Study explores the political dimensions of IFRS adoption

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25 Aug, 2011

A recent paper from Harvard Business School explores the international political dynamics of how countries approach the adoption of International Financial Reporting Standards (IFRS).

The draft working paper, The international politics of IFRS harmonization, draws on field studies in Canada, China and India to derive a 'framework' to analyse how international politics can shape a specific country's strategies with IFRS adoption. Whilst international politics is not the only or even the deciding element in understanding the growth of IFRS, the author of the paper argues it is likely to be important.

The paper outlines two principal dimensions that can be used to characterise the response by a specific jurisdiction to IFRS:

  • proximity to existing political powers at the IASB
  • the jurisdiction's own potential political power at the IASB.

Jurisdictions are classified as either 'high' or 'low' in each dimension, which then produces a matrix of predicted responses to IFRS. The table below summarises these outcomes, along with cited examples of countries falling in each category:

25 August 2011

The paper explores the major political challenges for the IASB, the way forward for the IASB and the theoretical implications of the international political dynamics of IFRS harmonisation. In particular, the paper explores the interplay between the current debates around 'convergence versus adoption' and the IASB's expanding geographical diversity away from its traditional European power base to include emerging powers such as China. In addition, the paper argues restructuring the IASB's structure to include fewer Americans may temper enthusiasm for IFRS in the United States, which ironically may make IFRS less attractive worldwide.

Click to access the draft working paper (link to SSRN). We have posted this article with the kind permission of the author, Karthik Ramanna.

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