Aytenew Agumas
Aytenew Agumas
BY
AYTENEW AGUMAS BABIL
GSE/1521/08
ADVISOR
DR. SEWALE A.
DECEMBER, 2018
DECLARATION
I hereby declare that MBA. Thesis entitled, “Challenges of Practical Implementation of IFRS
in Ethiopia, Evidence from Banking Sector” is my original work and has not been presented for
a Degree/Diploma in any other university, and all sources of material used for this thesis have been
duly acknowledged.
Signature: _____________
This is to certify that the thesis entitled, “Challenges of Practical Implementation of IFRS in
Ethiopia, Evidence from Banking Sector” submitted in partial fulfillment of the requirements
for the Degree of Master of business Administration in Finance has been carried out by Aytenew
Agumas, ID.No: GSE/1521/08 under my supervision. Therefore, I recommend that the student
has fulfilled the requirements and hence hereby can submit the thesis to the department.
ACKNOWLEDGEMENT
First and foremost, I would like to thank God Almighty for giving me the opportunity, strength
Next, I would like to express my sincere gratitude to my advisor Dr. Swale A. for his continuous
My special thanks goes to Mr. Muhabie Mekonnen (Phd Candidate) for his unnerved effort
Besides to this, I want to acknowledge the IFRS project implementation team members of
Ethiopian Private Banks for their cooperation through provision of the necessary data.
This thesis would not have been successful if my better half Liyuwork Gebru had not shown love
Aytenew Agumas
Table of Contents
Acronyms .................................................................................................................................................... vii
List of Tables ................................................................................................................................................ ix
List of Figures ................................................................................................................................................ x
ABSTRACT..................................................................................................................................................... xi
CHAPTER ONE ........................................................................................................................................... 1
1. Introduction ......................................................................................................................................... 1
1.1. Background of the study ........................................................................................................... 1
1.2. Statement of the problem ......................................................................................................... 5
1.3. Objective of the study: .............................................................................................................. 9
1.4. Research Questions ................................................................................................................... 9
1.5. Scope and limitations of the study ............................................................................................ 9
1.6. Significance of the study ......................................................................................................... 10
1.7. Organization of the Paper ....................................................................................................... 10
CHAPTER TWO ........................................................................................................................................ 12
2. Review of Literature ......................................................................................................................... 12
2.1. Introduction............................................................................................................................. 12
2.2. Theoretical and Conceptual Literature Review ....................................................................... 12
2.3. History of International Convergence of Accounting Standards ............................................. 13
2.4. Structure and Governance of IASB .......................................................................................... 16
2.5. Acceptance of IFRS Worldwide ............................................................................................... 18
2.6. History and practices of Accounting in Ethiopia ..................................................................... 19
2.7. Review of Empirical Literatures ............................................................................................... 25
CHAPTER THREE .................................................................................................................................... 29
3. Research Methodology...................................................................................................................... 29
3.1. Research Purpose .................................................................................................................... 29
3.2. Research Design ...................................................................................................................... 29
3.3. Sources, Methods and Tools of Data Collection ..................................................................... 30
3.4. Target Population, Sampling Techniques and Sample Size ..................................................... 30
3.5. Methods of Data Analysis and Interpretation ......................................................................... 31
3.6. Reliability Test ......................................................................................................................... 32
CHAPTER FOUR....................................................................................................................................... 33
4. Results and Discussion...................................................................................................................... 33
4.1. Measuring IFRS implementation process and status of private banks ................................... 33
4.2. Analysis of the results of the Survey Questionnaire ............................................................... 35
4.2.2.1. Education level of the respondents ........................................................................... 36
4.2.2.2. Professional membership/Certification ..................................................................... 37
4.2.2.3. Experiences of IFRS Team Members .......................................................................... 37
4.2.3.1. Corporate governance................................................................................................ 38
4.2.3.2. Enforcement of Financial reporting regulatory Body................................................. 41
4.2.3.3. Professional Accountancy (Associations) Bodies ....................................................... 48
4.2.3.4. Education and Training............................................................................................... 54
4.2.3.5. Transition Period ........................................................................................................ 59
4.2.3.6. Proper Planning .......................................................................................................... 64
4.2.3.7. Availability and Transparency of Market Information ............................................... 67
4.2.3.8. Cost of IFRS Implementation ...................................................................................... 72
4.2.3.9. Management Support ................................................................................................ 76
CHAPTER FIVE ........................................................................................................................................ 80
5. CONCLUSION AND RECOMMENDATIONS .............................................................................. 80
5.1. Conclusion ............................................................................................................................... 80
5.2. Recommendations .................................................................................................................. 80
5.3. Implications for future Research ............................................................................................. 83
References ...................................................................................................................................................... i
Appendix .................................................................................................................................................... viii
Acronyms
IT Information System
MOFEC Ministry of Finance and Economic Cooperation
NAO National Audit Office
NBE National Bank of Ethiopia
NGOs None Governmental Organizations
OAG Office of Auditor General
OFAG Office of Federal Auditor General
PIE Public interest entities
PWC Price water house coopers
ROSC Research on Observance of Codes and Standards
SAC Standards Advisory Council
SIC Standards Interpretation Committee
SMEs Small and Medium Enterprises
SPSS Statistical Package software for social science studies
TOR Term of Reference
UK United Kingdom
UN United Nation
UNCTAD United Nations Conference on Trade and Development
US United States
USA United States of America
WTO World Trade organization
List of Tables
Table 4.19: The role of professional association and Experience sharing programs---------------52
Table 4.21: Education and Training----------------------------------------------------------------------55
Table 4.23: Likelihood of banks meeting the first IFRS reporting dead line-----------------------63
List of Figures
ABSTRACT
Since the turn of the century, there is an unprecedented appreciation of the usefulness of the
International Financial Reporting Standards (IFRS) across the globe. As a single set of globally
converged, high quality accounting standards, IFRS are designed to serve as a common global
language for business affairs so that company accounts are understandable and comparable
across the globe. As a result, by recognizing the relative importance of IFRS, over 150 countries
required or permitted IFRS as their corporate financial reporting standard. Despite this
widespread acceptance of IFRS, there are serious institutional, enforcement and technical
challenges that countries need to overcome in order to benefit fully from the introduction of IFRS
in their jurisdictions. Ethiopia is one of those countries that face serious challenges to implement
IFRS. Therefore, this research is intended to investigate the practical challenges of IFRS adoption
in Ethiopia, particularly in private commercial banks. To achieve this objective, both primary and
secondary data were collected from IFRS implementation team members of 12 private banks who
were selected purposively based on their role and involvement in the implementation process.
Primary data were collected through questionnaire and interview whereas secondary based were
collected through documentary evidence and analyzed by using different descriptive statistical
tools. Finally, the result of the study revealed that weak corporate governance, poor quality of
education and training, lack of supports from accountancy professional bodies, weak
enforcements of regulatory body, inadequacy of transition period, improper planning, non-
availability of transparent market information, high cost of implementation and weak management
support are the major challenges of adopting IFRS by private banks in Ethiopia.
CHAPTER ONE
1. Introduction
This section of the study explained Background of the study, statement of the problem, objective
of the study, significance of the study, scope of the study and limitation of the study and
organization of the study with the intention to provide introductions and to set out the overall
structures of the study
Globalization made countries borderless and economic resources Mobil across the world. Now a
day’s International trade and investment becoming increasingly global due to real world suffer
from market imperfection. Multinational companies are seeking out foreign opportunities to
capitalize resource from foreign countries. The increasing growth in international trade, cross
border financial transactions and investments which unavoidably involves the preparation and
presentation of accounting reports that is useful across various national borders (Armstrong et al.,
2007)(as cited inOkpala,2012).
However, Accounting as the language of business is practiced differently within varying historical,
political, economic and social environments (Hellmann et al., 2010). Pacter (2011) argued that
historically accounting standards evolved country by country– Set by government, or accounting
profession, or independent board. Using different national accounting standards, making it difficult
and costly to compare investment opportunities in different countries (UNACTED, 2008). Prather-
Kinsey (2006) stated that “dissimilar financial reporting and accounting practices make it very
difficult for users of accounting and financial reports to consolidate such information and make
comparisons of firms that are listed in different countries”. National standards made sense when
companies raised money in, and investors sought investment opportunities in, only their home
country (Pacter, 2011).Therefore, Having access to financial statements that are written in the same
“language” would eliminate what has historically been a major impediment to engendering
investor confidence, which is sometimes referred to as “accounting risk”( Epstein &
Jermakowicz,2010).
The faster pace of globalization, the growing interdependence of international financial markets
and the increased mobility of capital have added to the pressure and demand for the harmonization
of accounting and financial reporting frameworks and related standards around the world
(UNACTED,2008). Renders & Gaeremynck (2007) argued that “Growth in international trade and
capital flows and a rising cross-border economic integration over the past decades have led to the
desire to harmonize accounting standards across countries”. Without common standards, it is
difficult to compare financial information prepared by entities located in different parts of the
world (Mirza et al., 2006). Therefore, adopting a single global accounting language will ensure
understandability, comparability and transparency of financial statements which will strengthen
the confidence of investors and other users of accounting information around the world (Dholakia,
2012).
