts as director's report, profit and loss accounts for a period, balance sheet as at the end of the period, notes to the accounts and the auditors report. Section 124 (1) enjoins directors of corporate entities to prepare and submit audited accounts to members and debenture holders every calendar year at intervals of not more than fifteen months. With the adoption of IFRS companies are required to comply with the requirements of the Companies Code in addition to the measure and disclosure requirements as specified by the IASB. In Ghana, failure to comply with the provisions of the Companies Code carries sanctions.

2.5.6 Ghana Stock Exchange (GSE)

The Ghana Stock Exchange (GSE) was incorporated as a private company in 1989 under the Companies Code Act 179(GSE WEBSITE). Trading on the floor of the exchange commenced on November, 1990. There were thirty-five (34) companies listed on the GSE as at 31st December, 2008. Trust Bank Gambia Limited is only foreign issuer on the GSE. The total volume of shares traded on the exchange in the year 2008 were two hundred and six teen million, five hundred and eighty four thousand and six hundred (216,584,600). The year-to-date performance of the GSE as at 31st December, 2008 was 58.06%. The Stock Exchange Listing Regulation 1990, Legislative Instrument No.1509 instructs listed companies to make additional disclosure in their annual reports regarding the number shares and stated capital, information about the company secretary and registrars, transactions with directors, statement of source and application of funds, interim reports and unaudited report to the GSE prior to the submission of audited annual reports. The role of the GSE is to win the confidence of the investing public (internal and external), protect investors and encourage companies to raise funds through the equity and debt markets.

Therefore, IFRS which has been perceived by the IASB to be a high quality accounting standards will help the GSE in their quest to build confidence and protect investors. The focus of this study is the impact of this perceived high quality standards on listed companies in Ghana which to the best knowledge of this researcher has not yet been studied.

2.5.7 International Financial Reporting Standards

With the adoption of IFRS in Ghana, listed companies are require to comply with the measurement, presentation and the disclosure requirements of applicable standards in addition to the requirements of the Companies Code 1963 Act 179 and the Banking Law 1989.

6. Summary

Globalisation of businesses and integration of capital markets of which GSE is part, makes it imperative that financial reporting practices of listed companies' should be reliable, relevant, verifiable, comparable and confirm with international financial reporting standards. Financial reporting is affected by the social, political and economic environment within which its' operates. This chapter discussed the country profile of Ghana and the financial reporting environment in Ghana.

The next chapter reviews the literature.




The issues studied in this chapter include conceptual issues and theoretical framework on the impact of IFRS adoption on companies. Specifically, the issues studied include, the meaning and history of international financial reporting standards, IFRS adoption around the world, the role of capital markets, the relevance of IFRS to emerging capital market and theoretical framework on the impact of IFRS on companies.


The International Accounting Standards Board (IASB) is private non-profit making organisation responsible for the development, issuance and approval of accounting standards to form the basis of financial reporting. The objective of the IASB is to,

“provide the world's capital markets with a single set of high quality accounting standards to be used as a common language for financial reporting” (IASB. org).

The IASB came into effect in 2001 to replace the International Accounting Standards Committee (IASC).The IASC was formed by a group of professional accountants from nine countries (Australia, Canada, France, Germany, Japan, Mexico, Netherlands, United Kingdom/Ireland, and the United States of America) in 1973. Sir Henry Benson, who put forward a proposal for the formation of IASC at the 10th World Congress of Accountants in 1972, was elected the first chair in 1973 (IASPLUS.org). The immediate tasks of the IASC were the development of accounting standards on accounting policies, inventories, and financial statements. The IASC issued its first accounting standards in I975. The accounting standards developed and issued by the IASC were called the International Accounting Standards (IAS). These accounting standards are still in used today. The IASB and its predecessor lack the power and authority to ensure that companies that adopt their them are complying with their standards. They rely on national standard setters to ensure that companies comply with their standards.


