In this chapter, I am going to review the relevant literature available and establish the context of my dissertation providing a clear and critical view of the research that has been previously undertaken. At the beginning of the chapter, I will provide information about studies focusing on the way the mandatory IFRS accounting affected many European countries, as well as the costs and benefits it had for its adopters. I will also review some studies that used a sample of many countries worldwide, not only European. I will continue by describing any academic research conducted in the Greek accounting environment and present both the advantages and the disadvantages that the Greek firms had to face in an effort to reconcile the Greek GAAP with IFRS. Finally, I will point out the knowledge gap in the existing literature and explain why my research will provide the research community with valuable information as far as Greek context is concerned.
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The recent transition to IFRS has given rise to several research studies having been conducted attempting to evaluate the effects and the IFRS rate of compliance of many European countries.
Jermakowicz (2004) examines the case of Belgium and concludes that the creditor protective Belgian GAAP was transformed into a more investor oriented principle system after its reconciliation with IFRS. Particularly, shareholder's equity and net income were significantly affected after adopting IFRS. Differences between the two accounting contexts include taxation, pensions, provision and impairment of assets issues.
Aisbitt (2006) reports that IFRS transition had no overall substantial effects on equity of UK companies. Moreover, another study of Christensen and al (2007) reveals that the adoption had no uniform consequences for UK firms, but rather affected them in a different way depending on their willingness to respond to the change.
Ormrod and Taylor (2004) study the impact of the change from UK GAAP to IFRS on covenants included in debt contracts. They suggest that the change is likely to result in more volatile reported earnings figures, in addition to differences in reported profits and balance sheet items. A movement towards cash flow-based covenants might thus be seen as one method of moderating the uncertainty for borrowers arising from the introduction of IFRS.
Looking at the Italian shift of accounting standards, Cortazzo (2008) and Bertoni and De Rosa?? (2006) find that under IFRS companies report higher net income and lower shareholders' equity (less relevant though) as the Italian GAAP is much more conservative than IFRS reporting. Similar results were published from Lopes and Viana (2008) for Portuguese listed companies which reported less conservative profits after the IFRS adoption.
A study of Jordi Perramon and Oriol Amat (2006) analyzes the first results of IFRS implementation for the income statement for a sample of Spanish non-financial listed companies. The results showed that the new rules for derivatives and goodwill were the primary factors to account for different profit results. However, their empirical test revealed that the adoption of IFRS in Spain did not have a uniform effect on the net profit. A year later, Callao et al (2007) find a positive shock in long-term and total liabilities whereas a negative one in debtors and shareholders' equity, for companies adopted IFRS. They found that the difference between book and market values is greater when IFRS are applied, as there has been no improvement in the relevance of financial reporting to local stock market operators. The study also reveals that although in the short-term the usefulness of reporting under IFRS has not been confirmed, in the medium to long-term, improved usefulness may be achieved.
In Germany, Schiebel, 2006 Schiebel, A. (2006). Value relevance of German GAAP and IFRS consolidated Financial Reporting: An empirical analysis on the Frankfurt Stock Exchange. Available at SSRN: http://ssrn.com/abstract=916103.Schiebel (2006) examines the value relevance of IFRS and German GAAP. The sample include 24 German companies listed on the Frankfurt stock exchange (12 companies publishing exclusively German GAAP consolidated reports for the period 2000-2004 and 12 companies publishing exclusively IFRS consolidated reports for the period 2000-2004). The author proposes different regressions of market capitalization on consolidated equity book value using a simple linear regression analysis, finding that German GAAP are significantly more value relevant than IFRS. As regards the German transition, Hung and Subramanyam (2007) after examining the effect of the voluntary adoption of IFRS on the financial statements of German firms for the period 1998-2002, found that total assets and book value of equity, as well as variability of book values and net income, are significantly higher under IAS than German rules (HGB). Furthermore, they found that, consistently with IFRS reducing income persistence principle, book value ?is significantly larger while net income is significantly lower under IFRS than under German GAAP. As they reported, under IFRS economic losses is recognised in a timelier manner, so IFRS income is more conservative than the German GAAP. Bartov et al (2005) compared the value relevance of IAS, US and German accounting standards and concluded that the value relevance of IAS and US based earnings is higher than that of German GAAP-based earnings suggesting higher accounting quality under an IAS or US regime. The higher accounting quality under IFRS is also confirmed by a study of Barth et al (2007) who combined data of 21 countries that had adopted IFRS and concluded that the accounting revolution resulted in limitation of earnings manipulation, more value relevant accounting numbers and more timely loss recognition. Interestingly enough, Paanamen (2008) investigating the case of Swedish market which was highly code-law?, found out that the accounting quality was deteriorated after the IFRS adoption.
