Review of Compliance Measure in Empirical Accounting Literature: Perspective of International Financial Reporting Standards

Abstract

This paper reviewed the empirical measure of compliance in accounting literature with special reference to international financial reporting standards (IFRS). The objective of this paper was to assess the level of adequacy of IFRS compliance measure in quantitative empirical studies. The evaluation of IFRS compliance has received much attention from different research focus: qualitative and quantitative evaluation. However, most of these studies particularly the quantitative studies have yielded inconclusive results. This has created doubt on the obvious relevance of IFRS adoption. One possible cause of the mixed results may be the methods and proxies used for measuring IFRS compliance. Given these challenges, this paper sought to review the existing methods for estimating IFRS compliance. This paper is the first to undertake such review and propose alternative measure of compliance.

The paper is purely a review study and relied on in-depth evaluation of secondary documents on the subject matter. The review revealed that the existing empirical studies measure IFRS compliance as single construct. These studies have often used either IFRS accounting quality as proxy or mandatory disclosures as proxy or comparison of ratios. None of the reviewed studies has attempted to recognise IFRS compliance as multi-construct and used that basis for estimating the level of IFRS compliance. This paper proposes that IFRS compliance should be measured as a multi-dimensional construct which could be: Two-factor construct; three –factor or four-factor construct. It is recommended that further empirical tests should be conducted to check statistical validity of these alternative measures. Future studies may test the statistical difference between the existing single construct and the multi-dimensional construct as well as between ea the multi-factor constructs.

Keywords: IFRS/IAS, IFRS accounting quality, mandatory disclosures, voluntary disclosures and presentational faithfulness/compliance