Accounting standards are a set of rules, regulation, and convention that guide the preparation of financial statements and financial reports. Accounting standards form the basis for the preparation and auditing of corporate annual report. Accounting standards are developed based on conceptual framework and in the case of the IASB the ‘due process.' Conceptual framework for the preparation of account has been described as a constitution (FASB, 1976; Miller, 1985; Solomon, 1986) which forms the basis for developing accounting standards. Conceptual framework are developed to guide standard setters to ensure consistency in issuing future standards and as a guide in settling accounting issues in situations where there are no accounting standard ( IAS.PLUS.org). The conceptual framework defines the elements in the financial statements, how they are recognised, measured and presented which serve as a point of reference to management in situations where there are no accounting standards (IAS. 8). Conceptual framework is not an accounting standard in itself. In situation where there is a clash between a particular standard and conceptual framework, the interpretation of the accounting standard supersedes that of the conceptual framework.

The development of accounting standard undergoes several stages before it is published. The process through which a project undergoes before it is finally issued or rejected through voting is known ‘Due Process.' ‘Due Process' allows interest groups (preparers, users, auditors, analyst, academia etc) to take part in the standard setting process through the submission of comments. In spite of the democratic nature of the standard setting process, prior research document intense lobbying by constituents of the standards setters (see Zeff, 2002; Georgiou, 2004; Cortese et al, 2006). Accounting standards can at best be thought of as a compromise between competing constituents.

International Financial Reporting Standards (IFRS) are developed and issued by the IASB. The standards issued by the IASC are called International Accounting Standards (IAS). IFRS has both narrow and broad meaning (IAS PL US.org). In the narrow sense, IFRS refers to the sets of new standards issued by the IASB different from the previous standards (IASs) issued by the IASC. The IASB has issued eight new standards (IFRS 1, 2, 3, 4, 5, 6, 7 and 8) since 2001. Broadly, IAS 1.11 defines IFRS as the entire standards (IFRSs and IASs) as issued by the IASB and IASC respectively and the interpretations issued by the International Standards Interpretation Committee (IFRIC) and the Standards Interpretation Committee (SIC).


IFRS has gained acceptance as a single set financial reporting standards in countries around the world. Deloitte (2008) suggests that globalisation of capital markets have created the need to scrap local standards in favour of international standards and benchmarks and attributed IFRS adoption as single set of global accounting standards as the best example towards this end. Deloitte asserts that more than hundred (100) countries have adopted IFRS for financial reporting but others including (Chile, Korea, Brazil, India, and Canada) have agreed to adopt or converge to IFRS by 2011. Chile and Japan have agreed to work the IASB to eliminate the difference between their local GAAP and the IFRS to ensure convergence.

The European Union (EU) in 2002 mandated all listed companies within the EU to issue financial report using IFRS beginning 2005 (EC No. 1606/2002). This applies to new countries that will be admitted to the EU membership. This development made the EU the largest customer of the IASB because no continent had and have still not taking such bold initiative. Even though IFRS is mandatory for all listed companies in the EU, the EU does not issue blanket adoption of the standards issued by the IASB. The Accounting Regulatory Committee (ARC) within the European Commission must endorse the standards before they become applicable in the EU. This endorsement process confers political power on EU over the IASB (Whittington, 2005) at least for now. This power would dwindle if the largest capital market of the world, the United States, eventually adopts IASB standards, which has started with the removal of reconciliation requirements ( ) for non-US issuers who issue financial report based on IFRS.

In 1993, the IOSOC tasked the IASC to develop ‘core standards' to be used for cross boarder listing after the existing standards had been reviewed. The core standards were issued in 1999 and the IOSCO recommended its members to use IASC for cross boarder listing in the year 2000 (IASPLUS.com). Many countries have adopted IFRS due to their association affiliation with politically powerful bodies and their agents, which offer a great deal of assistance, which could be financial, training, trade partnership etc. Ghana perhaps allowed IFRS for financial reporting due to its affiliation with the IFAC (World Bank, 2006) and mandatorily adopted IFRS in 2007 after the recommendation by the World Bank in 2006.

