Empirical assessment of International Financial Reporting Standards adoption in Cambodia

Abstract

The need to have unity in reporting the financial performance of firms for better international business transactions promotes the idea of having one set of financial reporting standards that will help investors easily compare the financial positions of companies from different countries. This idea gave rise to International Accounting Standards (IAS), in 1973, and the International Financial Reporting Standards (IFRS Standards), in 2001, with the prime purpose of enhancing transparency, strengthening accountability, and promoting the economic efficiency of financial reporting across the globe. Many countries worldwide have moved to adopt IFRS standards to benefit from the enforcing of global standards. To date, there are 125 of 149 jurisdictions that require the IFRS to be used for all, or most, publicly accounting entities, while the rest permit their usage. However, there have been a series of delays in implementing IFRS for public accounting entities, such as banks, microfinance, insurance, and so the compliance level for them is relatively low. There have been reports about the challenges in IFRS adoption in Cambodia, but there have been no empirical studies assessing the adoption of IFRS in Cambodia. This study evaluates IFRS adoption in Cambodia and investigates companies’ characteristics, challenges, and the effects of industry type on their decision to adopt the IFRS standards. This study used a survey questionnaire to collect data from publicly accounting and non-publicly accounting companies in Cambodia. The study used the chi-square test, t-test, and exploratory factor analysis (EFA); logistic regression was then used to analyse the data. The results showed that some companies’ characteristics significantly influenced their adoption of IFRS. Specifically, company size, as measured by total sales, training, and foreign ownership, inhibited IFRS adoption. The results identified challenges, such as the companies’ readiness to adopt IFRS, confusion with other regulatory requirements, and the valuation of accounting items, negatively influenced IFRS adoption in Cambodia. The results also showed differences in industry effects. The sample companies that operated in the financial industry were less likely to adopt IFRS. The study’s results are consistent with previous studies on IFRS adoption in different countries, with minor differences due to specific conditions for IFRS adoption in Cambodia. For example, the finance industry is less likely to adopt IFRS, is partly due to the postponement of IFRS implementation to 2019. This study provides a better understanding of the IFRS adoption process and challenges that could be useful for IFRS standard setters. The results of this study could assist accounting bodies in Cambodia make informed decisions when allocating their effort and limited resources to improve the financial reporting environment and increase the IFRS compliance rates. The results of this study suggest that accounting regulators should focus on investigating the differences in the tax basis of accounting and IFRS to reduce the differences of the companies in complying to adopt IFRS. Based on the finding that the foreign owned companies are more likely to adopt IFRS, the accounting regulator could further investigate into the cause higher likelihood of IFRS adoption among foreign-owned companies. Thus, they can use their result as the input to formulate the policies to increase the IFRS adoption among the local companies. The results could also help publicly and non-publicly accounting companies in Cambodia prepare themselves to comply with IFRS adoption by providing accounting training to their staff to ensure they are capable of carrying out accounting duties when the companies adopt IFRS.