Consequently, the accounting profession has responded this requirement through establishing
Accountants International Study Group in the year 1967, which has made great significant by
publishing papers on topics with accounting standards. After years of study, the process of
international convergence towards a global set of standards started and international accounting
Standard committee (ISAC) was established in the mid 1973 by Accountancy professional bodies
from nine countries namely Australia, Canada, France, Germany, Japan, Mexico, the Netherlands,
the United Kingdom and Ireland, and the United States (UNACTED, 2008, Needles & Powers,
2011, Epstein & Jermakowicz, 2010, Mirza et al., 2006, Kuar&Kumar, 2014).
In 2001, fundamental changes were made to strengthen the independence, legitimacy, and quality
of the international accounting standard-setting process and, the IASC was replaced by the
International Accounting Standards Board (IASB) as the body in charge of setting the international
standards and the international accounting standards (IAS) are renamed International financial
reporting standards (IFRS). The objective of the IASB is to develop a single set of high quality,
understandable, enforceable and globally accepted financial reporting standards that bring
transparency, accountability and efficiency to financial markets around the world (IFRS
Foundation, 2015).
The convergence process has gained speed when the International Organization of Securities
Commissions (IOSCO) endorsed the IASC standards for international listings in May 2000
(UNACTED, 2008). Besides EU through ‘‘The European Union Act 1606/2002 mandated
companies listed on European stock exchanges to prepare their consolidated group accounts in
accordance with IFRS effective the year 2005,which is the millstone for the development of
international accounting convergence.
Since then, International Financial Reporting Standards (IFRS) are gaining acceptance worldwide
and about 150 jurisdictions in the world have been adopted or required IFRS as their reporting
standard (www.ifrs.com).
The comparability, credibility, and positive capital market effects of adoption to capital market
participants are not disputed. However, the impact, benefits and costs of the transition to IFRS
vary from country to country depending on is starting point, characteristics and culture (Dunne et
al., 2008).Chartered Accountants World Wide (ICEAW) (2015) on its summaries of 200 empirical
research papers conducted on the effects of mandatory IFRS adoption conclude that “IFRS
adoption benefits were unevenly distributed among different firms and different countries due to
differences in institutions and incentives, there may have been either negligible benefits or even
negative effects rather than benefits for particular firms or countries”. Zehri & Chouaibi (2013)
argued that the developing countries transition modalities to the IFRS differ from those of
developed countries.
In recognizing of the benefits of IFRS adoption, Ethiopia has enacted financial reporting
proclamation in the year 2014 which can be applicable by all reporting entities operating in
Ethiopia and announced the official adoption of IFRS as established by IASB. Accordingly, the
Accounting and Auditing Board of Ethiopia has established as per council of ministers regulation
no.332/2014 as an autonomous governing organ to Promote high quality reporting of financial
and related information by reporting entities and to regulate the accounting Auditing profession
of Ethiopia.
Implementing IFRS will help Ethiopia to increase stability, stewardship, accountability and
transparency, increase the education of accounting profession and Standard setting bodies,
improve good governance and reduce corruption and rent seeking behavior (AABE,
2016).According to UNACTED (2008) “Sound and internationally comparable corporate financial
reporting that meets the requirements of financial markets improves investor confidence, facilitates
risk assessment in making investment decisions, and helps reduce the cost of capital”(para.11).
Kassa (2015) argued that IFRS leads to improved comparability & reliability of financial
statements reduce cost of capital of firms through lower cost of information, facilitate easier
international mobility of professional staffs across national boundary, greater marketability of
shares, and reduced information asymmetry and others.
As per Financial Reporting proclamation 847/2014 article 5 (2), the public interest entities are
required to comply International Financial reporting standard when preparing financial statements.
Among others, Banks are the one and the biggest form of public interest entities which mobilizes
financial resources from the public and injects it to the economy.
Ethiopian banks were accounted and presented their financial transaction based on requirements
provided under commercial code 1960 and NBE proclamation 592/2008 for the last many years.
However, both the commercial code and NBE proclamation has no requirements for compliance
with any defined accounting standards (ROSC,2007).Consequently, inconsistency of reporting
method from period to period and usage of different reporting methods among Ethiopian private
banks were observed until the closing of the year, 2016.As stated on their annual financial report
,Some private banks were reported based on IFRS, some were based on GAAP and others based
on internally developed accounting policies and procedures. Though, some companies including
banks says reported their financial statement under IFRS, it was revealed that there were significant
differences between the actual accounting practices and IFRS requirements and concluded that the
actual accounting practice in Ethiopia differ from IFRS (ROCS, 2007, Tesfu, 2012, Mihiret, 2016).
Accordingly, AABE has warned reporting entities in Ethiopia not to refer IFRS on their financial
statement unless they fully comply with all the requirements of the IFRSs applicable to their
circumstances (AABE, 2016). For smoothening the process of the adoption, AABE has established
a three phase IFRS implementation road map under its four year strategic plan running from the
year 2016-2020.Based on this Ethiopian banks are the one and the first which are required to adopt
IFRS from July, 2016 and expected to issue IFRS based financial statements for the year ending
June 30, 2018. To this end, Ethiopian private banks are now busy in conducting activities which
are required by first time adopters stated under IFRS1. As a first time adopter it is inevitable that
many factors will likely influence the probabilities of the adoption of IFRS by private banks
positively or negatively.
Therefore, the aim of this study is to investigate the practical challenges of IFRS adoption in
Ethiopia specifically in Private commercial Banks.
Some researchers argued that IFRS improves transparency & comparability of companies
financial statements, reduces cost of capital, increasing of cross border transactions and improve
the efficiency of corporate investment (Daske and Gebhardt,2006, Dodiya,2013, Harton
Etal,2010, Lourenço & Branco, 2015). On the other hand, Clarkson et al.(2011) found that IFRS
adoption has failed to enhance financial reporting quality, examine 1,722 firms from nine
European countries in which early IFRS adoption (as cited Masoud, 2014). Various studies fail to
find strong evidence that IFRS improves information set of investors and found limited or no
capital market benefits for mandatory adopters (Das et al, 2008 ) as cited in ( Harton et al., 2010)
.Other researchers argued that the quality and comparability of information are questioned due to
the difference of implementation and interpretation of the same standards by different countries
(Ankarath et al., 2010, Harton et al., 2010). Achieving comparability in financial reporting
depends on a consistent interpretation and application of IFRS across countries. Social, political,
economic and cultural factors in countries influence accountants' professional judgments, and
differences across countries may lead to an inconsistent interpretation and application of IFRS
(Poudel et al., 2014). On their study of IFRS adoption the case of Nepal found that the adoption of
IFRS is likely to be problematic due to the country's contextual environment. Accordingly, Dunne
et al., (2008) argue that the impact, benefits and costs of the transition to IFRS vary from country
to country depending on is starting point, characteristics and culture. ICAEW (2015) on its
summaries of 200 empirical research papers conducted on the effects of mandatory IFRS adoption
conclude that “IFRS adoption benefits were unevenly distributed among different firms and
different countries due to differences in institutions and incentives, there may have been either
negligible benefits or even negative effects rather than benefits for particular firms or countries”.
However, it seems likely argued that IFRS improves transparency, comparability, credibility, and
positive capital market effects, reduces cost of capital, corporate investment efficiencies and
international capital flows (Dunne et al., 2008.,UNACTED,2008, Mira etal, 2006, Epstein &
Jermakowicz,2010, Zeghal &Mhedhbi ,2006, Daske and Gebhardt,2006, Dodiya,2013, Harton
Etal,2010, Lourenço & Branco, 2015).
In recognizing of the benefits using international accounting standards many developing countries
have made efforts to adopt IFRS. However, the process of the adoption presented many challenges
especially for most of the African countries. The cases study some countries shown that Regulatory
system enforcement mechanisms and lack of technical capacities are the major challenges
(UNACTED, 2008).
For instance, in Libya lack of technical skills and inadequate knowledge professional accountants,
inconsistency of regulatory framework, inadequate education and training of accountants,
weakness of professional accountancy body and lack of an independent oversight body were
challenges faced during IFRS adoption (Zakari,2014). In Nigeria IFRS implementation faces
problems including of lack considerable preparation time, lack of coherence of laws, shortage of
accountants and auditors who are technically competent in implementing, lack of Training
materials on IFRS at affordable costs (Madawaki, 2012). Like Libya and Nigeria, the case study
of Kenya and south Africa shows that there had been facing a problem of conflicting of existing
laws and IFRS requirements, the gap between accounting education and IFRS, in ability of
accountants and professional bodies to apply IFRS ,Cost of implementing IFRS, complexity of
standards were the major problems (UNACTED,2008).
Recently, Ethiopia has officially adopted IFRS as a means of its corporate reporting through
proclamation number 847/2014. Accordingly, the Accounting and Auditing Board of Ethiopia
(AABE) has designed IFRS implementation road map and announced the commencement dates of
different groups of reporting entities. Based on this roadmap, Government development
organizations and public interest entities including banks should have been started to IFRS
transition in July, 2016 and expected to close their book of accounts as at June 30, 2018 based on
IFRS requirements.