The United States, which would, perhaps be the last country to adopt IFRS, has taken a giant step towards converging the US GAAP with the International Accounting Standards Boards. The US SEC has removed the requirements, which ensures that foreign issuers who report based on IFRS reconcile their financial statement with that of the US (SEC, 2007 A.III.2). The US SEC has developed seven milestones, which must be achieved in order for the SEC to determine in 2011 whether IFRS should be mandatory for US issuers in their filings with the SEC in 2014 (SEC, 2008). When the US finally adopts IFRS it would become the language for reporting as other countries would be attracted to do so (Tweedie, refer to assignment). This development when actualised will lead to global convergence, which has been the long cherished vision of the IASC (now IASB) since its creation in 1973 (Benson, 73; IASB, 2003). IFRS adoption can come in many forms and shapes. Some countries (e.g. South Africa, Ghana) have adopted IFRS without modification others (Australia) have adapted IFRS to suit their financial reporting needs.

The process towards a single or uniform accounting standards come in different shapes and forms. The most minimum and often times less expensive types of all the processes is the ‘informed deliberation' (FASAB, 2007, pp 8). FASAB (2007) suggests that, ‘informed deliberation involves undertaking an active effort to (1) review international standards and standards of other countries when developing standards for similar issues; (2) stay abreast of international developments; and (3) include materials on the international views and developments in the briefing materials along with the materials for the related issues under deliberation'. The IASB takes a similar position when deciding which item to put on its agenda. The IASB consults other national accounting standards setters to gain insight into current development and challenges facing national standards setters when developing similar standards. This will help the IASB to achieve convergence of its standards with other national standards, which has been the goal of the IASB and its predecessor.

Adaption is another approach towards the single usage of accounting standards for reporting around the world. With adaption, many countries especially those from emerging capital markets takes the IFRS developed by the IASB and modify them to suite their financial reporting needs. Prior to the mandatory adoption of IFRS in Ghana, GAS, as a classical example of the adaption of IFRS. ECMs may adapt IFRS due to the following reason: (1) lack of professional expertise to develop standards to satisfy the requirements of their capital markets information needs (2) to cash in on the benefits of having a standard akin to internationally recognised standards rather than domestic standards. The latter necessitated the adaptation of IAS in Ghana.

Another approach towards a single set of accounting standards is harmonization. In this context, international accounting harmonisation, which is sometimes confused with convergence, is the elimination of different practices and alternative (Murphy, 2000) between domestic standards and the international accounting standards to produce financial results, which are compatible but not similar to each other. Harmonisation of accounting standards assumes that one standard is the ideal standards whilst another sets of accounting standards usually perceived as weak is brought into agreement with the ideal standards. Samuel and Piper ( 1985, cited in Larson and Sara, 1999) described harmonisation as an effort which aim at bringing together two separate accounting systems in order to achieve a ‘synergistic effect'. National standards setters who still see the usefulness of their standards but cannot resist the temptation of the using international standards due to its benefits over local GAAPs would prefer harmonization to full adoption. Harmonisation of accounting standards enables companies to switch to full adoption of IFRS with minimum cost and difficulties because the domestic standards somewhat resemble that of the IASB's. In Australia, compliance with local GAAPs is deemed compliance with IFRS due to the harmonisation of the Australian standards with the IFRS.

Convergence with IFRS is another process through which Local GAAPs are brought in consonant with IFRS. Nobes and Zeff (2008) assert that convergence ensures that Local GAAPS and IFRS are brought into agreement, which would results in changes to parts of IFRS. According to FASAB (2008), convergence can be achieved when standards that have been developed and issued to the public by separate standard setters are brought into agreement with each other. FASAB (2008) distinguishes between two types of convergence: (1) convergence of existing standards and (2) convergence of new standards. FASAB (2008) describes convergence of existing standards as the elimination of differences between standards that are in existing in practice to conform to international recognised practice whiles suggesting that new standards converge, when standards setters agree to work together to issue an entirely new standards. Convergence with IFRS is achieved when Local GAAP is amended and brought into uniformity with IFRS. Whittington (2008) describes convergence as the reduction of differences in accounting standards by selecting best practices currently in use or developing entirely new standards with national standard setters. However, due to the US GAAP being labelled the ‘gold standard'( SEC ) and the economic importance of the US capital market, FASB and IASB would work closely together to achieve uniformity (Nobes and Zeff, 2008) whereas in emerging capital markets, national standards setters must make the effort to bring their standards in tandem with the IFRS. The joint conceptual framework being developed and the involvement of both standard setters (FASB and IASB) in developing their respective standards must be seen as a process of streamlining the standards of each standards setter. However, it remains to be seen whether the US GAAP and the IFRS can fully converge due to the key difference between the two standards- US GAAP being rules - based and the IFRS being principles - based but the chairman of IASB ,Sir David Tweedie, expects principles based to triumph over rules based (cited in KPMG,2007).

