Accounting Systems' Classification in Latin America: Is There Harmonization in the IFRS Era?

Accounting Systems' Classification in Latin America: Is There Harmonization in the IFRS Era?

Raquel Wille Sarquis (University of São Paulo, Brazil) and Rudah Giasson Luccas (University of São Paulo, Brazil)
DOI: 10.4018/978-1-4666-8453-9.ch002


This chapter aims to propose a classification based on accounting systems of five Latin American countries that have adopted IFRS. More specifically, we seek to identify which is the position of each country within this group of countries as a whole, providing empirical evidences of whether the accounting practices in Latin America countries are harmonized in the IFRS era, or not. Despite of international efforts around the convergence to IFRS, where companies would use the same accounting standard, reducing the differences in terms of accounting practices, there is empirical evidence of significant differences in the way that IFRS has been applied worldwide, resulting in “national versions of IFRS”. The results of this chapter provide empirical evidence that accounting practices in Latin America countries are harmonized, considering that the five countries analyzed have similar characteristics in terms of accounting systems.
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In the past decade, there has been a process of global convergence towards the adoption of a set of high quality accounting standards: International Financial Reporting Standards (IFRS). Germany was one of the precursors to the European Union’s requirements to use IFRS, in 2000, considering the inconvenience of preparing two sets of consolidated financial statements (the international GAAP to raise funds and the local GAAP). In 2005, most of European listed companies were required to make the full adoption of IFRS (Nobes, 2006).

After almost ten years, seeking to assess the progress towards global adoption of IFRS, the IFRS Foundation is developing and posting profiles about the use of IFRSs in individual jurisdictions. This initiative is intended to provide a central source of information that permits interests to chart jurisdictional progress towards the achievement of the global convergence. From 130 jurisdiction analyzed, 105 require IFRS for all or most of domestic publicly accountable entities in their capital markets (IFRS, 2014a).

The main purpose of IFRS Foundation and the International Accounting Standards Board (IASB) is to develop a single set of accounting standards (IFRS) with high quality, understandable, enforceable and globally accepted, increasing the comparability in different countries that have adopted IFRS (IFRS, 2014b).

With the IFRS adoption may be expected that accounting practices among countries become more uniforms (harmonized) and, consequently, the comparability may increase. Thus, the IFRS adoption is widely discussed around the world, seeking to understand how the implementation of the new pattern of accounting is occurring in each jurisdiction. However, some researches about the impact of the IFRS adoption, especially on the capital market, provide evidence of significant differences between countries. The impact of IFRS adoption seems to depend on several institutional variables, varying across countries, such as cultural aspects, enforcement level, manager`s reporting incentives (firm level reporting incentives) and various market forces (Chen, Tang, Jiang, & Lin, 2010; Daske, Hail, Leuz, & Verdi, 2013; Florou & Pope, 2012; Kim & Shi, 2012).

As long as IFRS contain options and require the use of judgment, some variations in accounting practices are inevitable, and some national versions of IFRS are arising. Nobes (2006) identify eight opportunities that contribute for systematic international differences in the IFRS era: i) Different versions of IFRS; ii) Different translation of IFRS; iii) Gaps in IFRS; iv) Overt options in IFRS; v) Covert options, vague criteria and interpretations in IFRS; vi) Estimations in IFRS; vii) First-time adoption issues; and viii) Imperfect enforcement of IFRS.

Complementary, Nobes (2008) investigates international differences in the way as countries and companies have adopted IFRS. He shows that some countries, as Cyprus, have adopted IFRS for all financial reporting, some countries made a national version of IFRS (e.g. Australia), some countries adopted IFRS just for consolidated statements and only for listed companies (e.g. UK), some countries required IFRS for some purpose (e.g. France), while some have not yet allowed it for any purpose (e.g. USA). In other words, the adoption process is not the same in all countries: there are many differences of practices even in the IFRS era. For Nobes (2008) global comparability has been improved with the adoption of IFRS, but there is still a long way to run, considering that national versions of IFRS are emerging.

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