The International Federation of Accountants ( IFAC ) has late issued a revised “ Code of Ethics for Professional Accountants ” ( IFAC Code ) . As a demand for rank in IFAC, a national accounting organisation must either follow the IFAC Code or follow a codification of behavior that is non “ less rigorous ” than the IFAC Code. In this paper, we examine the extent to which 158 national accounting organisations have adopted the revised IFAC Code as their ain. Our consequences indicate that 80 of our sample organisations have adopted the IFAC Code ( sometimes with minor alterations ) , while the staying 78 opted non to use the theoretical account IFAC Code. We so test the hypothesis that national accounting organisations in lower income economic systems would be less likely to follow the IFAC Code than those in high income economic systems. Our consequences do non back up the hypothesis. We argue that one possible ground for such a determination is that following the IFAC Code may be a cost effectual agencies of following a codification of moralss for organisations in lower income economic systems.
Even though it is by and large conceded that we are traveling toward a planetary economic system, the accounting profession has traditionally been slow in come oning past national boundaries. For illustration, most states have their ain fiscal describing criterion puting organic structure ( e.g. , the Financial Accounting Standards Board in the United States ) and alone accounting professional organisation ( e.g. , the American Institute of Certified Public Accountants ) . However, within the past few old ages, there is some motion toward internationalisation in the accounting profession. As an illustration, the International Accounting Standards Board is trying to harmonise fiscal coverage criterions throughout the universe. Similarly, and more relevant to this survey, the International Federation of Accountants ( IFAC ) has late issued a revised “ Code of Ethics for Professional Accountants ” ( IFAC Code ) . Harmonizing to Farrell and Cobbin ( 2000, p. 182 ) , the IFAC Code is “ intended as a theoretical account codification directed at national associations of comptrollers. ” In other words, the IFAC Code can potentially function as the footing for assorted national accounting codifications of behavior.
Given the rate at which we are nearing a planetary economic system, one might foretell that there would be important similarities across international accounting codifications of behavior. However, there may be cultural, institutional, philosophical, and chauvinistic influences on the intents, attacks, and content contained in codifications of moralss in the accounting subject across the universe. Our ends in this survey are to measure the extent to which assorted national accounting organisations ‘ codifications of behavior align with the late revised IFAC Code and to prove whether national accounting organisations ‘ pick as to whether to follow the IFAC Code is influenced by socioeconomic factors.
Our literature reappraisal has uncovered merely two anterior surveies that analyze a figure of international accounting codifications of behavior. In the earlier of the two surveies, Farrell and Cobbin ( 2000 ) conducted a content analysis of 57 national accounting associations ‘ codifications of moralss. They found that 96 % of the codifications of behavior that they analyzed were decretal ( i.e. , rule-based ) in nature. Even though the huge bulk of the 57 codifications were rule-based codifications, many of them besides included an allodial ( i.e. , inspirational ) constituent that listed of import values and/or rules that professional comptrollers should adhere to. Farrell and Cobbin ( 2000, p. 188 ) conclude that:
The Ethics Committee of IFAC has chosen to supply a theoretical account codification of moralss in the pursuit for harmonization of mensurable behavioral criterions for professional comptrollers throughout the universe. The findings presented in this paper indicate that the place taken by IFAC in choosing a decretal codification ( with inspirational content ) is congruous with the codifications analysed in this research.
More late, Jakubowski et Al. ( 2002, p. 111 ) examined “ the extent to which similarities and differences exist in the codifications of professional behavior of certified ( chartered ) comptrollers across the undermentioned states: the United States, Taiwan, South Korea, Malaysia, Ontario ( Canada ) , Australia, India, and Hong Kong. ” They found both similarities and differences in ethical regulations across the eight states analyzed. Specifically, Jakubowski et Al. ( 2002, p. 111 ) determined that some ethical regulations were “ civilization free ” and did non vary across the eight states, while “ cross-country fluctuations ” were present in respects to the elaboration and/or specificity of certain ethical regulations. They attributed the cross-country fluctuations to assorted factors, including economic, cultural, and legal differences across the states.