The last process towards the desire to have a single set of accounting standards for financial reporting is the adoption of IFRS. Nobes and Zeff (2008) contend that countries adopt IFRS when financial reports are issued based on IFRS instead of Local GAAPS. Adoption is a straightforward usage of IFRS without amendments. Adoption will lead only to one accounting standards being used whilst convergence and harmonisation could lead to more than one sets of accounting standards. Standardization or uniformity of financial reporting can be achieved if there is a concerted effort towards adopting one accounting standard for financial reporting by companies all over the world.

IFRS can be adopted in full or in phases. In full adoption, IFRS is used for reporting in all facets of the economy whilst adoption by phases suggests that some sectors of the economy will issue financial report base on IFRS earlier than other sectors. Ghana, in adopting IFRS in 2007, made it compulsory for all listed companies to issue financial reports base on IFRS in 2007, but delay adoption for unlisted companies and public corporations and governmental agencies to 2009 ( MOFEP,2007).


A country's capital market provides a conduit through which long-term and medium term funds (debt and equity) are made available to businesses, international organizations, governments and governmental agencies. Capital markets can be divided into two: equity market and debt market. Both can further be subdivided into two namely: primary and secondary markets. Equity capital market allows a company the opportunity to raise capital from individuals and institutions by issuing shares of the company. These individuals and institutions become part owners of the company and are the residual claimants during liquidation. Individuals and institutions who invest in the debt markets are not owners but external claimant on the assets of the company and are entitle to receive regular interest payments from those companies.

Globalisation of capital markets has presented companies the opportunity to decide where to raise capital to finance viable investment projects. This flexibility reduces cost of capital to companies, as they are able to take advantage of competitive rate of equity and debt issues, which may not be possible when the company is restricted to a single capital market. Capital markets create the avenue through which the wealth and ownership of a nation can be distributed among citizens in a nation. The privatisation of Ghana Oil Company Ltd and State Insurance Company Ltd in 2006 and 2007 respectively epitomises the role stock markets play in the distribution of wealth in a nation.

Capital markets also provide the avenue through which the secondary trading of a company's shares can be effected. Investors who no longer require their securities are given the platform through the mechanism of capital markets to dispose them off to new investors. Simply put, capital markets provide liquidity to a company's shares. Capital market also serves as a platform for the valuation of a company since it's reflect the performance of the company at least in capital that exhibit the characteristics of semi-strong efficiency.


A company does not exist in a vacuum. Business entities are created by society (Donaldson, 1982 cited in Deegan and Unerman, 2006) and therefore are accountable to those who created stakeholder. These stakeholders are investors, analysts, brokers, bankers, creditors, employees, competitors, and government and governmental agencies. These stakeholders require different financial information to serve a variety of purposes.

Corporate information can be obtained from a variety of sources. These include but not limited to the following: annual reports, management discussions, company bulleting, company website, analyst reports, press briefing, trade journals and the financial press. Gray et al (1995) suggests that corporate annual report plays an important role in the disclosure process of the companies because of its wide circulation.

Brown and Deegan (1999) assert information provided in the annual report is used to legitimize the operations of the firm by its management. Perhaps in emerging capital markets, annual report is the only source of corporate information available to serve the needs of various stakeholders.

Financial information are used by stakeholders for investment decisions, advisory purposes, collective bargaining agreement by employees, assessing liquidity and solvency of companies, fiscal policy, and for assessment and comparison of the performance of two or more companies. The provision of financial reports by management of companies' is by no means the most important aspect in performing their stewardship function to their stakeholders.

Stakeholders in ECM in most instances rely only on financial reports to serve their varying needs and purposes. This accentuates the need for high quality financial reporting to serve the needs of stakeholders in ECMs. ECMs have adapted or adopted IFRS for financial reporting to provide the needed high quality financial information to stakeholders.

Financial information also plays a very critical role at both the macro and micro level in an economy. It has been suggested that financial information plays important role in ensuring that resources are allocated in an efficient and effective manner in capital markets (Singhvi, 1967; Ndubizu, 1992) and helps governments to raise funds such as sovereign bonds to under development-oriented projects.