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A working paper of the University of Chicago Graduate School of Business (2008) examines the economic consequences of the mandatory IFRS reporting to the market liquidity, cost of capital and Tobin's Q, using a sample of 26 countries across the world and a large number of firms. As for the liquidity, they found that it significantly increased after the accounting change and consistent with that the firms' cost of capital decreased?. They also documented that equity valuation increased around the time of the introduction of IFRS. Separating firms into voluntary and mandatory adopters, they documented that for both groups, the capital-market benefits exist only in countries with strict enforcement regimes and in countries where the institutional environment provides strong incentives to firms to be transparent. In the other countries, IFRS implementation, did not affect market liquidity and firm value around the mandate.
Delvaille et al (2005) compares the adoption process and speed for three continental European countries; Germany, France and Italy. While in the past they considered to employ the same regulatory accounting framework being opposite from the Anglo-Saxon approach to accounting, later they differed to their financial reporting and the way they processed to the internationalization of accounting. The results of their empirical research show clearly that the use of IFRS is most prominent in Germany.
However, although International Financial Reporting Standards have been accepted by the majority of states, in many cases, the compliance was insufficient. Saudaragan and Diga (1997) and Frost and Ramin (2003) identified significant deviation in the accounting policies of countries that had adopted IFRS. The study of Street and Gray (2001) revealed a significant number of instances of non-compliance with IFRS for a sample of international companies and the rate of compliance is proven to be particularly low in certain western European Countries such as France and Germany. France for example, is resistant to change and the preparers of the accounts prefer to use historical cost (DEMARIA and DUFOUR, 2007.)The fact that IFRS do not contain accounting rules for each possible accounting problem, or they offer multiple treatments to a specific contingency, they require the preparer of the financial statement to use his own good judgement so ''regulation gaps'' also exist under IFRS (Wittsiepe, R. 2008). People are sceptical about whether the benefits of the mandatory change of the accounting standards offset the time and money needed. In addition, Tokar (2005) supports the idea that achieving true convergence of accounting standards will be time-consuming and will require not only a huge investment of money but a change in the accounting educational system, as well.
Jermakowicz (2004) points out that the limited implementation guidance as well as the tax orientation of Belgian accounting rules are to account for the differences in the two accounting regimes creating a threat to a real convergence.
Callao, Jarne, and Laínez (2006) investigate the manner in which Spanish firms have handled the process of implementing IFRS. The empirical work is based on a survey of Spanish business groups listed on the Madrid stock exchange. The results show that listed Spanish groups have taken a very positive stance towards the harmonization process and the adoption of IFRS, but adaptation is costly and requires changes in business organization and structures, as well as accounting policies.
HUNG and SUBRAMANYAM (2004) say that "the IAS adoption is expected to have a particularly profound effect on the financial statements of companies in stakeholder-oriented countries because IAS are heavily influenced by the shareholder oriented Anglo-Saxon accounting model while local standards in many European countries have a greater contracting orientation and are driven by considerations of tax book conformity"
Academic articles undertaken, examining the consequences that the change had in the Greek business environment are very limited.
In May 2006 the HCMC (Hellenic Capital Market Commission) investigating the impact of transition to IFRS in terms of percentage changes on revenues, earnings and shareholders' equity of Greek listed companies found that on average under IFRS, equity and profit after tax were 2.44% and 6.16% higher respectively. Furthermore, adjustments to tangible assets, deferred tax assets and liabilities and intangible assets had the strongest impact on shareholders' equity.
Athianos et al (2005) studying 40 Greek industrial companies identifies the consequences that the convergence to IAS had on financial statements and their value relevance during 2003-2004.. By comparing accounting results reported under Greek accounting rules with those under IAS, and by focusing on key financial measures, they find out that total assets and book value of equity, as well as variability of book value and net income are significantly higher under IAS than Greek GAAP.