On a more conceptual degree, Cohen et Al. ( 1992, p. 687 ) provide “ a model for the scrutiny of cultural and socioeconomic factors that could hinder the credence and execution of a profession ‘s international codification of behavior. ” Specifically, they apply their analysis to the determination as to whether or non to follow the version of the IFAC Code that was in topographic point at the clip of their analysis. While we concede that the determination as to whether to follow the IFAC Code may be influenced by both cultural and socioeconomic factors, in the current paper we focus on socioeconomic influences and leave the cultural influences for future research attempts.
Cohen et Al. ‘s ( 1992 ) analysis suggests that a state ‘s degree of socioeconomic development is related to the determination about whether to follow the theoretical account IFAC Code or non. They argue that national accounting organisations in less developed economic systems will be immune to following the IFAC Code since the codification was mostly authored by, and is chiefly utile for comptrollers in developed economic systems. Cohen et Al. ( 1992, p. 690 ) develop their statement as follows:
Wallace ( 1990 ) identifies the deficiency of rightness of international criterions for developing states as the primary job facing harmonisation of accounting criterions. A codification of moralss which addresses the ethical struggle originating in the context of the high proficient proficiency required of comptrollers in a developed economic system might besides be inappropriate, or at the really least irrelevant, for comptrollers in developing states.
In the current paper, we extend anterior research in three ways. First, our research is alone since, in the first phase of the analysis, we do non carry on a cross-country analysis, but instead compare each of our international accounting codifications of behavior with the theoretical account IFAC Code. That is, our end is to measure the extent to which the IFAC ‘s attempts to harmonise moralss criterions have been successful. Second, this paper represents an update of anterior research findings since we examine assorted national accounting organisations ‘ determination about whether to follow the IFAC Code in a clip period subsequent to the recent major alteration of the IFAC Code. Third, we conduct an empirical appraisal of the hypothesis suggested by Cohen et Al. ‘s ( 1992 ) analysis that the determination to follow the IFAC Code is related to a state ‘s degree of socio-economic development.
The IFAC Code of Ethical motives
The International Federation of Accountants presently has 134 members and 24 associate[ 1 ]member organisations. Members of the IFAC are national accounting organisations instead than single professional comptrollers or accounting houses. For illustration, there are presently three IFAC member organisations in the United States. They are the American Institute of Certified Public Accountants ( AICPA ) , the Institute of Management Accountants ( IMA ) , and the National Association of State Boards of Accountancy.
Harmonizing to the IFAC Code, the mission of the International Federation of Accountants is “ the worldwide development and sweetening of an accounting profession with consonant
criterions, able to supply services of systematically high quality in the public involvement ” ( IFAC, 2005, p. 2 ) . International harmonisation of accounting criterions, including ethical criterions, is hence a major end of the IFAC. Pursuant to that end, the IFAC issued a revised “ Code of Ethics for Professional Accountants ” in June 2005. As antecedently mentioned, Farrell and Cobbin ( 2000 ) depict the IFAC Code as a theoretical account codification of moralss directed at national accounting associations.
Adoption of the IFAC Code is non a requirement for rank in the IFAC. However, harmonizing to the IFAC Code, “ A member organic structure of IFAC or house may non use less rigorous criterions than those stated in this Code ” ( IFAC, 2005, p. 2 ) . IFAC member organisations may therefore follow their ain codification of behavior for their members. However, any codification adopted by IFAC member organisations must non be “ less rigorous ” than the IFAC Code.
Based on the preceding treatment about the possibility that IFAC member organisations may take to follow a codification that is non “ less rigorous ” than the IFAC Code and Cohen et Al. ‘s ( 1992 ) analysis of socioeconomic influences on the acceptance determination, we have formulated two research inquiries. Our primary research inquiry is: “ To what extent are IFAC member accounting organisations following the IFAC Code of Ethics as their ain? ” In other words, are IFAC members following the theoretical account IFAC Code or are they using a alone codification of moralss that is non “ less rigorous ” than the IFAC Code? Our secondary inquiry is “ What is the consequence of socioeconomic degree on the determination as to whether to follow the IFAC theoretical account codification? ”
Data Collection and Empirical Results
We were able to roll up the necessary informations straight from the IFAC web site ( IFAC, 2007 ) about whether IFAC member and associate organisations have adopted the IFAC Code. Each IFAC member organisation must finish a study as a demand of rank and the consequences of those studies are available online to the populace. The study consists of two parts. In Part 1, IFAC members and associates must supply information sing their state ‘s standard-setting and regulative model, while in Part 2 they describe their organisation ‘s efforts to turn to IFAC ‘s rank demands. A part of the Part 2 study inquiries specifically address whether the member organisation has adopted the theoretical account IFAC Code of Ethics. We were able to roll up informations on whether all 158 member and associate members adopted the IFAC Code or non.
