The global convergence of financial reporting in Bangladesh

The thesis comprises three related papers which extend the literature on global convergence of financial reporting using Bangladesh as a proxy for Islamic countries. Figure 1.1 on page 14 provides the aim of the thesis and objectives of the three papers, and Figure 1.2 on page 15 provides the theoretical framework of the study. The first paper is entitled, “Theoretical and Methodological Suggestions for Improving Research on the Global Convergence of Financial Reporting”. This paper critically evaluates 430 scholarly articles published in leading journals (classified as A* and A by the Australian Business Deans Council) from January 1985 to June 2018. The articles examine various aspects of the global convergence of financial reporting with the objective of providing theoretical and methodological suggestions for improving research in this area. All 430 papers were grouped into two categories, namely (1) de jure convergence (12) and (2) de facto convergence (418). Whilst de jure research examines uniformity and consistency in accounting standards, de facto research studies consistency in accounting practices. The papers in the de facto category are further classified as follows: (1) archival research (199); (2) behavioral research (85); and (3) others (134), which includes topics related to, for example, the standard-setting agendas of the IASB and countries such as the United States, the United Kingdom, Canada, and Australia, the history and politics of accounting standards in different countries, and accounting system classification. All 418 papers categorised as de facto are evaluated in terms of the objective of the paper. Archival studies primarily examine the impact of IFRS adoption on various variables, including earnings management, value relevance, analyst following and forecast accuracy, various financial ratios, cost of capital, and liquidity. Fifty-four studies developed quantitative approaches such as indices and regression analysis to measure the de facto level of global convergence. However, these simplistic quantitative techniques are criticised on a number of theoretical and methodological grounds. For example, the indices used to measure convergence are very sensitive to sample size, number of countries, and number of accounting practices examined. In these studies, quantitative models are simplistically employed and country-specific contextual factors that influence professional accountants’ judgments are largely ignored. Measuring convergence poses serious challenges because accounting standards require extensive use of accountants’ professional judgment and applying quantitative approaches to capture complex judgment processes both within and across countries is problematic. To address the limitations of these archival studies, another stream of research in de facto convergence, ‘behavioural research’, representing 85 papers in our sample, primarily use survey and experiment research designs to obtain in-depth insights into professional accountants’ judgments. This strand of research primarily attempts to unpack the ‘black-box’ of culture. However, all these attempts to assess global convergence are concentrated mostly in Anglo-American and European countries and largely ignore transitional, developing, and Islamic countries, which differ substantially from Anglo-American countries in terms of country-specific contextual factors. While useful, these studies are often narrow in their focus, and do not provide adequate holistic insights into the global convergence of financial reporting, particularly within countries. Hence, there have been calls in the literature to provide more holistic and in-depth insights into professional accountants’ judgments. By integrating multidisciplinary perspectives, this study suggests that researchers may extend this strand of research by taking into account relevant and important contextual factors such as cultural, political, legal, and economic factors, which collectively provide a more complete framework of factors that cause within- and between-country-level differences in accounting practices. This study also suggests that relevant accountants’ personality variables such as Islamic religiosity and perceived accountability need to be examined with respect to global convergence to gain holistic and in-depth insights into professional accountants’ judgments. The second paper is entitled, “The Influence of Islamic Religiosity on Professional Accountants’ Judgments on the Global Convergence of Financial Reporting: Evidence from Bangladesh”. This paper examines the influence of Islamic religiosity on professional accountants’ judgments on issues related to the global convergence of financial reporting. Gray’s (1988) accounting values—professionalism vs. statutory control, uniformity vs. flexibility, conservatism vs. optimism, and secrecy vs. transparency—are the dependent variables. These accounting values, which have been tested for validity and reliability, are selected because they provide useful insights into accountants’ judgments and decision making on issues related to IFRS convergence. Islamic religiosity is measured using the Sahin-Francis Scale of Attitude towards Islam (Sahin & Francis, 2002) because it has been tested for validity and reliability in different jurisdictions, including Pakistan, Malaysia, and Kuwait. Islam is a rigid religion and allows its adherents little room to exercise their judgments. It is quite specific in many of its prescriptions and is no doubt more rules-based than most of the world’s religions. However, IFRS are more principles-based and adopt the ‘substance over form’ approach, which requires accountants to exercise their professional judgments in interpreting and applying IFRS. The paper finds support for the hypothesis that professional accountants in Bangladesh who score higher on measures of Islamic religiosity are more likely to be supportive of statutory control, uniformity, conservatism and secrecy, and therefore, are less likely to be supportive of principles-based financial reporting standards. The results show that the accounting values of Bangladeshi professional accountants are not compatible with Anglo-American accounting values. The findings also show that Islamic religiosity is an important variable in examining the convergence of financial reporting. The findings have implications for global standards setters, international accounting firms, and cross-cultural research, particularly in Islamic countries. The results may be useful to multinational companies that employ a significant number of Muslims, and regulators in Bangladesh and other Islamic countries in improving the quality of convergence and financial reporting. The third paper is entitled, “The Influence of Perceived Accountability on Professional Accountants’ Judgments on the Convergence of Financial Reporting: Evidence from Bangladesh”. This paper examines the influence of perceived accountability on professional accountants’ judgments on the global convergence of financial reporting using Bangladesh as a proxy for Islamic countries. Gray’s (1988) accounting values—professionalism vs. statutory control, uniformity vs. flexibility, conservatism vs. optimism and secrecy vs. transparency, which have been tested for validity and reliability, are selected as dependent variables because they provide useful insights into accountants’ JDM on issues related to global convergence. The concept of perceived accountability is rooted in the phenomenological view of accountability, which describes accountability as a state of mind and posits that subjective interpretations of objective conditions impact individuals’ attitudes and behaviour. Although the phenomenological view emphasises the subjective, internal nature of accountability, it also recognises that these assessments of accountability are based, in part, on perceptions of objective external conditions. Individuals may perceive and experience those objective conditions differently. This focus on perceived or subjectively experienced accountability is useful in examining what drives professional judgments. Consequently, the contextual perspective on perceived accountability is important and critical for both theoretical and practical reasons in understanding globalisation and convergence in an Islamic context. Perceived accountability is particularly important in Islam because accountability to God and the community for all activities is paramount to a Muslim’s faith. Using the measures of perceived accountability (Hochwarter et al., 2003) and Gray’s (1988) accounting values, the paper provides evidence that perceived accountability is positively (negatively) associated with statutory control (professionalism), uniformity (flexibility) and conservatism (optimism), and transparency (secrecy). The results show that the accounting values of Bangladeshi professional accountants are not compatible with Anglo-American accounting values. The findings also show that perceived accountability is an important personality variable. Findings from this study provide important insights for understanding the global convergence of financial reporting in an Islamic context. The findings are useful for global standards setters, international accounting firms, and cross-cultural research, particularly in Islamic countries. In addition to these three papers, the thesis also includes an introduction and a conclusion section that integrate the papers together.