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Another study by Grant Thornton (2006) focusing on the analysis of changes in companies' financial statements, without examining the impact on financial indicators, proves that under IFRS companies on average increased their net profit by 4.15%, and 54% of the Greek firms reported a positive impact on equity mainly due to positive adjustments in fixed assets and deferred tax and the negative adjustments to the recognition o liabilities for employee benefits, impairment losses on loans and receivables and the recognition of start-up expenses previously capitalised. Overall, the impact on small companies (Small Cap 80 index) was negative, that on the two other indices (FTSE 20 and FTSE Mid 40) positive. Moreover, this study highlights 20 key areas where companies' recognition, measurement and disclosure practices fail to achieve IFRS convergence, among them is information in relation with the valuation of derivatives and other financial instruments, Î±Î½Î±Ï€ÏÎ¿ÏƒÎ±ÏÎ¼Î¿Î³ÎµÏ‚ ÏƒÏ„Î·Î½ ÎµÏ…Î»Î¿gÎ· Î±Î¾Î¹Î± ÏƒÏ„Î¿Î¹Ï‡ÎµÎ¹Ï‰Î½ ÎµÎ½ÎµÏÎ³Î·Ï„Î¹ÎºÎ¿Ï…,ÎµÏ€ÎµÎ½Î´Ï…ÏƒÎµÏ‰Î½ ÏƒÎµ Î±ÎºÎ¹Î½Î·Ï„Î± ÎºÎ±Î¹ ÏƒÏ„Î¿Î½ ÎµÎ»ÎµÎ³Ï‡Î¿ Î±Ï€Î¿Î¼ÎµÎ¹Ï‰ÏƒÎ·Ï‚ Ï„Î·Ï‚ Ï…Ï€ÎµÏÎ±Î¾Î¹Î±Ï‚ Î±Ï€Î¿ Ï„Î·Î½ ÎµÎ½Î¿Ï€Î¿Î¹Î·ÏƒÎ· ÎµÏ€Î¹Ï‡ÎµÎ¹ÏÎ·ÏƒÎµÏ‰Î½. It should be noted that this study, together with the HCMC study denote that any inconsistencies or inadequate disclosures in relation with IFRS is a proof that subjective judgement was required in assessing the impact of transition.
Three? studies examine the issue of value relevance of accounting information after the adoption of IFRS in Greece. Firstly, Tsalavoutas et al found that change in the value relevance of book values of shareholders's equity and net profit after tax, after the adoption of IFRS is not statistically significant. They found weak evidence that the accounting changeover changed the perception of the market regarding the quality of reporting information, as investors do not overestimate earnings reported by large or 'Big 4' audited firms. Secondly, Bellas et al (2007) examining a sample of 83 Greek listed companies found that the price of tangible assets, fixed assets and total liabilities was significantly higher under IFRS than under Greek GAAP. Moreover, the adoption of IFRS indicates remarkable differences of the values of balance-sheet measures in comparison to those under IFRS. It was found that the book values of equity play a more significant role than the net profit under tax under IAS than under GAAP. It also supported the fact that Greek accounting context is more conservative while IFRS support the notion of fair value accounting and lay emphasis on the balance sheet. Last but not least, a study of Karampinis and Hevas (2009) suggests that the adoption of IFRS positively affected the value relevance of consolidated net income and book value although it left the unconsolidated counterparts unaffected and also that consolidated numbers are by far more value relevant than unconsolidated ones. They conclude that the mandatory IFRS adoption can be helpful even in an unfavourable accounting context like the Greek one, where the strong tax and bank orientation and the conservative accounting rules has a negative impact on the value relevance of financial statements.