However, IFRS adoption cannot be realized simply through stating that the country has adopted
IFRS. Evidence implies that moving to a single set of accounting standards is not enough to
produce the required outputs rather benefits of adopting IFRS depends on the strengths of
supporting institutions, rigorous enforcement, education and trainings, and professional
competence and integrity (Hail et al.,2009, UNACTED,2008,ICAEW,2007).
There was no accounting and auditing standards set in Ethiopia and the accounting practices of
vary among institutions and differ from IFRS requirements. Its corporate reporting practice was
dominated by various sectorial laws and regulations such as Commercial code, Tax law, NBE
regulation and Charities societies’ law etc. Besides, its poor experience of implementing
international accounting standards and availability of weak financial reporting infrastructures
would expect to pose many challenges during their practical application of IFRS by reporting
entities.
To date, little academic research has been published on the areas of IFRS adoption in Ethiopia
since the history of adoption is a recent phenomenon. Some academic studies were conducted
focusing on the benefits, challenges and progress of IFRS adoption in Ethiopia. According to these
studies implementation costs, complexity of standards, lack of IFRS implementation guidance,
increased volatility of earnings, lack of technical skills and inadequate knowledge of professionals,
Resistance to Change, Absence of Professional Institutions, high level training requirement, lack
of proper instructions from regulatory bodies problem, and problem with IFRS use of fair value
accounting were identified as the major challenges IFRS adoption in Ethiopia (Mihiret, 2016,
Kassa et al, 2015, Hailemichale, 2016, Simegn, 2015, and Deyuu and Pasricha, 2016, Bekelle,
2016).However, All of this studies were conducted before the commencement of Mandatory IFRS
adoption (Pre-IFRS) and their findings are provided in references of the voluntary adopters and
based on the perceptions of users of financial statements. Mihiret (2016) and Tesfu (2012) stated
that their studies and findings were based on theoretical justifications and perceptions of financial
statement preparers, auditors, managers and regulators and recommended to study the practical
issues during implementation, on their future research suggestion parts.
According to World bank & IMF joint initiative (ROSC,2007), on a sample of 35 audited financial
statements including those said reported under IFRS revealed that there were significant
differences between the actual accounting practices and IFRS requirements. On the same vein
Tesfu (2012) documented that even though the companies report stated prepared based on IFRS,
they are not applying the standards properly rather they make some minor amendments to the
existing financial reporting standards.
This shows that the findings of these studies were affected by the improper applications of the
standards and some of them were conducted based on ideally arguments instead of practical
evidences. For instance, Hailemichael (2016) were conducted his study in the case of financial
institutions while the actual implementation date of these institutions started after the date of this
study (May, 2016). It indicates that his study didn’t take in to account of the practical issues of
IFRS implementations and its validity needs to be confirmed during the practical implementation
period.
In terms of Measurement, to the best knowledge of the researcher this is the only study which
employed three to eight parameters (items) to measure each of the practical challenges. The
previous researchers measure the challenges of IFRS adoption with a single item which leads a
risk of potentially misleading results. Warmbrod (2014) argued that the sum of the response to a
set of multiple items is more stable, reliable and unbiased estimate than response to any single item
in a Likert scale. For instance, (Hailemichael, 2016, Tesfu, 2012, Bekelle, 2016 and Mihret, 2016)
measure IFRS adoption costs by mentioning as “IFRS adoption is costly” while collecting the
agreements or disagreements of the respondents. They failed to mention what are those costs and
how much are their magnitude to avoid the possibility of biasness where as in this study the sum
score of seven items were used to measure the cost of IFRS implementation such training cost,
audit & compliance, consultant, IT, Cost of updating accounting system, cost of purchasing
implementation guidelines and additional staff costs.
Therefore, this study is designed to examine and identify the challenges hindering the practical
implementation of IFRS in Ethiopia particularly in private banks. One of the state commercial
bank, commercial bank of Ethiopia is exclude from this study as it has already implemented IFRS
before a year. In addition this study has evaluated the status of the IFRS implementations of private
banks by taking transition road map designed by AABE and subsequently cascaded work schedule
developed by the banks as a bench mark.
existing accounting system to IFRS. One of the state commercial bank, commercial bank of
Ethiopia is exclude from this study as it has already implemented IFRS a year ago.
Lack of adequate empirical evidences in Ethiopian context which enable to support the researchers
finding are one of the limitations of this study. Secondly, Non-willingness of banks to accept
researches as a whole was a big challenge for the researcher. Out of 16 private banks four banks
are restricted to conduct researches in the case their organization. In addition to this project teams
of those banks allowed to conduct the research are over burden with the implementation activities.
Due the researcher was forced to knock the doors of the banks more than four times and the process
of the data collection took more than a month. The last but not the least limitation of the study was
lack of adequate time for data collection.
IFRS in Ethiopian private commercial banks. Methodology of the research, which includes research
design, the data collection methods and tools, the sources of data, sampling design, Data analysis
methods and description of variables to be used in the research has been presented in the third
chapter. The fourth chapter has presented the results and discussions of the research study, based on
data collected by the researcher from primary and secondary sources of data. Tthe final chapter is
summarized the findings of the research work, concluded the results and forwarded
recommendations based on the findings of the study.
CHAPTER TWO
2. Review of Literature
2.1. Introduction
Globalization has laid down a way for all the countries to adopt a single set of accounting (kaur
and Amkumar, 2014). In an increasingly global economy, the use of a single set of high-quality
accounting standards facilitates investment and other economic decisions across borders, increases
market efficiency, and reduces the cost of raising capital (Mira etal, 2006). With the growing
internationalization of economic trade and the globalization of businesses and financial markets,
financial information prepared according to a national accounting system may no longer satisfy
the needs of users whose decisions are more and more international in scope (Zeghal & Mhedhbi,
2006).
Achieving consistency in financial reporting worldwide is the need of the hour, especially if
meaningful comparisons are to be made of financial information emanating from different
countries using accounting standards that, until recently, were vastly different from each other.
Thus, there has arisen the urgent need for promulgation of a common set of global accounting
standards or, in other words, global convergence into a common language of accounting for the
financial world (Mirza et al., 2006).
Without common standards, it is difficult to compare financial information prepared by entities
located in different parts of the world ((Mirza et al., 2006). The impetus for the convergence of
historically disparate financial reporting standards has been, in the main, to facilitate the free flow
of capital (Epstein & Jermakowicz, 2010).
Accounts international study group was found in 1967 which aggressively championed for change
by publishing papers on topics with great significance. As a result of these papers, the way was
paved for the standards that were to come, and in 1973, and agreement was reached to establish an
international body with the sole purpose of writing accounting standards to be used internationally
(Retrieved from http://www.difference between.net/business/difference-between-ias-and-ifrs/).
During its existence, IASC issued 41 numbered Standards, known as International Accounting
Standards (IAS), as well as a Framework for the Preparation and Presentation of Financial
Statements. However, IASC was criticized as permitting too many alternative treatments intended
to satisfy the great variation in accounting practices among all the members (Needles & Powers,
2011). In addition, Epstein & Jermakowicz (2010) mentioned that a need for a common language
of business was felt, to deal with a growing volume of international business, but other more
political motives abounded also. In response to criticism, the IASC began work on revising the
current standards into a set of “core” standards that allow fewer alternatives that urged the
restructuring of the IASC to make it more independent of the member bodies. As stated on Epstein
& Jermakowicz (2010) IASC members voted to abandon the organization’s former structure,
which was based on professional bodies, and adopt a new structure.
Therefore, in 2001 fundamental changes were made to strengthen the independence, legitimacy,
and quality of the international accounting standard-setting process, in particular, the IASC was
replaced by the International Accounting Standards Board (IASB) as the body in charge of setting
the international standards (Mirza et al., 2006). The International Accounting Standards Board
(IASB) started operations in April 2001 as the successor to the International Accounting Standards
Committee (IASC).The International Accounting Standards Board (IASB) is an independent
standard-setting board and does not represent any particular country, and is not part of any other
international bodies such as IFAC.
Mirza et al., (2006) stated the following Key Differences between IASC and IASB
• Unlike the IASC, the IASB does not have a special relationship with the international accounting
profession. Instead, IASB is governed by a group of Trustees of diverse geographic and functional
backgrounds who are independent of the accounting profession.
• Unlike the Board members of the IASC, Board members of the IASB are individuals who are
appointed based on technical skill and background experience rather than as representatives of
specific national accountancy bodies or other organizations.
• Unlike the IASC Board, which only met about four times a year, the IASB Board usually meets
each month. Moreover, the number of technical and commercial staff working for IASB has
increased significantly as compared with IASC. (Similar to IASC, the headquarters of the IASB is
located in London, the United Kingdom.)
The interpretive body of the IASC (SIC) has been replaced by the International Financial
Reporting Interpretations Committee (IFRIC).