At the micro, which is the focus of this study, corporate financial information helps to reduce market uncertainties, which can threaten the stability of capital markets and prevents financial crises. Disclosure of financial information prevents market crash and prevents segmented capital markets (Ndubizu, 1992). In addition, financial reporting provides timely information to investors to determine the flow of companies. Corporate information as disclosed in annual reports help investors to assess to profitability of their investment in order to decide whether to sell, buy or hold. Business valuation is also possible through financial reporting information.


High quality financial reporting plays an important role in the development of any capital market. Tweedie (2006 cited in FE, June 2006) asserts that for financial reporting to reflect underlying economic reality, capital markets require accounting standards that is consistent, comprehensive and based on clear principles. This has created the need for ECMs to adopt IFRS due to its perceived high quality and principles based nature.

The International Finance Corporation (IFC, 1999) defines ECMs as a stock market located in a transitional economy, which has the ability to increase in size, activity and the level of sophistication. The can also mean a market in a developing country which has a strong potential for development. Some ECMs are Barbados, Botswana, Cote d'Ivoire, South Africa, Cyprus, Ghana, Bangladesh, Armenia, Bulgaria, India, Russia, Brazil, China, Saudi Arabia etc. Capital markets can broadly be divided into two depending on their stage of development. These are developed capital markets and emerging capital markets. Emerging capital markets, which is the focus of this study is capital market located in developing and transitional economies, which is capable of growing to become sophisticated and advanced. ECMs have been growing at higher rates than the developed or the matured capital markets in spite of the fact that ECMs are more volatile. This is as a result of, low interest rate coupled with improvement in the fundamental of emerging economies, along with economic growth and high equity returns (World Bank, 2008). Equity prices in all markets peaked in October 2007. The equity price return in ECMs at the end of 2007 was 45% whilst that of developed capital markets was 13% (World Bank, 2008) which can be attributed to the financial crises brought about by the collapse in the sub-prime market in the advanced capital markets. ECMs rely on developed capital markets for imports. The imports of ECMs constitute more than half of the total imports that originate around the world (World Bank, 2008). ECMs' market capitalisation has grown from $2 TRILLION in 1995 to $5 TRILLION in 2006 (S&P, 2006). The MSCI emerging capital index was $5TRILLION at the end of 2008 (Bloomberg.com).

The trend indicates that ECMs are set to grow and become an important part of the world capital market. To this end, there is the need for regulatory bodies and development partners to ensure that ECMs are effective and efficient in the allocation of wealth to avoid stock market crash. ECMs have realised the importance of strong and well functioning capital market in the development of their economy. This has created the need in ECMs to either mandate or allow companies to IFRS for financial reporting which has been perceived as a high quality financial reporting standard. It is against this background that the relevance of IFRS in ECMs is examined.


The internationalisation of ECM as a result of foreign capital inflows has created the need for high quality financial reporting, as it will be the only source of information for foreign and local investors. In spite of the growing importance of ECMs in the global capital markets, majority of companies are small and medium and the volume of trade and complexity of transactions do not much the companies in the developed capital markets. As a result, there is a growing debate as to whether IFRS, which is based on the compromise between accounting principles in the US and the UK (Wallace, 1990) should be applied in ECMs.

The IASB's standards, as they standard now, are one-size fits all, which means all companies in all jurisdictions, must comply with the standards equally. This has generated a debate regarding the relevance and usefulness of IASB standards in ECMs. The goal of the IASB is to the development of high quality single accounting standards to be used for reporting around the world. Sarpong (1999) suggests that the applicability of IAS worldwide is based on the argument that the inherent characteristics of economic transactions are the same in both developing and developed capital markets, which require that measurement and disclosure of accounting transactions do not require different treatment. However, Wallace (1990) contends that the IASC wants to justify and legitimise the existence its standards, hence, the position that its standards are equally relevant to both ECMs and developed or the matured capital markets (Wallace, 1990). This argument is not entirely correct as the IASB can still develop a standard suit a particular jurisdiction and still achieve the legitimacy.