However, a research paper of Tsalavoutas and Evans whose main focus was on the relationship between the effects on the financial statements and the auditor size is inconsistent with the notion that Greek GAAP is more conservative than IFRS. It found that the adoption of IFRS improved the reporting quality, and had a significant impact on the financial position and reported performance as well as on liquidity and gearing ratios. In addition, shareholders' equity and net income was positively affected whereas gearing and liquidity was negatively affected and the effect was significantly greater for companies with non-'Big 4' auditors. The surprisingly high level of non-compliance with IFRS seems to be linked with the type of audit firm
A study of Tzovas et al (2007), based on a sample of 32 listed and non-listed Greek companies investigates the level of compliance with IFRS and concludes that Greek firms have adapted to the changes at a satisfactory rate but further modifications need to be made to achieve complete harmonisation with the European Commission mandate. In addition, no significant variances were reported between listed and non-listed firms. However, in opposition to the high rates of compliance regarding the balance-sheet, the income statement and the KTR companies disclose only a small part relating to the cost of debt, leasing contracts, Ï„Î¹Ï‚ ÎºÏÎ±Ï„Î¹ÎºÎµÏ‚ ÎµÎ½Î¹ÏƒÏ‡Ï…ÏƒÎµÎ¹Ï‚, Ï„Î¹Ï‚ Î¼ÎµÎ»Î»Î¿Î½Ï„Î¹ÎºÎµÏ‚ ÎºÎ±Î¹ ÎµÎ½Î´ÎµÏ‡Î¿Î¼ÎµÎ½ÎµÏ‚ Ï…Ï€Î¿Ï‡ÏÎµÏ‰ÏƒÎµÎ¹Ï‚ ÎºÎ±Î¹ Ï„Î·Î½ Î±Ï€Î¿Î¼ÎµÎ¹Ï‰ÏƒÎ· Î¼Î· Ï‡ÏÎ·Î¼Î±Ï„Î¿Î¿Î¹ÎºÎ¿Î½Î¿Î¼Î¹ÎºÏŽÎ½ ÏƒÏ„Î¿Î¹Ï‡ÎµÎ¹Ï‰Î½.
A research paper of Georgakopoulou et al questions whether the mandatory adoption of IFRS has affected the Greek Industrial sector. Using a sample of 39 companies and comparing the financial statements for the year 2004 either under IFRS or Greek GAAP, they found that most of ratios such as liquidity and return are lower with IFRS than GAAP with the exception of net working capital turnover ratio that is significantly higher under IFRS.
In a conference (2008) that was presented, it was found that the accounting change did not considerably affected the book value and the total results of the Greek hotel sector but resulted in the different accounting Ï‡ÎµÎ¹ÏÎ¹ÏƒÎ¼Î¿ of tangible and intangible assets, provisions, leasing contracts and deferred taxes.
According to a recent study, the IFRS adoption is positively assessed from companies, auditors and accountants for its main qualitative attributes being understandability, cohesion, understandability and comparability (Karamanis K, Papadakis V, 2008). Furthermore, apart from IFRS being superior to Greek GAAP, the application of IFRS is accompanied by a number of problems, so this accounting revolution demands good planning and coordination of all parties involved which are absent from the legislative mechanisms in Greece. The main problems identified include the lack of harmonization with the legislative context?, the insufficient training of accountants and auditors about IFRS as far as the technical details of the adoption, the possibility of creative accounting provided by IFRS due to the extensive professional judgement and the problems of comparability and unfair? competition because of the different accounting reporting of listed and non-listed companies. Regardless of the initial lack of preparedness, Greek firms seem to be self-informed about IFRS and comply at a satisfactory rate. However, there is still a negative view about the success and the simplicity of the IFRS adoption, although the latter not only has helped companies strengthen their financial position and promoted their internationalization, but has also facilitated the flow of internal information making opportunities and problems more visible to managers.
Î‘ research conducted by Apostolidou (2009) assessed the obstacles and benefits of IFRS by using questionnaires. She found out that IFRS is a reliable means of providing information, and Greek companies managed to get rid of accounting discrepancies/Î¹Î´Î¹Î±Î¹Ï„ÎµÏÎ¿Ï„Î·Ï„ÎµÏ‚ and upgraded their creditor rating. Not having to commission the transformation of their financial statements into comparable measures, they decreased their cost of capital making them more competitive. Additionally, the adoption of IFRS promoted the protection of investors leading to a more trustful relationship with the management. However, the complexity of IFRS together with the inadequate training of involved parts created a series of problems. The hiring of highly educated staff and the training procedure of the company as well as the action required to undergo the change demand a respective amount of money and time and deteriorate its profitability.