The objectives of the IASB are to
(a) Develop, in the public interest, a single set of high-quality, understandable, and enforceable
global accounting standards that require high-quality, transparent, and comparable information in
financial statements and other financial reporting to help participants in the various capital markets
of the world and other users of the information to make economic decisions;
(b) Promote the use and rigorous application of those standards; and
(c) Work actively with national standard setters to bring about convergence of national accounting
standards and International Financial Reporting Standards to high-quality solutions.
New Standards issued by IASB are known as IFRS. When referring collectively to IFRS, that term
includes both IAS and IFRS and New interpretations issued by the International Financial
Reporting Interpretations Committee (IFRIC) are known as IFRIC Interpretations.
International Accounting
Standard Board
2.4.1. Trustees
The governance of IASB rests with the Trustees of the International Accounting Standards
Committee Foundation (the “IASC Foundation Trustees” or, simply, the “Trustees”) (Ankarath et
al., 2010, Mirza et al., 2006, Hussey& Ong, 2005). The Trustees comprise 22 individuals who are
chosen from around the world. In order to ensure a broad international representation, it is required
that six Trustees are appointed from North America, six from Europe, six from Asia/Oceanic
region, and four from any part of the world, subject to establishing overall geographical balance
(Ankarath et al., 2010). The Trustees are independent of the standard-setting activities (which is
the primary responsibility of the Board members of the IASB). Instead, the Trustees, on the other
hand, are responsible for broad strategic issues, such as
• Appointing the members of IASB, the IFRIC, and the Standards Advisory Council (SAC);
• Approving the budget of the IASC Foundation and determining the basis of funding it;
• Reviewing the strategy of the IASC Foundation and the IASB and its effectiveness
including consideration, but not determination, of the IASB’s agenda (which if allowed
may impair the Trustees’ independence of the standard-setting process);
• Establishing and amending operating procedures, consultative arrangements and due
process for the IASB, the IFRIC, and the SAC;
• Approving amendments to its constitution after consulting the SAC and following the
required due process;
• Fostering and reviewing the development of the educational programs and materials that
are consistent with the objectives of the IASC Foundation; and
• Generally, exercising all powers of the IASC Foundation except those expressly reserved
for IASB, the IFRIC, and the SAC.
In addition, in November, 2007, in a surprise move that is considered by some as the most
significant nod of friendliness and an astounding move toward convergence in recent times, the
U.S. SEC opened its doors to IFRS. The SEC dropped the reconciliation to US GAAP requirement
that had formerly applied to foreign private registrants; thereafter, those reporting in a manner fully
compliant with IFRS (i.e., without any exceptions to the complete set of standards imposed by
IASB) do not have to reconcile net income and shareholders’ equity to that which would have been
presented under US GAAP. This defining moment in the fast-tracked race of the IASB has helped
gain global acceptance of the SEC’s standards. Since then, International Financial Reporting
Standards (IFRS) are gaining acceptance worldwide and about 150 jurisdictions in the world have
been adopted or required IFRS as their reporting standard (www.ifrs.com).
The craft of modern accounting started in Ethiopia in 1905 with the establishment of the Bank of
Abyssinia as a branch of the Bank of Egypt, which was in turn administered under the British
financial system (Mihret and bobe, 2014, kidane, 2012).They argued that as result of the above
British accounting terminology and financial reporting requirements were used and personnel
training reinforced the adoption of British-oriented accounting practice. British experts were the
first to introduce public accounting practices in Ethiopia; and the first Ethiopian professional
accountants obtained certifications from British accountancy bodies (kidane, 2012). public
accounting started in Ethiopia in the 1940s with the establishment of Ethiopian branches by British
accounting firms, namely Price Waterhouse and Peat & Co., mainly to service foreign subsidiaries
of their British clients (Kinfu, 1990) (cited in Mihret & Bobe 2014).
In response to the growth of private sector business in subsequent decades, the Commercial
Code of Ethiopia was proclaimed in 1960 (Government of Ethiopia, 1960), which served as
another landmark in Ethiopia’s accountancy development.
The code contains accounting and external auditing provisions, which serve as the basis of
companies financial reporting accompanied with other sector specific regulations and directives
such as ERCA and NBE directives until the publication of financial reporting proclamation
847/2014 and repealed this law. Article 63-85 of the code specifies accounting and auditing
requirements of traders and business organizations. Article 63(1) requires “any person or business
organization carrying on trade to keep books and accounts as are required in accordance with
business practice and regulations having regard to the nature and importance of the trade carried
on”.
The second development was the formation of the Office of the Auditor General (OAG) was then
established in 1961 by proclamation number 199/1961 (Government of Ethiopia 1961), which
accorded the OAG greater authority than the Audit Commission that was established in 1944
(Argaw 2000; Kinfu 1990) (cited in kidane, 2012)
Due to the change in political order of Ethiopia, the over thrown of the derge regime in 1974 the
development of accounting appears to have been held back (Argaw, 2000; Blake, 1997; Kinfu,
2005) (cited kidane,2012).He also cited that international public accounting firms that have been
operating in Ethiopia, i.e. Price Waterhouse Peat and Co and Mann Judd & Co., were closed
(Kinfu, 2005; Weldegiorgis, 1992).Consequently, a state-owned Audit Service Corporation (ASC)
was established by Proclamation No. 126/ in order to fill the gap created by the exit of UK public
accounting firms (Mihret and Bobe,2014,kidane,2012). Besides, limited achievements were made
in terms of the development of professional associations as perceived from the perspective of the
Western model. Ethiopian Professional Association of Accountants and Auditors (EPAAA) was
established in 1973, mainly as a state initiative through the Auditor General (Mihret and Bobe,
2012). They also stated that the Association has not developed the capacity to control entry into
professional practice. Instead, EPAAA has continued to import professional accounting
qualification through an arrangement in which it grants automatic membership to ACCA qualified
professionals.
After the downfall of the communist system in 1991 the current Ethiopian government has made
some notable efforts to improve the accounting profession of Ethiopia. OFAG was established by
Proclamation No.68/1997 by which it was set up “to make efforts, in co-operation with concerned
organs, to promote and strengthen accounting and auditing professions. The OFAG undertakes
regulation of the Ethiopian accounting profession. Article 14 of Proclamation 68/1997 empowers
the OAG to ‘issue, renew, suspend and cancel certificates of competence of auditors and
accountants who provide auditing and accounting services…” (Government of Ethiopia, 1997).
Besides, the EPAAA has been re-activated and three other professional associations, i.e. the
Ethiopian Accounting and Finance Association (EAFA), the Ethiopian chapter of the Institute of
Internal Auditors (IIA), and the Accounting Society in Ethiopia (ASE) have been established
(Mihret et al, 2009). It has membership in Eastern, Central, and South African Federation of
Accountants (ECSAFA).According to World Bank and IMF joint initiative program (ROSC,
2007) EPAAA’s purpose is to further professional accounting and auditing in Ethiopia. However,
EPAAA is still far from being a strong association. It is not a professional certification or
regulatory body. It is more like a “voluntary club”, with about 45% of the qualified professional
accountants in Ethiopia being members of EPAAA. This review stated two main issues that
undermine the position of EPAAA. First, EPAAA does not have legal backing in the country’s
laws, essential for regulatory responsibilities. Second, EPAAA does not have IFAC membership.
Financial reporting entities of Ethiopian are preparing their financial statements based on the
requirements Commercial code of Ethiopia (1960) and in accordance with sector specific laws and
regulations. For instance, in addition to the commercial code Public Enterprises Proclamation
25/1992 mentioned the requirements of state-owned enterprises financial reporting, The financial
reporting requirements of NGOs are contained in the General Guidelines for the Implementation
of the societies and charities law of Ethiopia (621/2009) and banks and insurance companies are
presented in accordance with national banks requirement set forth in banking and insurance
business directives respectively. All the above sector specific laws including the commercial code
of Ethiopia didn’t require entities to prepare financial statements in compliance with any defined
accounting standards or for their auditors to comply with any defined auditing standards.
Therefore, every auditor determine accounting standards for their clients and most institutions
follow advice of their auditors on how to prepare financial statements until the proclamation of
Ethiopian financial reporting law 847/2014.
Consequently, ROSC (2007) provides policy recommendations aimed at improving the quality of
financial reporting in the country. Among others, revise the Commercial Code 1960 and the other
relevant laws and regulations, Enact a financial reporting law, issue accounting and auditing
standards and Establish a National Accountants and Auditors Board were the major once. In
recognizing this effort, the Ethiopian government has taken major regulatory actions to improve
the accounting and auditing practices of the country. During the writing of this study the
government has already revised the national income tax law and processing the revision of
commercial code of Ethiopia. Besides, the government has enacted a financial reporting law
847/2014 and announced the official adoption of IFRS issued by ISAB which is a major
breakthrough in the history of Ethiopian accounting. It has also establish Accounting and Auditing
board of Ethiopia (AABE) through council of Ministers regulation number 332/2014 a body
responsible to regulate the accounting and auditing professions of Ethiopia.
