International Financial Reporting Standards (IFRS) convergence in Indonesia: contextual factors and fair value implementation

IFRS has been adopted and implemented in more than 100 countries around the world. The purpose is to achieve comparability (Barth et al., 2012, Yip and Danqing, 2012), and reduce both capital (Li, 2010) and preparation (Doupnik and Perera, 2012, p. 93) costs. IFRS adoption and implementation are not without problems and challenges; especially in countries where IFRS implementation is subject to different economic, social and institutional constructs. Each jurisdiction adopting IFRS has its unique environment with respect to political, culture, legal and economic issues. Accordingly, IFRS convergence and implementation occurs though these localised contexts and dynamic processes.This thesis undertook an empirical investigation to explore the localized context that influenced both IFRS implementation and the assessment of fair value within Indonesia. This study used qualitative research methodology to provide an understanding of the critical factors that enabled or inhibited IFRS implementation, and used the accounting ecology framework proposed by Gernon and Wallace (1995)as a framework for analysis. It then utilised the concept of institutional work (Lawrence and Suddaby, 2006)to provide an understanding of how local actors conduct purposive actions in the process off air value institutionalisation. Finally, the concept of modernity (Giddens, 1990) within accounting was deployed to explain the construction of fair value and its relationship to the concept of reliability.This study offers three conclusions about the implementation of IFRS within an Indonesian context. First, successful IFRS implementation is influenced by the local accounting environment. Using the accounting ecology framework, this study finds challenges surrounding IFRS implementation within Indonesia, including the lack of legal backing and enforcement, the lack of coherent regulations and the difficulties in implementing complex standards such as fair value, as well as the lack of professional competence in being able to execute professional judgement. This highlights the importance of strengthening law enforcement and synchronising regulations. Regulators must have the same orientation as professionals in interpreting how accounting standards and practices in Indonesia will be developed and applied. The problem of professional competence is triggered by the lack of adequate and appropriate training, education, and IFRS practical guidance for users, including preparers, public accountants and another professionals including appraisers.Hence this study argues that ongoing developments,as well as education and training programs for professionals,are critical in being able to enhance professional competence. 4Second, the unique local context influences fair value implementation, especially its institutionalisation within an Indonesian setting. Institutionalisation of fair value is a process involving the efforts and roles of local actors who have their own interests and who seek legitimacy. The purposive actions of individual or collective actors and their sectional interests, and the search for legitimacy that motivate these actors, influence the institutional and local context in which IFRS ultimately operates. Using the concept of institutional work (Lawrence and Suddaby, 2006), this thesis finds actors undertake political, technical and cultural actions (Perkmann and Spicer, 2008)which shape how IFRS and fair value become institutionalised. The effects of the political, technical and cultural actions are stronger when these actions are deployed concurrently. The combination of these three actions will influence the institutionalisation of IFRS and fair value in the Indonesian context more than a single type of institutional work. Moreover, successful institutionalisation requires actions from actors from different levels and affiliations.Third, IFRS and fair value are current accounting systems that reflect a 'modernity' as suggested by Giddens (1990), one which explains the complex social inter-relationships between actors. Fair value involves the transformation of physical and text information into a monetary account, which involves a process of subjectivity, judgment, estimation and calculation. Actors that possess expertise, including managers, appraisers and auditors, are then involved in the fair value valuation and verification process. The fair value regime reflects modernity in accounting as it requires trust among experts who have a specific understanding and construction of fair value based on the local context of no-active market and absence of adequate professional competence. The regime of fair value has also changed the conception of reliability, from one of economic reality to social construction of consensus. Real market value as a basis for fair value cannot be obtained, rather, only a consensus of estimates between actors involved in the process (Power, 2010, Jeppesen and van Liempd, 2011, Machado et al., 2015). In practical terms, the Indonesian experience of IFRS implementation provides lessons for other emerging economies which are implementing IFRS.