It is of import to observe at the beginning that our informations represents self-reported informations by each of the 158 IFAC member organisations. We would besides indicate out that we classified each national accounting organisation as either an adoptive parent or non-adopter of the IFAC Code based on the study responses that are presently available on the IFAC web site. Most of the study responses represent recent informations since they were posted on the IFAC web site within the last twelvemonth, but a few of the responses have been on the web site since June, 2006. Therefore, it is possible that one or more of the organisations that had non adopted the IFAC Code at the clip that they completed the IFAC rank study have later adopted the IFAC Code as their ain.[ 2 ]
We besides collected informations on the socioeconomic position of each IFAC member ‘s state from the World Bank ( 2007 ) . The World Bank classifies economic systems into income groups based on gross national income per capita. The assorted income groups are labeled low income, lower in-between income, upper in-between income, and high income. Harmonizing to the World Bank ( 2007, p. 1 ) , “ Low income and in-between income economic systems are sometimes referred to as developing economic systems. ” However, in our analysis we have chosen non to unite the low income and two in-between income groups into one “ developing economic systems ” group. Rather, we have chosen to analyze each of the four World Bank income groups individually.[ 3 ]We were able to roll up socioeconomic informations for 153 of the 158 IFAC members and associates. Therefore, our empirical trials of the relationship between socioeconomic position and IFAC Code acceptance determination are based on the 153 organisations for which we have complete informations.
Empirical Results – IFAC Members Which Adopted the IFAC Code
Of the 158 IFAC member and associate member organisations, 42 have adopted the IFAC Code as their organisational codification of moralss without any alterations. Table 1 lists these 42 national accounting organisations. A casual scrutiny of Table 1 reveals that the huge bulk of accounting organisations that have adopted the IFAC Code without alteration are from economic systems that are by and large considered to be in the lower per capita income groups. Even though we will carry on a formal statistical analysis subsequently in this paper, at first glimpse it appears that the hypothesis can non be supported that lower income states would be less likely to follow the theoretical account codification of moralss.
Table 2 provides a listing of another 38 national accounting organisations that have adopted the IFAC Code, albeit with alterations. For illustration, the Philippine Institute of Certified Public Accountants stated in their study responses that they adopted the IFAC Code in its entireness with the exclusion of really little alterations in the demands refering advertisement by professional comptrollers. For intents of our analysis, we classify the 38 national accounting organisations listed in Table 2 as adoptive parents of the IFAC Code of Ethics. Therefore, Tables 1 and 2 reveal that 80 out of the 158 ( 50.6 % ) IFAC members and associates have adopted ( sometimes with minor alterations ) the IFAC Code as their ain codification of ethical behavior.
Empirical Results -IFAC Members Not Adopting the IFAC Code
We have classified the 78 IFAC members and associates that did non follow the IFAC Code into three classs, based on their responses to the IFAC study. In Table 3, we provide a listing of the 34 IFAC members that responded that they have developed their ain ethical demands along with a procedure to extinguish differences between their ethical demands and those of the IFAC Code. In other words, these 34 national accounting organisations have chosen non to follow the IFAC Code as their ain codification of moralss at the present clip, but they are on record as saying that they either program to harmonise ( i.e. , converge ) their ethical criterions with those of the IFAC Code to the extent possible or replace their ain codification with the IFAC Code at some ulterior day of the month.
The Nipponese Institute of Certified Public Accountants is an illustration of an accounting organisation that is endeavoring toward convergence of their codification of behavior with the IFAC Code. They stated in their study response that, “ We have established an Ethics Committee charged with developing our Code of Ethical motives. When amending the bing Code or developing new demands, the Committee reviews the IFAC Code and incorporates the IFAC Code demands where necessary ” ( IFAC, 2007 ) . As another illustration, the AICPA stated in their study response that, “ We have a convergence program in topographic point and are in the procedure of execution ” ( IFAC, 2007 ) .