All things considered, we conclude that the adoption of IFRS had different implications for different countries as a result of the significantly different accounting context of the adopters. Particularly, in conservative and creditor-oriented countries like Greece, Portugal (Lopes and Viana, 2008) and Belgium (Jermakowicz, 2004) under IFRS companies report higher net income and shareholders' equity as IFRS are less conservative and investor-oriented. Although Italy is also conservative and IFRS affected the results positively, shareholders' equity decreased by converting to IAS/IFRS. (Cortazzo,2008; Bertoni and De Rosa ,2006), As it was expected by the limited number of differences between the two accounting policies, UK transition to IFRS had no overall substantial effects on equity (Aisbitt, 2006) and not all the companies experienced the adoption with the same consequences (Christensen and al 2007). No uniform effect on the net profits was reported for the Spanish companies, as well (Jordi Perramon and Oriol Amat,2006), while a negative shock in shareholders' equity was found (Callao et al, 2007), As for the German GAAP, it is significantly more value relevant than IFRS (Schiebel, 2006) and book value of equity is significantly higher while net income is significantly lower under IFRS than under German GAAP as IFRS income is more conservative than the German GAAP (Hung and Subramanyam, 2007) Additionally, German GAAP is less value relevant than US GAAP and IFRS (Bartov et al ,2005), so the accounting changeover improved the accounting quality (Barth et al, 2007). The opposite effect experienced the Swedish market where by IFRS adoption the accounting quality deteriorated (Paanamen, 2008). Improved reporting quality is also confirmed from the Greek conversion to IFRS (Tsalavoutas and Evans,etos?) and Greek firms have adapted to the changes at a satisfactory rate but further modifications need to be made to achieve complete compliance (Tzovas et al, 2007). Despite the improvement in the reporting quality, the rates of compliance in western countries like Germany and France are low (Street and Gray, 2001) and there are "regulation gaps" that should be overcome?,to achieve true.. and ÏƒÏ„Î±Î¼Î±Ï„. subjective judgement.
Under IFRS, equity and profit after tax were higher (HCMC, 2006; Grant Thornton, 2006). Adjustments to tangible assets, deferred tax assets and liabilities had the strongest positive impact on equity while adjustments to the recognition o liabilities for employee benefits, impairment losses on loans and receivables and the recognition of start-up expenses previously capitalised had a negative one. In addition, total assets and book value of equity, as well as variability of book value and net income are significantly higher under IAS than Greek GAAP (Athianos et al, 2005). Most ratios such as liquidity and return are lower with IFRS than GAAP (Georgakopoulou et al). Tsalavoutas et al found that change in the value relevance of book values of shareholders's equity and net profit after tax, after the adoption of IFRS is not statistically significant Companies' recognition, measurement and disclosure practices in relation with the cost of debt, the valuation of derivatives and other financial instruments, Î±Î½Î±Ï€ÏÎ¿ÏƒÎ±ÏÎ¼Î¿Î³ÎµÏ‚ ÏƒÏ„Î·Î½ ÎµÏ…Î»Î¿gÎ· Î±Î¾Î¹Î± ÏƒÏ„Î¿Î¹Ï‡ÎµÎ¹Ï‰Î½ ÎµÎ½ÎµÏÎ³Î·Ï„Î¹ÎºÎ¿Ï…,ÎµÏ€ÎµÎ½Î´Ï…ÏƒÎµÏ‰Î½ ÏƒÎµ Î±ÎºÎ¹Î½Î·Ï„Î± ÎºÎ±Î¹ ÏƒÏ„Î¿Î½ ÎµÎ»ÎµÎ³Ï‡Î¿ Î±Ï€Î¿Î¼ÎµÎ¹Ï‰ÏƒÎ·Ï‚ Ï„Î·Ï‚ Ï…Ï€ÎµÏÎ±Î¾Î¹Î±Ï‚ Î±Ï€Î¿ Ï„Î·Î½ ÎµÎ½Î¿Ï€Î¿Î¹Î·ÏƒÎ· ÎµÏ€Î¹Ï‡ÎµÎ¹ÏÎ·ÏƒÎµÏ‰Î½, Ï„Î¹Ï‚ ÎºÏÎ±Ï„Î¹ÎºÎµÏ‚ ÎµÎ½Î¹ÏƒÏ‡Ï…ÏƒÎµÎ¹Ï‚, Ï„Î¹Ï‚ Î¼ÎµÎ»Î»Î¿Î½Ï„Î¹ÎºÎµÏ‚ ÎºÎ±Î¹ ÎµÎ½Î´ÎµÏ‡Î¿Î¼ÎµÎ½ÎµÏ‚ Ï…Ï€Î¿Ï‡ÏÎµÏ‰ÏƒÎµÎ¹Ï‚ are cases of non convergence with IFRS (Grant Thornton, 2006; Tzovas et al, 2007).
In this chapter, I provided a review of the existing studies that have been conducted in an attempt to capture the impact that the internationalization of accounting had in many European countries, as well as in the case of a small and less developed country, that of Greece. As already noted, there is not a lot of academic writing examining the effects of harmonization with the international financial reporting standards. Particularly, there is a dearth in other research paper available investigating the reaction of the Greek listed companies of the food and drink sector to the IFRS adoption that makes me confident that my work will provide the research community with valuable information as far as Greek context is concerned. In the next chapter, I will express the research questions that I intend to answer and I will describe the research methods that I will use in order to achieve this goal.