The board has the following Duties and responsibilities as set forth in the regulation number
332/2014;
✓ setting accounting and auditing standards and code of conduct to regulate the behavior of
professionals; register and certify professionals and firms to provide such services; review
and monitor the work of professionals and firms rendering accountancy and/or audit
services and reporting entities; providing professional qualification training, supporting
education and continuous professional development programs; enforcing the financial
reporting law and taking disciplinary measures on those who do not comply with the
provisions of the law and the regulation set by the Government and directives, other
relevant policies and guidelines issued by the Board.
Proclamation Number 847/2014 sets out financial reporting frameworks applicable to different
reporting entities. Therefore, as per article 5(1) of this proclamation the financial statements to be
used when preparing financial statements shall be
1. International financial reporting standards
2. International financial reporting standards for SMEs
3. International Public sector Accounting standards applicable to societies and charities issue
by the international accounting standard board or its predecessor or issued by the international
public sector accounting standard board or its successors as adopted, adapted or amended by the
board.
In line with the power given by to regulating the accountancy profession and ensuring its
development in the country AABE Plans a three phase transition over a period of three years for
reporting entities in Ethiopia (AABE, 2016).
Phase 1: Significant Public Interest Entities - Financial Institutions and public enterprises
owned by Federal or Regional Governments
July 8, 2016 is recommended as the date for adoption of IFRS for all financial institutions and
large public enterprises. Any entity that starts preparation for transiting would need to convert its
closing balances at July 7, 2015 to IFRS-based figures which then become the opening balances
as at July 8, 2015 for IFRS-based financial statements as at July 7, 2016. This provides opening
balances for July 8, 2016 which is the first IFRS full financial statements as at July 7, 2017 (with
2015/16 as comparative year).
Mandatory reporting for these reporting entities shall be June 30, 2018 or July 7, 2018. This means
that all financial institutions and government owned (Federal and Regional) public enterprises in
Ethiopia will statutorily be required to issue IFRS based financial statements for the year ending
June 30, 2018 or July 7, 2018.
Phase 2: Other Public Interest Entities (ECX member companies and reporting entities that
meet PIE quantitative thresholds) and IPSAs for Charities and Societies
All other public interest entities (ECX member companies and reporting entities that meet the
qualitative thresholds for PIE) and Charities and Societies are expected to mandatorily adopt IFRS
and IPSAs (for Charities and Societies), for statutory purposes, by July 8, 2017. This means that
all other public interest entities and Charities and Societies in Ethiopia will statutorily be required
to issue IFRS and IPSAs based financial statements respectively for the year ending July 7, 2018.
The impact, benefits and costs of the transition to IFRS vary from country to country depending
on is starting point, characteristics and culture (Dunne et al., 2008). ICEAW (2015) on its
summaries of 200 empirical research papers conducted on the effects of mandatory IFRS adoption
conclude that “IFRS adoption benefits were unevenly distributed among different firms and
different countries due to differences in institutions and incentives, there may have been either
negligible benefits or even negative effects rather than benefits for particular firms or countries”.
The comparability of financial reports depends on a consistent interpretation and application of
IFRS across countries. Social, political, economic and cultural factors in countries influence
accountants' professional judgments, and differences across countries may lead to an inconsistent
interpretation and application of IFRS (Poudel et al., 2014). On their study of IFRS adoption the
case of Nepal found that the adoption of IFRS is likely to be problematic due to the country's
contextual environment.
On the same way, Hail et al (2009) studies conclude that, firms’ reporting incentives are shaped
by many factors, including a country’s legal institutions (e.g., the rule of law), the strength of the
enforcement regime (e.g., auditing), capital market forces (e.g., the need to raise outside capital),
product market competition, a firm’s compensation, ownership and governance structure and its
operating characteristics.
Overall, researchers argued that IFRS improves transparency, comparability, credibility, and
positive capital market effects, reduces cost of capital, corporate investment efficiencies and
international capital flows (Dunne et al., 2008, Mira etal, 2006, Epstein & Jermakowicz, 2010,
Zeghal &Mhedhbi ,2006, Daske and Gebhardt,2006, Dodiya,2013, Harton Etal,2010, Lourenço
& Branco, 2015).
The IFRS adoption benefits notwithstanding, there are however, a number of challenges to be
faced in the process of adoption of the new standard (Iyoha and Owolabi, 2012). Some of the
challenges includes lack of knowledge and expertise in IFRS, Quality of education and training,
High cost of implementation, resistant to change, poor incentives of managers and auditors,
complexities of standards, the absence of general guidelines, inconsistency of laws and regulations,
weak statutory enforcement, lack of technical Expertise, High cost of implementation, Poor
preparedness (Ball, 2003, Dwommor, 2017, Abedana & John Gayomey, 2006, Weaver and woods,
2015, Madawaki, 2012). Obazee, (2007) stated that the principal factors affecting the
implementation of IFRS in Europe, America and the rest of the world are cultural issues, mental
models, legal impediments, educational needs and political influences in those countries rather
than the most widely perceived technical issues (as cited in Amanamah,2017).
The study entitled “the Challenges Faced by Reporting Entities on Their Transition to International
Financial Reporting Standards in Europe” revealed that lack of adequate education, training,
Knowledge of IFRS and securing executive level support and resources are the major challenges
faced by reporting entities on their transition to IFRS (Weaver and Woods ,2015). Weak regulatory
frame work and enforcement mechanisms are challenges of IFRS adoption in GCC countries
which affected the quality of their financial reports (Aljifri, 2013).
Dwommor (2017) indicated that a better understanding of the challenges of adoption may help
countries to prepare and take precautionary measures before adopting IFRS. The findings on the
challenges of IFRS adoption, however, are heterogeneous and inconclusive. The challenges of
IFRS adoption vary with respect to the context of the study.
Siaga (2012) categorized challenges of IFRS adoption that were experienced by different African
Countries under five specific categories namely financial, Educational, technical, institutional and
enforcement challenges. He mentioned that there are financial constraints to adopt IFRS which
seems also play a negative role in education and technical capacity. Lack of coherence between
the educational and professional programs are the source for skill shortage in the accounting
professional in Africa. This problem also results the shortage of technical knowledge to implement
the standard. The coherence between Accounting authorities and government/regulatory bodies
appears to be challenge in Africa.
Besides, Iyoha and Owolabi (2012) found that ethical environment and the ability to protect
qualified and competent employees are the most important challenges in Africa .They stressed that
corporate transparency is a particularly important component of good governance as it ensures the
protection of parties (both individual and institutional) who have operational interest in financial
reporting in terms of accurate and reliable information which are needed in order to take well-
considered economic decisions.
The study conducted on IFRS adoption in Nigeria shown that inadequate preparation time, lack
of coherence of laws, shortage of technically accountants and auditors and lack of IFRS training
materials were obstacles (Madawaki,2012) where as in Libya lack of technical skills and
CHAPTER THREE
3. Research Methodology
This section of the research has explained the research Purpose, research design, Sources, Methods
and Tools of Data Collection, Sampling Techniques and Sample Size, Methods of Data Analysis,
and description of variables used in the research.
The challenges that has been focused under this study are Corporate governance, Capacity and
Strengths of regulatory body (AABE), Professional Accountancy bodies, Training and Education,
adequacy of transition period, planning, Availability and transparency of market information, Cost
of transition and management support. The challenge are identified by referring different sources
such as existing studies published in well journals, ABBE strategic plan (2016 to 2020), Ethiopian
Financial reporting Proclamation 847/2014,different national and sectoral laws of Ethiopia and
considering the real problems observed on the ground. Besides, this challenges are the main
challenge which affected IFRS implementation in many countries.
individuals or groups of individuals that are especially knowledgeable about or experienced with
a phenomenon of interest (as cited Palinkas et al, 2015).
As IFRS is a new terminology to Ethiopia in general and private banks in particular, the
participants of this study need to have specialized expertise and Knowledge in the areas of IFRS
to enable the researcher to answer the research questions and to meet the research objectives.
Zeghal & Mhedhbi (2006) argued that the adoption of IFRS is a very Strategic and critical decision;
it requires a high level of education, competence, and expertise to be able to understand, interpret,
and then make use of these standards.
Therefore, based on their role and close involvement in the process of IFRS adoption, the target
populations of this study were IFRS project implementation team members of private banks. The
researcher believed that those who have close involvement in the adoption has better knowledge
than others. Consequently, the participant selected for these study were all IFRS project
implementation team members of 16 private banks which are about 100 in number. Unfortunately,
due to non-willingness of four banks (Buna international bank, Berhan bank, Awash and United
Banks) to accept researches, the researcher forced to downsize the number of banks from 16 to 12
which directly affected the number of participants. Hence, the researcher has distributed
questionnaires’ to 71 IFRS project team members of 12 private banks.
The parameters employed to describe the variables being studied were measured by five point
likert scale. The scale consists of the level of the agreements or disagreements of the respondents
ranging from strongly disagree to strongly agree. The levels are comprising ordinal values as
follows: 1=Strongly Disagree on the statement (SD), 2=Disagree on the statement (D) , 3=Neutral
on the statement (N), 4= agreed on the statement (A), 5=Strongly Agreed on the statement (SA)..