One of the objections against the use of IASB standards in ECMs hovers on the functioning of capital markets. Sarpong (1999) asserts that IASC standards generate the conventional reporting model based the existence of well-functional capital market in a country, hence cannot be an ideal standard for ECMs. However, Samuel (1990) notes that the capital market mechanism seldom works well and as such, the conventional profit model are not a good measure for assessing the performance of companies in ECMs. Nobes (1998) notes that full-scale Anglo-American standards implementation may introduce too much ‘judgement and complexity ‘ which could lead to financial reporting being unreliable in the absence of effective external audit.

In spites of the arguments, which suggest IFRS can be irrelevant to ECMs, research suggests that IFRS can be relevant if adapted to meet the social, economic and political needs of a country (Wallace, 1990; Chamisa, 1994). Also, it has been established that IFRS can contribute to better economic growth in ECMs if applied with modification to suit their reporting needs (Larson, 1993; Sarpong, 1999). Therefore, there needs to be circumspection in suggesting that IFRS is irrelevant to ECMs as a whole (Wallace, 1990; Chamisa, 1994) as they are not homogeneous (Wallace, 1987). Saudagaran and Diga (1997) provide a strong case for the need for ECMs to adopt IFRS. The researchers noted that:

“In an increasingly globalised economy, some form of accounting harmonisation seems warranted. This assertion is particularly salient for ECMs because these markets depend substantially on inflow of foreign portfolio investments for their continued growth.”

Belkaoui (1998) admonishes the relevance of IFRS to ECM. The researcher suggests that ECMs should adopt IFRS without modification to help reduce the cost of setting accounting standards, take advantage of international harmonisation, attract foreign investors, instil professionalism into the accounting profession, and help legitimise its status as a member of the international community.


This section of the literature review focuses on the prior empirical research on the costs, benefits, challenges of IFRS adoption on companies. The heterogeneity of companies, country - specific factors and institutional and regulatory framework affect the overall impacts of IFRS adoption on companies.

Prior studies into the costs and benefits of IFRS have been mixed. Tyrall et al (2007), base on the survey conducted in Kazakhstan found the cost of training personnel, changes in software, purchase of new accounting literature and hiring consulting services among others as the cost incurred by companies as a result of IFRS adoption. Jermakowicz and Gornik-Tomaszewski (2006) examine the process of implementing IAS/IFRS by listed companies in Europe including the impact of adopting IFRS on financial statements in 2004. The researcher found that implementation of IFRS is costly, complex and burdensome for companies. Jermakowicz (2004) examines IFRS adoption using BEL-20 companies in Belgium. The study focused on the impact of IFRS adoption on companies, their internal process and finance strategy by using questionnaires. The researcher observed that the task of IFRS implementation is costly to companies. 85% of respondents listed double workload during transition year, training programmes, cost of hiring external expertise and high cost of maintaining two accounting system as the impact of IFRS adoption. The Securities and Exchange Commission (SEC), the US regulator of capital markets estimates the cost of IFRS implementation for each firm in the US to be between 0.125% and 0.13% of each firm's revenue (SEC Roadmap, 2008, p30). The controller at Intel estimates that IFRS implementation in the company would cost $50M and suggests that the SEC should take a critical look at IFRS before its eventual adoption (CFO.com, 2009). PWC (2007) sought the views of FTSE350 senior finance executives on wide range of issues concerning IFRS implementation. Using a survey, majority of the respondents (85) % indicated that the cost of issuing financial reports under IFRS has increased compared to reporting under UK standards because annual reports has increased by one-third in volume. However, the percentage increase in the cost of issuing financial reports under IFRS was mixed with 41% of respondents indicating that the cost has increased by about 10% whilst 18% indicated that the cost has increased by 20%. Barth (2007) observes the cost of disclosure and education as some of the costs of IFRS adoption to companies.

However, IFRS adoption has been found to be beneficial to companies by prior studies. Barth et al (2005) examined earnings management, recognition of losses and relationship between market values and book values of equity under pre IAS adoption and post IAS adoption of IFRS. Using pooled regression analysis the researchers found that IFRS adoption tends to reduce earnings management, leads to timely recognition of losses and increase the relationship between market values and book values of equity. Hail et al (2009) noted that the decision to adopt IFRS would involve cost-benefit trade off. The benefits, the researchers noted, will come from comparability of financial statements in the case of investors and cost savings to multinational firms. Daske and Gebhardt 2006 examined the perceived high quality of IFRS in annual reports by firms in German, Switzerland and Austria. They noted a significant increase in disclosure quality for firms that used international accounting standards compared to those using local accounting standards.

