Band 4
Christian Reisloh – Influence of National Culture on IFRS Practice
An Empirical Study in France, Germany and the United Kingdom, Frankfurt a.M. et al. 2011.
The 2002 enacted IAS Regulation had a major impact on the EU accounting harmonization process. It affected approximately 7,000 European capital market oriented firms which were obliged to prepare their group accounts in accordance with IFRS from 2005 on. However, de iure harmonization does not necessarily lead to de facto harmonization. Although EU capital market oriented companies apply the same set of accounting standards, national cultural and institutional characteristics might find their way into IFRS financial statements and prevent an internationally consistent application of IFRS.
A comprehensive review of prior research reveals that the impact of national culture on IFRS practice is largely unexplored. This study seeks to reduce this research gap. It develops a conceptual framework to theoretically describe the association between IFRS practice and national culture controlling for additional external and internal context factors like the national financing system or the industry of the company. The conceptual framework serves to derive several hypotheses. In accordance with the Hofstede-Gray framework this study posits a connection between national cultural differences and IFRS measurement and disclosure practice. The empirical results imply that IFRS measurement practice is rather influenced by internal context factors than by national culture or other institutional factors. For instance, the degree of measurement conservatism as measured by IFRS depreciation practice is mainly related to the industry a company belongs to. Also, the relative amount of capitalised development costs depends to a certain degree on the type of auditor (BIG4 vs. non BIG4). Company size and the degree of internationality are other relevant contextual factors for IFRS measurement. The association between national culture and differences in IFRS disclosure practice is mainly confirmed by this study. Both total notes disclosure and information quantity of selected notes subsections like segment reporting are significantly associated with differences in national culture. French companies, for example, which according to their cultural profile are expected to be less transparent than their British or German counterparts, are found to disclose less segment information. This inconsistent disclosure practice might be of interest not only to users of IFRS financial statements such as investors and financial analysts, but also to auditors, the IASB and enforcement institutions. As a consequence, the EU might reconsider its enforcement strategy of leaving the supervision of IFRS application to the member states’ national enforcement institutions. The results of this study show that de iure harmonization of EU group accounting in fact has led to de facto harmonization in some measurement related accounting areas. Other disclosure related accounting areas, however, remain susceptible to national cultural influences.