In addition, there are two variables (Cost of Adoption and Management support) measured by
using Likert type scale such as extremely low, low, neutral, high and very high. The answer/ratings
of the respondents were summed to drive an overall score for the factors being analyzed.
In fact there is a controversy on the type of statically analysis (parametric or non-parametric) used
to analyze the results of the likert scale data. Some scholars argued that Statistics, such as means
and standard deviations, have unclear meanings when applied to Likert scale responses because of
these observations, experts over the years have argued that the median should be used as the
measure of central tendency for Likert scale data, Similarly, other experts have contended that
frequencies (percentages of responses in each category) (Gail M. and Anthony R.). Gardner and
Martin (2007) and Jamieson (2004) reveled that Likert data is of an ordinal or rank order nature
and hence only non-parametric tests will yield valid results (as cited Murray.J, 2013).
On the other hand, Norman (2010) using real scale data found that parametric tests such as Pearson
correlation and regression analysis can be used with Likert data without fear of “coming to the
wrong conclusion” (as cited Murray.J, 2013).Pell (2005) agreed that parametric tests can be
conducted on the summed scores of Likert scale data provided that the assumptions are clearly
stated and the data is of the appropriate size and shape. A research conducted by Murray (2013),
entitled “Likert Data: What to Use, Parametric or Non-Parametric?” concluded that parametric and
non- parametric tests conducted on Likert scale data do not affect the conclusions drawn from the
results (Murray, 2013).In the same vein, Norman (2013) explained that parametric tests are
sufficiently robust to yield largely unbiased answers that are acceptably close to ‘‘the truth’’ when
analyzing Likert scale responses ((as cited Murray.J, 2013).
Therefore, the data analysis of this research has been conducted by using Frequencies, percentages,
means, Medians, modes and standard deviation as deemed necessary. The result of the analysis are
interpreted by taking the mean value of the response of the respondents.
CHAPTER FOUR
4. Results and Discussion
IFRS Adoption/implementation: is the process of converting the banks existing reporting system
based on IFRS requirements as adopted by International Accounting Standard Board (IASB). The
conversion is realized when the first annual financial statements is produced by an explicit and
unreserved statement of compliance with IFRSs. This involves three major activities such as
preparation of opening statement of financial position (July 01, 2016), Comparative financial
statement at comparative date (June 30,2017) and interim IFRS based financial reports for the four
quarters of 2017/2018 then later production of the first set of IFRS based financial statement.
Preparation of opening financial statements: -it is the reporting entities statement of financial
position at the date of transition to IFRSs. Banks are required to prepare opening statement of
Financial Position on the transition date (July, 2016). Prior to the preparation of opening statement
of financial position banks were required to organize an IFRS project implementation team.
Following the establishment of the team banks conducted GAP analysis between where it is in
accordance with their existing reporting standard or framework and where it wants to be in
accordance with IFRS. The conversion process requires a complete, retrospective restatement of
assets, liabilities and equity in conformity with IFRSs. Therefore the following set of activities
should have been conducted to produce the opening statement of financial position. These are
Recognize all assets and liabilities required by IFRSs, Derecognize all assets and liabilities not
permitted by IFRSs, Classify all assets, liabilities and components of equity in accordance with
IFRSs, Measure all assets and liabilities in accordance with IFRSs, Any adjustments resulting from
applying IFRSs instead of previous GAAP in the opening IFRS, Present a number of
reconciliations between previous GAAP and IFRSs.
Until the final date of data collection for this study April 10, 2018, the private banks opening
statement of financial position were not produced while the dead line was over on January 31,
2018.
Comparative Financial statements: - Comparative financial reports are required for the year
prior to the reporting period. Therefore, Private Banks are required to prepare at least four types
of financial statements as of June 30, 2017 and had been expected to deliver by February 15, 2018
as per the work schedule set by them and the consultant. The financial statements and related
activities required to be delivered are statement of financial position, statement of profit or loss,
statement of other comprehensive income, statement of cash flows, Statement of changes in equity,
notes to the financial statements, Choice and amendment of accounting policy.
Similar with the opening statement of financial statements, private banks didn’t deliver the
statements and activities required at the comparative date as well.
Interim financial reports:- interim financial reports are a kind of financial reports which shows
the position, performances, cash flows and earnings of an entity for a quarter. As per the work plan
produced by private banks, Interim financial reports for the first quarter should have been prepared
as March 15, 2018. The required financial statements and activities are the same with the one stated
for comparative period.
In this case also, private banks are unable to deliver interim reports until April, 2018 which is the
final period of this research data collection.
Therefore, considering the above facts the researcher could able to conclude that the IFRS
implementation processes of private banks are lagged and not running in line with their schedules.
Unless the banks take an immediate corrective action, the chance of meeting the deadline set by
the regulatory body for the production of their first IFRS based financial statement is very low as
the reporting date is approaching.
During the interview, IFRS implementation team leaders expressed that the possibility of meeting
the deadline is unthinkable because the data required for the interim reports are not provided to
the consultant yet. It will be made after the completion of opening and comparative financial
reports. Interim reports are necessary for the preparation of the first IFRS base financial reports.
In the following section the researcher analyzes the practical challenges of IFRS implementation
by private banks
As shown on the table above banks has organized IFRS implementation team consists of 4 to 10
members. Since all of private banks have conducted IFRS adoption through one international
consultant (PWC) their adoption status is found at similar stage. Therefore, it is unable to study
the impacts of the size of IFRS implementation team for the effectiveness of the implementation.
However, as per the interview with project team members, having large number of project team
member is recommended than the small number. This is because, as the standards are many and
complex, it would help the members to divide each other s and one can specialized on a specific
standard. As per their recommendation for those banks that have independent IFRS team, four
members may be enough whereas for those who didn’t have separate IFRS implementation team
up to 10 members are recommended.
experienced which would have positive contribution for the success of IFRS implementation
process. IFRS requires data for a long period of time back from the implementation period, having
those experienced team members enables to extract the required data well than those who have
little experience.
The above table shows that out of the respondents of IFRS project implementation teams of 12
banks, 58% have strong agreed and 32 % agreed that banks lack strong BOD which regularly
follows up the success of IFRS whereas the rest 4% and 6% have Disagreed and neutral
respectively on this statement.
Secondly, the respondents have been asked to indicate their level of agreement or disagreement on
the knowledge of BOD towards IFRS. Accordingly, 45% of the respondents are strongly agreed
and 40 % agreed that that BOD knowledge about IFRS is poor while the rest 4 do not believe that
BOD Knowledge is poor and 11% respond neutral.
With regard to resistance to change by different departments of banks which is expected to provide
inputs to IFRS implementation project teams, 45% agreed and 38% strongly agreed that there is
résistance to change by managements of different departments where as 6% disagreed and 11%
give neutral response. Resistance to change is one of the symptoms of availability of weak
corporate governance.
Finally, the researcher takes the average (Means) of respondents’ response on the three statements
so as to conclude the significance of this factor. The researcher purposely analyzed the mean,
median and Modes to know whether the averaging method (methods used to measure the central
tendency) has an impact on the conclusion of the findings or not. As a result, all the three methods
show almost similar results.
Therefore, on average respondents strongly agreed (4.28) that there is weak corporate governance
in private banks. As it can be seen from the response of the respondents, from the three important
parameters designed to measure the corporate governance of banks, majority of the respondents
are Agreed or strongly agreed that the BOD are weak in terms of follow up of the implementation
process, knowledge of IFRS and cooperativeness with the project team to reduce resistance faced
by some departments. For instance, if the implementation process of IFRS doesn’t regularly follow
up by the higher governing body of the banks (BOD), the implementation leads to be delayed.
Because, IFRS requires timely adjustment of inconsistent internal policies and procedures (mainly
the change of the accounting and HR manuals), and strengthening internal control which the
responsibility mainly lies on the BOD.
Similarly, if the knowledge of BOD about IFRS is low, they wouldn’t understand what kind and
how much support is required to implement IFRS. The support may be in terms of allocating
adequate fund, insisting to deploy enough man power etc. The impact of the last but not the least
parameter on the success of the implementation, as IFRS is a complete change of the accounting
process of the entities, in this case banks, it requires to reinstate the book of accounts
retrospectively at least two years back to prepare the opening and comparative financial reports.
In addition to this, more years of data may be required to determine for instance post-employment
benefits of the employees, loan provisions, acquired date of fixed assets etc. The owner and
custodians of this data are different departments such as HR, Credit, procurement and logistics etc.
Unless the board insists the departments to provide timely and reliable data upon requested by the
project team, the delay of the implementation process is an inevitable.
In line with this finding, the assessment made by UK National Audit Office (2008) on readiness
of IFRS adoption by UK firms shown that Board and Audit Committee engagement is crucial to
ensure that they are involved in the project and aware of the areas of impact and the potential risks
involved in the transition.
Weaver & Margaret (2015) in their qualitative study conducted in the case of Europe found that
there is big resistance to change and the question that is asked first is ‘do we have to do this’.