Research Methods Chapter
In this chapter, I will explain the research methodology that I will follow in order to answer my research questions. In the beginning, I will express my research questions. Then, I will briefly describe the ways of conducting research and provide the philosophical foundations of social research and then, I will justify the research method selected. I will continue by describing in full detail which data I will study, how I will gather my data and how I will analyse my data so as to answer my research questions.
My research project includes a number of questions that are to be answered. First of all, I will explain what the benefits and the costs of the transition are. Then, I will identify the core differences between Greek GAAP and IFRS. Last but not least, I will focus on specific IAS and examine the consequences they had on the financial accounts of the food and drink sector of Athens Stock Exchange.
Research is a process of intellectual discovery that can help us acquire knowledge that can change our perception and understanding about world(Ryan). In social sciences there are two types of research: quantitative and qualitative.
Quantitative research is generally geared towards documenting subject attributes expressed in quantity, extent or strength as well as guaranteeing among other things, objectivity, accuracy validity and reliability. Their purpose is to measure variables and to produce figures which will allow judgements as to the status of the variables in question, which in turn will allow further processing, and comparisons and permit reliability. The most common methods are surveys, documentary methods, observation and experiments (Sarantakos 2005).
The methodological principles of positivism, and neopositivism comprise the foundation of quantitative research in which research design is predetermined prior to the beginning of the research.assumptions behind quantitative methodology include that reality is objective and simple, and all human behaviours can be explained by scientific laws in the same manner that the naturalistic world is governed by fixed laws. In addition explanation is exclusively the result of gaining experience However despite its prevalence, many philosophers have systematically expressed their critique as in quantitative research, which uses already established methods, these methods are considered to be the most important element of the research process. Additionally, reality cannot be defined objectively but subjectively. But positivists overemphasise on quantitative measurement that is wrong and unjustifiable and ignores the real meaning of social conduct.
On the other hand, the term 'qualitative research', is related to many diverse methods employed in the social sciences. Some people consider qualitative methodology to be everything that is not quantitative while others regard it as a supplement to quantitative research Qualitative research as an alternative to traditional, established, conventional or quantitative research has been developed through a cooperative effort involving a number of factors. Consequently, the structure of this methodology is different and in one sense it less not less discrete compared to the quantitative research. Information about this new methodology is thought to be not as clear, as advanced or as integrated as that of quantitative methodology. In qualitative research the sampling is small and the researcher is working together with the respondent and tries to understand human behaviour without using predetermined models and hypotheses that could limit its focus and scope, but it is using a dynamic and open approach Reality is created and explained in interaction. Its purpose is to understand social life and describes reality as it is. In addition, it uses an inductive approach and focused on real cases, is interested in how things happen. It tries to identify the process of reality construction The purpose of the qualitative market research is to offer a disciplined approach to collecting and evaluating information using a repertoire of unrestricted interviewing techniques and formal or informal analysis methods. Qualitative research aimed to observe and listen to people as they react and correspond in a carefully-constructed environment of investigation and gaining the understanding and recognition the significance of their attitudes and behaviour which will in sequence lead to the design of successful strategies for strengthening or adapting their manners and behaviours (Goodyear 1998).??? .
Where quantitative forms of research, employing questionnaires and sampling procedures attempt to eradicate the individual, the particular and the subjective, qualitative research gives special attention to the subjective side of life.(wikepeidia)
Every researcher should be aware of the philosophical grounding and methodological assumptions about the nature of reality and the role of theory and the significance of empirical experimentation underpinning his research. Ontology is a branch of philosophy that refers to the nature of what exists in the world, to the nature of reality and what comprises reality. It studies the existence and it is concerned with what we discern to be real, what kind of things do exist, the conditions of their existence, and the way they are related. There are two types of theories concerning the nature of social reality: What makes up reality regarded either as a set of material phenomena or as a set of ideas that human beings have about their world. The first position assumes that both natural and social phenomena(i.e Culture, social organization, and the productive system) exist independently, and both types of phenomena can restrain people from acting in a particular way. All social theories and methodological positions have certain ontological assumptions underpinning; they make different claims about what exists in their domain of interest. According to Crotty (1998), ontological claims are unavoidably related to epistemological claims, so it is difficult to discuss them individually. The knowledge of what constitutes social phenomena can facilitate our gaining knowledge of such phenomena. Empirical procedures cannot settle the differences in the types of ontological and epistemological claims.