Armstrong et al (2007) note that the mandatory adoption of IFRS in EU had a positive effect on companies in that it led to the reduction of cost of capital for the companies in the EU. Hail and Leuz (2007) confirm the findings of Armstrong et al. the researchers found that the mandatory adoption of IFRS leads to the reduction of cost of capital. Jermakowicz and Gornik-Tomaszewski (2006), however, disagreed with the benefits of IFRS implementation. The researchers observed that the perceived reduction of cost capital as results of IFRS adoption might not be realised by all firms due to firm characteristic. Daske et al (2007) examined mandatory adoption of IFRS in 26 countries. The researchers observed that on the average market liquidity and firm value increased by 3% - 6% after IFRS adoption but the perceived reduction in cost of capital is less clear. However, the researchers noted that these benefits are exclusive to firms that operate in countries that have strict enforcement regimes and well- functioning institutional environment. This is consistent with the result of prior research (Jermakowicz and Gornik-Tomaszewski, 2006). The researchers observed that the capital market effects (liquidity of shares, increase in share price, and reduction in cost of capital) are insignificant when the Local GAAP is similar to IFRS. El - Gazzar et al (1999) assert that companies comply with IAS voluntarily in order to obtain the benefit of new markets, to raise foreign debt and equity capital, reduce political cost and improve the relationship with its customers. However, Daske (2006) examine cost of capital under German firms that have adopted IAS/IFRS from 1993-2002. Contrary to prior research, Daske observes a higher cost of capital for firms using non-Local accounting standards. Prior studies have found that the capital market effect of IFRS adoption may be insignificant or negligible and may not be experience by all firms in every jurisdiction that adopt IFRS due to different regulatory framework and institutional factors that exist in different countries. Specifically, these researchers ( e.g. Ball et, 2000; Ball et al, 2003; Leuz, 2003; Leuz 2006) have all argued that accounting standards alone play a very limited role in determining high quality reporting but rather attributed firm's incentive to report as the reasons for high quality financial reporting. The researchers argue that IFRS, being principles-based accounting standards, do not a have a uniform interpretation and gives preparers the freedom to exercise a considerable amount of judgement.

Deliotte (2008) surveyed senior finance professionals in US on various IFRS issues. It was observed that it is difficult to quantify the benefit of using IFRS. However, a number of companies suggested that the overall benefits of IFRS in the end exceed the costs. Tweedie (2009, cited in Mitra, 2009) supports the findings of Deliotte (2008). Tweedie( 2009) asserts the benefits of IFRS conversion outweighs the costs in that it leads to, “easier communication, easier IT, easier training and you're understood outside”. According to Hansen (2005), migrating to IFRS is expensive and time consuming for firms but most firms have realised that IFRS adoption improves access to capital markets, lowers cost of capital, improves shareholder relations and improves transparency and comparability. Barth (2007, cited on iasb.org.uk) cites better resource allocation decision, lower cost of capital better accountability as advantages of IFRS adoption to companies. Deloitte (2008, cited in IASPLUS.COM) supports the suggestion made by Barth (2007).Deloitte suggested: comparability of financial information, improved communication among subsidiaries, improved controls and better cash management as the benefits of IFRS adoption to companies. Jermakowicz et al (2007) observed higher transparency and better comparability in the companies surveyed. However, Hoogendoorn (2006) argues that lack of income statement and balance sheet formats can profoundly affect the much touted comparability benefits of IFRS adoption.

