Accounting Harmonization in V4-Countries and its Impact on Financial Data.
National accounting culture and traditions have developed over time in close relationship with the political, social and economic environment, and influence the way in which legislative requirements are applied. The Czech Republic, Slovakia and Hungary benefit from a common historical accounting background based on the Austrian school. Polish accounting has a historical background based on the German school. From this viewpoint, the starting lines for these four countries, in common practice called the Visegrad Four (V4), were close to each other. During the twentieth century, countries created their own reporting standards, which are now harmonised through European Union (EU) directives and International Financial Reporting Standards (IFRS).
Harmonization through the EU directives is applied to national accounting systems by non-listed companies. In the EU, reporting of listed companies will be under the IFRS framework. The latest version of the EU accounting directives was a significant improvement in terms of IFRS harmonization, mostly in terms of measurement basis and definitions of financial statement items. This new version was first applied in the EU countries in January 2016.
This research analyses major differences between local accounting legislation (known as de jure harmonisation; Fontes et al. 2005) and practices (known as de facto harmonisation) in V4-countries using IFRS. For de jure harmonisation, we applied a Jaccard-coefficient based methodology for the similarity level measurement and the Lance-Williams coefficient for dissimilarity level measurement in the comparisons of local accounting legislation in the Czech Republic, Slovakia, Poland and Hungary with IFRS. Based on the Jaccard coefficient, the system most compatible with IFRS is the Slovak one (64.29%), followed by Poland (57.14%), the Czech Republic (56.67%) and Hungary (53.33%). The reason for the differences is the lower spread of fair value measurement for certain assets and the requirement for disclosing additional financial information. The Lance-Williams coefficient results show similar rankings. The least harmonized based on current accounting legislation was Hungary (30.43%), followed by the Czech Republic (27.66%), Poland (27.27%) and Slovakia (21.74%). The reason for such positive results for Slovakia might be seen in their shift from a federal Czechoslovakian accounting system in 2004 when joining the European Union. At that time, Slovakia opted for an accounting model more harmonised with IFRS. Other results are linked to the current development of the local financial market in terms of its size, market capitalisation and IPOs.
For de facto harmonisation we conducted structured interviews with 16 directly-selected representatives of the accounting profession in the respective countries. These representatives were auditors, professional accountants, standard-setters and academicians (four participants per country). On average, the interview took around 40 minutes. There were eight questions regarding possible trends in accounting harmonisation, positioning of companies, academia, and standard-setters with respect to new trends in IFRS and the fair value approach and views on the strong linkage between local accounting practices and the tax system. A major output from the interviews is their perceptions of the costs and benefits of possible implementation of IFRS and the application of the implementation strategy. Professional accountants and auditors believe that medium-sized companies are currently prepared for a possible shift towards IFRS. The positive attitude is mostly visible in companies with foreign ownership and those that are part of a consolidation group. Due to the high level of comparability between local accounting practices and IFRS, interviewees see Slovak companies as the major candidates for possible IFRS shift, however the positive attitude among companies is visible also in the Czech Republic and Poland.
From the policy implication point of view, interviewees see, as one of the weaknesses of the current V4-countries accounting, the strong linkage between accounting and tax legislature. From this point of view, the possible shift towards IFRS could be considered a significant burden for companies. The second crucial problem is the application of fair value measurement for selected assets, where due to the lower level of transparency and liquidity of the markets, level 2 or level 3 inputs must be applied for fair value measurement.
The limitation of this research in terms of de jure harmonisation is the scope tested for harmonisation. Thus far, 37 characteristics for measuring assets, liabilities and disclosed information were examined. For tangibles alone, such characteristics included, among others, current cost, fair market value, and cost minus accumulated depreciation.
The biggest problem of measuring de jure harmonisation is that the research term measures comparability with legislation and not real approaches companies use. Future research will focus on this topic more in-depth from the practitioners' point of view and will apply a top-down approach (from general legislation to specific real-world solutions).
Jiri Strouhal (1) * Josef Horak (1) * Jirina Boksova (1)
[??] Jiri Strouhal
(1) Department of Finance and Accounting, Skoda Auto University Mlada Boleslav, Na Karmeli 1457, 293 01 Mlada Boleslav, Czech Republic
Published online: 20 November 2017
[c] International Atlantic Economic Society 2017
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|Title Annotation:||RESEARCH NOTE|
|Comment:||Accounting Harmonization in V4-Countries and its Impact on Financial Data.(RESEARCH NOTE)|
|Author:||Strouhal, Jiri; Horak, Josef; Boksova, Jirina|
|Publication:||International Advances in Economic Research|
|Date:||Nov 1, 2017|
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