It is interesting to observe that accounting organisations from many of the largest economic systems ( including the American Institute of Certified Public Accountants ) are in this class. Again, at first glimpse, this consequence appears inconsistent with the hypothesis that accounting organisations in lower income economic systems would be less likely to follow the IFAC Code as their ain.
Table 4 lists the17 national accounting organisations that responded to the IFAC rank study that they have developed their ain ethical demands and that they use another attack to integrate the IFAC Code. As an illustration, the national accounting organisation in Portugal stated in their study response that “ The IFAC Code of Ethics was considered and incorporated to some extent in our ain Code of moralss. Our codification is by and large a rule based codification incorporating the major issues of the IFAC Code that is more regulations based than ours ” ( IFAC, 2007 ) . Similarly, the Saudi Organization for Certified Public Accountants stated that “ SOCPA prepared its codification of moralss based on those moralss adopted in many states including the codification of moralss issued by IFAC ” ( IFAC, 2007 ) . Therefore, in both of these illustrations, the accounting organisation chose to follow its ain codification of moralss and incorporated many of the commissariats of the IFAC Code into their alone codification of moralss.
A 3rd illustration is besides exemplifying of the accounting organisations listed in Table 4. The accounting organisation in Uruguay stated in their study response that “ The bing codification differs from the bing IFAC Code of Ethics. At present, our organisation is discoursing how to minimise differences with IFAC Code of Ethical motives ” ( IFAC, 2007 ) . Again, this accounting organisation chose non to follow the IFAC Code as their ain, but they are captive on cut downing the differences between their ain codification and the IFAC Code.
Finally, in Table 5 we list another 27 accounting organisations that have neither adopted the IFAC Code nor program to meet their ethical demands with those of the IFAC Code. In other words, the 27 organisations listed in Table 5 have non adopted the IFAC Code and have no programs to make so in the hereafter. There are varied grounds for such a determination. For illustration, many of the organisations in this class province in their study responses that ethical criterions for professional comptrollers are mandated by jurisprudence in their state and hence there is no ground to follow an ethical codification beyond that prescribed by jurisprudence. The accounting organisations in Finland, Germany, Belgium, Austria, and France that are listed in Table 5 each expressed this regulative ground for non following the IFAC Code.
Another interesting ground for non following the IFAC Code was provided by the Institute of Management Accountants in the United States. The IMA stated in their study response that “ IMA established its Code of Ethics many old ages prior to the IFAC Code of Ethics. While the IMA Code is believed to be in conformity with the IFAC Code, this has non been established as a specific end ” ( IFAC, 2007 ) . In other words, the IMA is satisfied with their current codification of behavior and has no desire to follow the IFAC Code. One possible ground for such a response is that the IFAC Code is oriented toward professional comptrollers in public pattern, while the huge bulk of IMA members are involved in corporate or governmental accounting. It seems likely that professional organisations stand foring public comptrollers executing attestation work such as scrutinizing fiscal statements would be concerned with ethical issues relevant to that work ( such as independency ) , while managerial comptrollers would hold different ethical concerns.
Regardless of the grounds given, each of the 78 national accounting organisations listed in Tables 3-5 chose non to follow the IFAC Code as their ain codification of behavior at the clip they answered the IFAC study. As stated earlier, acceptance of the IFAC Code is non compulsory for IFAC rank. What is required for IFAC rank is that any codification of moralss adopted by an IFAC member organisation must non be “ less rigorous ” than the IFAC Code. As noted in the quotation mark in the old paragraph, the IMA “ believes ” that their codification complies with the IFAC Code. Whether the IMA Code, or the codifications for the other 77 non-adopting organisations for that affair, is at least every bit rigorous as the IFAC Code is based on the subjective judgement of each of these national accounting organisations. We will revisit this issue when we provide some suggestions for future research.
Empirical Results – Is Adoption Decision Influenced by Socioeconomic Factors?