The challenges of IFRS adoption have been documented by prior research. Hoogendoorn (2006), a technical partner, at Ernst and Young reviewed the draft IFRS financial statement of listed companies in the Netherlands. It was observed that IFRS is ‘unclear and unstable', are too complex for firms and even for auditors and involve a high cost of compliance. Hoogendoorn argues that the ‘unclear and unstable' nature of IFRS could erode the confidence investors have in the capital markets. The researcher, further intimated that the most difficult standards for companies to comply with were IAS 32, IAS 36, IAS 39 which is consisitent with prior research (Jermakowicz, 2004) , IAS 38, 1AS 19 and IFRS 3. Jermakowicz (2004) found certain IFRS (IAS, 32, IAS, 36 and IAS, 39) complex and difficult to comply with by respondents in the survey of Bel- 20 companies in Belgium. 75% of respondents intimated that IFRS adoption decrease equity and 90% were of the opinion that IFRS increases the volatility of earnings. Jermakowicz and Gornik-Tomaszewski (2006) found lack of implementation guidance and uniform interpretation as key challenges that can hinder IASB's quest to achieve convergence. Tyrall et al (2007) observed lack of IFRS translation in Russian and Kazakh as one of the problems facing the accounting profession in the country. Deloitte (2003) indicated that about 30% of countries that have adopted IFRS face translation problems. Jermakowicz et al (2007) examined the challenges and benefits including value relevance of the adoption of IFRS by DAX-30 companies. Using a survey, the researchers cited complex nature of IFRS (86%), high cost of implementation (56%), lack of implementation guidance (71%) and increased volatility of earnings (56%) as challenges of converting to IFRS amongst companies that have adopted IFRS.

De Jong et al (2006) investigated the impact of IAS 32 on preference shares in 34 companies in the Netherlands. The researchers observed a change in the capital structure of the firms studied due to the reclassification of preference stock from equity to liability. The researchers also observed a change in reported debt ratio as results of IFRS adoption. Ernst and Young (2006) studied the financial statement of 65 companies that adopted IFRS for the first in 2005. It was observed that changes in areas such as financial reporting, pension accounting, impairment testing and share based payments have increased the complexity of accounting and financial reporting processes. Ernst and Young further observed that this complexity could undermine the decision usefulness, as financial reports prepared under IFRS will be a mere technical requirement rather than a means of conveying the performance and financial position of a company.

IFRS 1 requires that companies restate their prior period's financial statement using IFRS. Differences between local GAAPs and IFRS could results in significant changes in the opening financial statement in the period of adoption. Hung and Subramanyam (2007) investigated 80 German companies that adopted IAS for the first time during 1998 trough 2002. The researcher observed that moving to IAS results in significant changes to deferred taxes, pensions, PP&E, and loss provision. The researchers also document that total assets and book value of equity under IAS larger than German accounting standards.


While the existing literature provides some evidence about the costs, benefits and challenges of IFRS adoption, much of it relates companies in the EU and does holistically address the issue being studied (provide some of the lit). Additionally, the existing literature use statistical methods and sometimes questionnaire and lacks the feelings of FD and auditors. This study attempts to address these limitations by studying the impact of IFRS adoption on listed companies in ECMs by the use of interviews. to Talk about the use interviews which is the first of its kind . prior studies used questionnaires and quantative data which will not be able to ascertain what the respondents really feel





The preceding chapter reviewed the relevant literature on the topic chosen for the study. The methodological approaches used in the study are dealt with in this chapter. The research methods used in a study can have can influence the research findings and can affect the inferences drawn based on the findings. It is, therefore, necessary to explain the methods used to collect and analyse data and their limitations in any study.

Specifically, the issues covered are research approach, the choice of Ghana, sample and sample sizes and period of the study, research instruments and process and methods for analysing data.

The research objectives and questions, which informed the methods chosen for the study, are reproduced to remind readers.


The objective of the study is to find out the costs and benefits of IFRS adoption to listed companies in Ghana. The specific research questions studied are as follows:

  1. What are the benefits of IFRS adoption to companies in Ghana?

  2. What are the costs of implementing IFRS?

  3. What challenges do companies in emerging capital markets face as results of IFRS adoption?

  4. What are the effects of retrospective application of IFRS (IFRS1) on financial prior period's financial statements?


The desire to increase the knowledge of financial reporting in the country and to add to the literature on ECMs informed the decisions of the researchers to choose Ghana for the case study. The adoption of IFRS in Ghana offers the researcher the opportunity to investigate the impact of the adoption on listed companies. Specifically, the issues studied had not been dealt in Ghana and generally in sub-Saharan Africa by prior research.


The research approach adopt

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