Therefore, they recommend that, to get round this problem there should be a strong board member
and board level sponsorship, otherwise it just becomes ‘an accounting problem’ and is hard to get
people to take it seriously, devote resources etc. They also conclude that, reporting entities which
involved in IFRS transition require strong corporate governance in shaping the efficiency and
perceived success of their transition which is in conformity with the findings of this study.
Ramanna and Sletten ( 2009) on their study conducted in a sample of 102 non-European Union
countries found that the success of IFRS adoption is less likely among countries with poor
governance institutions than those with good governance institutions where IFRS adoption may
be associated with high opportunity (as cited Stain bank ,2014) which highly supported the result
of this study.
monitoring and review process, Coherences of instructions and orders given by different stake
holders.
Similar with the above variable, the parameters used to describe this variable also measured by
five point Likert scale comprising the level of agreements or disagreements of the respondents.
The levels and their ordinal values are: 1=Strongly Disagree on the statement (SD) 2=Disagree
on the statement (D) 3=Neutral on the statement (N), 4= agreed on the statement (A), 5=Strongly
Agreed on the statement (SA). Each statement has been analyzed by taking the percentages of
respondents choosing each response options; and the Mean of the summed score of an individual’s
response to all items comprising in this variable has been taken to Evaluate and conclude the
influence of the AABE toward the success of IFRS implementation by private banks.
The statements are wording with unfavorable to the capacity and strengths of AABE. Therefore,
the higher score implies that the inefficiency of the regulatory body (AABE) to regulate and
monitor the success of IFRS implementation.
Table 4.5: Effectiveness of review mechanisms and support
There is no effective practice review mechanisms and support that ensure proper and effective
implementation of the IFRS implementation roadmap
N=53 Label Frequency Percent
SD 0 0
D 5 9.4
N 7 13.2
A 20 37.7
SA 21 39.6
Total 53 100
Source: Researcher’s own Survey, 2018
The SPSS result of the respondent response indicates that 40% of the respondents are Strongly
agreed and 38 % agreed that there is no effective practice review mechanisms and support that
ensure proper and effective implementation of the IFRS implementation roadmap where as 9%
disagreed on this statement and 13% are neutral .
Total 53 100
Source: Researcher’s own Survey, 2018
With respective to the adequacy of workshops, seminaries and forums organized by AABE to
enable the reporting entities trained on IFRS implementation related issues, 34% of the
respondents strongly agreed and 55% of the respondents agreed there is lack of adequate
workshops, seminars, forums etc. for smooth transition & successful implementation of IFRS
where as 2% are strongly disagreed and 2% disagreed on this challenge and 8% responded neutral.
Table 4.7: Reality of IFRS transition road map developed by AABE
The IFRS transition road map developed by AABE is not realistic and not takes into account the
capacity and readiness of the nation in general the entities in particular
Label Frequency Percent
SD 0 0
D 3 5.7
N 13 24.5
A 21 39.6
SA 16 30.2
N=53
Total 53 100
Source: Researcher’s own Survey, 2018
IFRS transition is a strategic transition which requires the readiness of the country in terms of
trained man power, institutionalization of relevant bodies and capacities of reporting entities for
implementing IFRS. Consequently, the researcher asked the respondents to share their level of
agreements or disagreements on the road map developed by AABE and the countries readiness in
general and the banks in particular. Therefore, Majority of the respondents agreed that the IFRS
implementation road map is unrealistic and not take in to account of the nations as well as the
banks readiness.
Table 4.8: Collaborate with relevant government Sectors
AABE lacks to collaborate with relevant government agencies such as NBE, MOFEC & ERCA to
identify and ensure timely amendments of contradicted laws and regulations with IFRS
Label Frequency Percent
N=53 D 4 7.5
N 8 15.1
A 21 39.6
SA 20 37.7
Total 53 100
Source: Researcher’s own Survey, 2018
The result of the above table shows that there is a problem of Collaboration and amendments of
Contradicted laws. 38% of the respondents strongly agreed and 40% agreed that banks are affected
by contradicted laws with IFRS where as 8% of the respondents’ disagreed and 15 neutral.
As per the interview feedback got from Finance directors “there is contradiction between NBE
and ERCA laws against with IFRS requirements. For instance NBE required banks to calculate
the loan provision based Basel II where as IFRS required to use the Basel III system”. Besides,
ERCA requires entities to use pooling depreciation method for fixed assets procured before IFRS
implementation where as banks were choose to use straight line method of depreciation as they
believed that this method reflects best the economic life and usage of their assets which the major
the criteria recommended by IAS 16 while selecting depreciation methods.
D 1 1.9
N 4 7.5
A 28 52.8
SA 20 37.7
Total 53 100
Source: Researcher’s own Survey, 2018
International financial reporting standards are highly complex standards which require technical
guidelines, interpretations and tools. The implementations of the standards are difficult while
contextualizing in to the national contexts and realities. Therefore, the researcher found this point
very relevant and needs to be measured. The result shows about 91% of the respondents agreed
that it’s a challenge for the proper implementation of IFRS and 2% are disagreed and the rest one
responded neutral.
Table 4.10: Effectiveness of monitoring and process review of IFRS implementation
SPSS result shows that 43% & 28 % of the respondents answered strongly agreed and agreed
respectively whereas 2%, 6%, and 21% responded strongly disagree, disagree and neutral
respectively.
Table 4.11. Coherence of the regulatory system and implementation of IFRS
Lack of coherence in the regulatory system becomes cause for serious misunderstandings and
inefficiency in the implementation of IFRS
Label Frequency Percent
D 5 9.4
N 5 9.4
N=53
A 27 50.9
SA 16 30.2
Total 53 100
Source: Researcher’s own Survey, 2018
IFRS is developed to the consistency the reports. Therefore, there should be clear instructions and
coherence on regulatory systems at a national level. In the banking industry, there are different
government stake holders such as NBE, ERCA and AABE which affects their reporting
requirement. For instance, national bank’s loan loss provision directive is not consistent with the
one required by IFRS and there are many ERCA regulation which affected the implementation
negatively. Hence, the researcher asked the IFRS implementation project team members to identify
whether this problem affected their implementation or not. Accordingly, 81% of the respondents
agreed that this factor is a challenge for the implementation process while 9% responded disagree
and the rest neutral.
Table 4.12.Mean Median And Mode Capacity and Strengths of the Financial reporting regulatory
Body (AABE)
N Valid 53.00
Missing -
Mean 4.06
Median 4.00
Mode 4.00
Source: SPSS output on participant’s response
The mean result of this variable shows that, on average respondents are agreed (4.06) that lack of
capacity and strengths of the regulatory body is a potential challenge for the success of IFRS
implementation in the banking sector. Majority of the respondents do agreed that AABE didn’t
enforce and assist the banks to facilitate the implementation process as per the road map laid down.
As a first time adopters, Banks required to have capacity building workshops, trainings on specific
complex standards, sharing of others experience and feed backs on their status and implementation
quality from AABE. In addition, AABE is required to enforce other government institutions such
NBE and ERCA to amend their contradicted laws consistent with IFRS requirements so as the
reporting entities can facilitate the transition process smoothly. Therefore, unless there is adequate
enforcement and reporting incentive mechanism, banks may fail to meet the dead line as well as
the report produced may lack the required quality and become irrelevant for decision makers.
In line with this finding, Kassa etal (2015), Simegn (2015), Deyuu and Pasricha (2016) shown that
lack of proper instruction and guidance from the regulatory body, and inadequate laws and poor
enforcement mechanisms was a challenge for IFRS adoption. This also found consistent with
(Aljifri, 2013) revealed that Weak regulatory frame work and enforcement mechanisms are
challenges of IFRS adoption in GCC countries which affected the quality of their financial reports.
In the same vein, the result of an assessment made in the case Kenya and south Africa shown that
Rigorous enforcement of IFRS at the national level poses practical challenges due to absence of
adequately resourced enforcement institutions and lack of adequate coordination mechanisms
among relevant institutions (UNACTED, 2008). This assessment also added that lack of coherence
in the regulatory system becomes cause for serious misunderstandings and inefficiency in the
implementation of IFRS. This result is also supported by findings of many researchers which
documented that the existence of strong and power full regulatory body leads companies to comply
IFRS requirements while weakly monitored or subjected to little enforcement leads non-
compliance of IFRS requirements. (Daske et al., 2008, Nobes, 2013, Masoud, 2014, Nobes, 2013)
As per the interview with private banks IFRS project implementation team leaders, supervisors
from AABE have been visited them and interviewing about the challenges and the process.
However, the supervisory team didn’t provide any support or directions on the issues raised by
banks .As per the information got from one respondent, the supervisors of AABE has been visited
their bank three times in the year 2017/2018.This implies that there exists monitoring mechanisms
though the purpose of conducting the monitoring is not clear as their banks didn’t get back outputs
after monitoring.
faced during implementation to the attention of the regulators for clarification and 7% responded
disagree and 4 % neutral
Table 4.15: Enhancing capacity building
Lack of strong accountancy body limits the banks option of getting technical capacity building
trainings regarding IFRS Implementation
N=53 Frequency Percent
D 1 1.9
N 3 5.7
A 26 49.1
SA 23 43.4
Total 53 100
Source: Researcher’s own Survey, 2018
Frequent training is required on the areas of more complex IFRS standards through professional
accountancy bodies. Of the respondents about 92% believed that Lack of strong accountancy body
limits the banks option of getting technical capacity building trainings regarding IFRS
Implementation while the 2 % of the respondent don’t agreed on this statement and the rest 6 %
responded neutral.