We categorized each of our national accounting organisations as either an adoptive parent or a non-adopter of the theoretical account IFAC Code based on their responses to the IFAC rank study. We besides classified each organisation based on its state ‘s degree of economic development. As stated earlier, we classified each organisation into one of four income classs, based on economic informations obtained from the World Bank web site. The four income classs are low income, lower in-between income, upper in-between income, and high income. We were merely able to roll up economic informations on 153 of our 158 accounting organisations. Therefore, the empirical trials described in this subdivision were based on the 153 organisations for which we had complete informations on both acceptance determination and socioeconomic position.
Table 6 provides the consequences of a I‡2 trial that examines whether the determination to follow the IFAC Code is influenced by socioeconomic factors. We are specifically proving the hypothesis that accounting organisations in lower income economic systems would be less likely to follow the IFAC Code than those in high income economic systems. The consequences indicate that there is non a important relationship between the IFAC Code acceptance determination and socioeconomic position. Even if one were to see a p-value of 0.0997 as important, the ascertained relationship is in the opposite way than that hypothesized. Table 6 indicates that merely 24 of the 58 ( 41.4 % ) accounting organisations in high income economic systems have adopted the IFAC Code as their ain codification of behavior. The tabular array besides shows an about equal per centum of adoptive parents and non-adopters in both of the in-between income groups. Both of these consequences are inconsistent with the hypothesis that accounting organisations in lower income economic systems would be less likely to follow the IFAC Code.
Deductions of Research Findings and Suggestions for Future Research
Our consequences indicate that the IFAC has been reasonably successful in their effort to harmonise moralss criterions for professional comptrollers across the universe. Our findings demonstrate that somewhat over 50 % of IFAC members and associates have adopted the IFAC Code ( sometimes with minor alterations ) as their ain codification of behavior. In add-on, we found that legion non-adopting accounting organisations are endeavoring to minimise the differences between their codification of moralss and the IFAC Code and still others are be aftering on following the IFAC Code at some ulterior day of the month. It hence appears to us that the IFAC ‘s harmonisation attempts are working and we expect an even greater per centum of IFAC members will be adoptive parents of the IFAC Code in the hereafter than are now.
We are unable to supply empirical support for the hypothesis that accounting organisations in lower income economic systems would be less likely to follow the IFAC Code. We believe that a possible ground for our deficiency of support for the hypothesized relationship is that accounting organisations in lower income economic systems may non hold the resources needed to develop an effectual codification of behavior on their ain. These organisations would hence happen it be good to merely follow the theoretical account IFAC Code.
We should besides observe that there is potentially a difference between an accounting organisation following a codification of moralss and that organisation being able to implement such a codification upon its rank. In other words, it may be comparatively easy ( i.e. , low cost ) for an organisation in a lower income economic system to follow the IFAC Code, while the conditions within that state, including cultural and socio-economic factors, might do it really hard for the organisation to implement the ethical codification. It may really good be that an underfunded organisation in a lower income state would happen it really disputing to measure the extent to which members are compliant with an adoptive codification of moralss, allow entirely convey any meaningful enforcement action against members for alleged disobedience. Therefore, Cohen et Al. ‘s ( 1992 ) suggestion that economic gift affects international accounting codifications of moralss might good keep true if one examines attachment and enforcement instead than mere acceptance.
There are several avenues for future research activity in this country. As stated earlier, in this paper we have focused on the socioeconomic influences part of Cohen et Al. ‘s ( 1992 ) analysis. Future research could prove whether assorted cultural factors, including those described by Cohen et Al. ( 1992 ) , act upon the IFAC Code acceptance determination. As illustrations, do the extent to which a state ( 1 ) enjoys an constituted regulation of jurisprudence including belongings rights, ( 2 ) is a consumer verses regulative oriented society, or ( 3 ) exhibits individualistic poetries communal inclinations among its thickly settled affect the likeliness that their professional accounting organisations would follow a universal ( international ) codification of moralss? Besides as stated earlier, each non-adopter of the IFAC Code is required to hold a codification of behavior that is non “ less rigorous ” than the theoretical account codification. We believe an interesting empirical inquiry is whether in fact the codifications adopted by non-adopters of the IFAC Code are at least every bit restrictive as the IFAC Code.
As globalisation continues to happen in civilization, engineering, and concern, the accounting profession must go on to maintain gait and reevaluate its function in the universe economic system and society as a whole. We hope that this survey represents one attempt, among many that must follow, to measure how the international accounting community may or may non be responding to alter.