Epistemology refers to the way human beings have come to know what they know. It is the THEORY of knowledge and is used to discriminate which scientific procedures produce, reliable social scientific knowledge which according to Plato is defined as "justified true belief". Epistemology offers a philosophical foundation for determining what types of knowledge can be attained and for deciding the criteria for knowledge can be judged as being both adequate and legitimate. During the seventeenth and eighteenth century, two traditions of knowledge: rationalism and empiricism were fully articulated and have predominated in philosophical discourse. Rationalism relies on the assumption that true belief could accessed only through reason (Plato), from establishing indisputable axioms and then using formal logic to arrive at conclusions. It views reality as both real and general; it exists independently of people, their consciousness, and their circumstances. Empiricism on the other hand, became dominant in Britain relies on the assumption that all knowledge is derived from what we perceive using our senses that are the means to to produce reliable knowledge. Concepts and generalizations are summaries based on careful observation and practice. In the context of the social sciences, these philosophical positions can be further elaborated in terms of two dominant epistemological positions. The first, known as nominalism, the concepts that are used in description and explanation are simply regarded as convenient, collective names that are invented as summaries of the general categories of things that have been observed, such as "social actors" or "social groups". In the second epistemological position, known as realism, scientific concepts are viewed as revealing something about social reality that is not necessarily observable. Such concepts are designed to penetrate beyond observable events.
When nominalism and realism are combined with the two major alternative ontological positions, materialism and idealism, a four-way classification scheme is generated. These four positions must be regarded as ideal types, between which there are inherent tensions ( Johnson et al , 1984)
Selecting a particular country, a particular sector for a particular time frame is like conducting a case study analysis. Case study is the study of the particularity and complexity of a single case that is of special interest. A case study, rarely lead us to an entirely new understanding but help us refine what we understand.
Regarding the quantitative part of my research, I intend to focus on the financial statements of the food and drink sector of Athens Stock Exchange which is comprised of 32 companies.2 Distillers and Vintners, 1 Soft Drinks, 9 Farming and Fishing, and 17 Food products. Attempting to answer my research questions, I will make a pre and post IFRS adoption comparison. As a result, I will examine the financial accounts for the fiscal years 2005. In particular I will study the annual reports of the companies and especially their reported adjustments of the transition to IFRS in Equity and Net Income. However only ? firms have these adjustments available and the remaining has annual reports with missing information or merely the financial statements without any notes. It should be noted that only ?companies out of the 32 of the sector, have included the balance sheet adjustments that provide in depth information about all the differences between the accounting policies. As the time frame is short, it would be rather difficult to check all the items. Therefore, I will stress on specific ones and measure the absolute and percentage differences caused by the change in the accounting policies. As the previous literature suggests, adjustments to particular items such as tangible and intangible assets had the strongest impact on shareholders' equity (HCMC, 2006). Additionally, eight IAS were expected to reduce the potential of creative accounting and improve the usefulness and the quality of accounting information (Tsalavoutas & Evans, 2009), which include IAS 38, IAS 36, IAS 2. The initial review of some accounts has showed that other standards such as IAS 16, IAS 37, IAS 20 and IAS 17 are of vital importance so they should be included in my research for they constitute the main differences between IFRS and Greek GAAP. At this point, I will briefly explain the objectives of the above IAS.
IAS 16: to prescribe the accounting treatment for property, plant, and equipment
IAS 38: to prescribe the accounting treatment for intangible assets
IAS 36: to ensure that assets are carried at no more than their recoverable amount
IAS 2: to provide guidance for determining the cost of inventories
IAS 37: to recognise and measure disclosure requirements for provisions, contingent liabilities and contingent assets.
IAS 20: to prescribe the accounting for, and disclosure of, government grants and other forms of government assistance.
IAS 17: to prescribe the appropriate accounting policies and disclosure to apply in relation to finance and operating leases.
As my quantitative research will be based on secondary data there are no ethical issues involved.
In this chapter, I provided information about my research questions and a theoretical background for the social research. I continued by describing the research methodology that I will use. The next chapter which is the data analysis chapter will be the main part of my research and will come to results that will help me contribute to the existing literature.