Table 4.16: The support of Professional Association and Banks IFRS implementation
Ethiopian private banks didn’t get professional supports from The Ethiopian Professional
Association of Accountants and Auditors (EPAAA) & IIA
Frequency Percent
D 5 9.4
N 10 18.9
A 18 34
SA 20 37.7
N=53 Total 53 100
Source: Researcher’s own Survey, 2018
The purpose of this statement is to evaluate how these two key professional associations played a
role of supporting this big national transition activity. Accordingly72% of the respondents
responded that EPAAA& IIA didn’t provide professional supports to banks whereas 9% of the
respondents disagreed and 19% choose neutral.
agreed that they didn’t get a chance of interactions with academicians due to lack of a body which
facilities this initiative where as 7.5% of the respondents are disagreed and 7.5% neutral.
Table 4.19: The role of professional association and Experience sharing programs
Banks don’t have a chance of experience sharing with other adopters other than banking sectors
due to lack of a body to organize experience sharing sessions
Frequency Percent
D 8 15.1
N 7 13.2
A 15 28.3
SA 23 43.4
N=53 Total 53 100
Source: Researcher’s own Survey, 2018
Accounting professional bodies plays the role of organizing in experience sharing programs among
adopters. This may help the banks to take important lessons how IFRS implementation is going
on other industries. From the respondents 68% responded that there is no chance of experience
sharing IFRS adopters other than the banking industries and 15% believed that there is a chance
of experience sharing and 13 % didn’t know.
country-specific circumstances. The case study of South Africa provides a good example of how
the South African Accounting Practices Committee promotes participation of the stakeholders in
the country in providing input into the IASB standard-setting process (UNACTED, 2008).
Professional Accountancy bodies available in Ethiopia such as institute of Internal Auditors (IIA),
Ethiopian Professional Association of Accountants and Auditors (EPAAA) and Accounting
Society of Ethiopia (ASE) are existed weak and didn’t provide significant contributions for the
success of IFRS implementation. None of these organizations have member ship status of
International federation of Accountants which is a global association of accountancy professional
bodies and Authorized to accredit the members to provide certification for accounting
professionals. IFAC has the power to influence IASB during standard settings and interpretations
of complex standards.
2007) that lack of a strong professional body leaves no domestic mechanisms for monitoring and
enforcing continuous professional development in Ethiopia which is consistent with this study.
This shows that there is no any improvement in this regard even after ten years of physical period.
Total
Fre Fre Fre Freq
que que que Freque Freque uenc
Label N ncy % ncy % ncy % ncy % ncy % y %
7 challenge for the transition process 53 1 1.9 3 5.7 10 18.9 26 49.1 13 24.5 53 100
8 53 53 100
9 53 53 100
10 MEAN=4.34
11 MEADIAN=5
12 MODE=5
13 S.D=0.49
IFRS is a complex standard which preparers of the financial reports require to possess ample
technical skills. Therefore, 93% of the respondent agreed that Lack of adequate technical capacity
building schemes is a challenge for IFRS implementation while only 3.8%% have expressed their
disagreement and 3.8 % neutral.
Respondents have been asked to express their level of agreement or disagreement on the education
and competency that IFRS implementation demanded. Hence, from the total respondents 89%
agreed or strongly agreed that IFRS implementation requires a high level of education & highly
skilled and competent accounting professionals. Only 2% are disagreed with this statement. The
researcher supported the findings of this item with the IFRS implementation project teams’
education level collected under demographic data section of the respondents.
As it can be seen from table 4.2 above, 60% of the respondents possessed their first degree and
38% masters and the rest 2% have diploma. In terms of their Educational level IFRS adoption
project team members have good educational level however; the relevance of this degree towards
the implementation of the IFRS is questionable; because, the curriculum of the education system
failed to alien with IFRS.
From the respondent 75% believed that there is inadequacy of qualified accountants in the market
and 21% the responds neutral and the rest 4% believed that there is adequate number of qualified
professional accountants. The researcher again wanted to relate this statement with the
respondent’s demographic data question asked to state if they have professional accountancy
certification such as ACCA, CIA, CPA, and IFRS etc.
As shown on Table 4.3 above., only 18% are certified and rest 82 % are not or in number out of
53 respondents of IFRS implementation team members only 10 members are certified the rest 43
are not certified.
As per the study conducted by the word bank and IMF experts (ROSC, 2007), there is a major gap
between what is thought in the university and IFRS requirement. Therefore, the result of this study
confirmed that 91% of the respondents supported a Gap between the accounting education thought
in Ethiopian Higher education and IFRS requirement is a challenge to get competent accountants.
Only 7% are disagreed and neutral responses.
There are no adequate local institutions which can provide trainings to fill the skill gaps of
practitioners. Those available institutions lack practical experience in the areas of IFRS and trained
only the theoretical aspects. Consequently, respondents were asked to provide their level of
agreement or disagreement. Hence, 90% of the respondents are agreed or strongly agreed that there
is no adequate institutions with affordable cost and 2% disagreed on this statement and 7%
responded neutral.
Almost all of the respondents (94%) agreed that there was limitation of training prior to starting
the implementations. Similarly, the researcher has collected a data of the respondent to evaluate
the frequency and adequacy of the training they have got yet.
Frequency and Adequacy of Trainings
The Mean of responses of respondents on education and training shows that, on Average
respondents are strongly agreed (4.34) that inefficiency of the education and training system of the
country is a potential challenge for IFRS implementation; Because, the educations and trainings
available locally are not adequate enough to implement IFRS.
Even though the curriculum of accounting education in the universities framed based on IFRS,
Universities are still providing based on the old curriculum which is dominated by US-Based
(GAAP) books and references. Consequently, those who have possess accounting first and second
degree lack knowledge of IFRS. As accounting standards and practices become more complex, the
ability to apply and interpret those standards and practices will depend on the educational level of
the population (Choi and Meek, 2008) (cited in Shima and Yang, 2012).There is no local
recognized professional accountancy qualification as well as training. However, in recent times
some local consultancy firms and Addis Ababa university have provided IFRS trainings .In
addition to the trainings Addis Ababa University have included IFRS in its accounting education
curriculum. However, it is not approved by ministries of Education till now. It is a good lesson
and should be expanded to all universities operated in Ethiopia. ACCA Ethiopia is the only
institution which awarded professional accountancy qualification in our country.
As per the information got from ACCA Ethiopia delegate Yodit Kassa on November 29, 2017, there
are only 250 ACCA members in Ethiopia while thousands of reporting entities are in need of
professionals. As depicted above there are only 10 certified IFRS implementation project team
members from the total of 53 respondents. The active students enrolling their studies in ACCA
Ethiopia are 2000 whereas 8000 students are becoming inactive. The expensiveness of fees paid
for ACCA may be a possible cause for the increment of the dropout rates.
Therefore, it is concluded that inefficiency of training and education is a challenge for the practical
implementations of IFRS in private banks of Ethiopia. In line with this finding, important papers
shown that lack of adequate education, knowledge, training and skills giving rise to improper
application of the IFRS standards and are significant challenges for effectiveness of IFRS
implementation (Jermakowicz and samaha, 2006, Stapleton, 2008 and Tesfu, 2012, kassa, 2015).
Similarly, Al-Akra et al. (2009) contend that the accounting and auditing education in Jordan acts
as a deterrent to the successful implementation of IFRSs, Zeghal and Mhedhbi (2006) conclude
that he need to create an active education system is one of the significant factors that affect the
accounting standards. This study is also in conformity with the findings of Madawaki, (2012)
reveled that one of the principal challenges Nigeria may encounter in the practical implementation
process, shall be the shortage of accountants and auditors who are technically competent in
implementing IFRS / IAS.
As depicted from the above figure, 93% of the respondents agreed or strongly agreed that
implementation of IFRS is a complex process that requires extensive preparations time whereas
the rest 7% responded neutral and none of the respondent disagreed with this statement.
The adequacy of transition periods given by AABE has been measured by the response of IFRS
implementation project teams’. Consequently, 83% of the respondents claimed that the transition
period is inadequate while 6% adequate and 11% responded neutral.
The researcher measured the impacts of the inadequacy of the transition period on the quality of
financial reports. The reporting entities may focus on the completion of the project rather than
taking care of the quality of the report. Accordingly, 92% of the respondents strongly agreed or
agreed that inadequacy of the transition period will affect the quality of financial reports while
only 2% didn’t agree and 6% responded neutral.
Finally the researcher calculated the mean to conclude the agreement or disagreement level of
respondents based their average response.
Table 22: Mean, Median and Mod and SD of variable of Transition period
N Valid 53.00
Missing -
Mean 4.19
Median 4.00
Mode 4.00
Std. Deviation 0.55
Source: SPSS output on participants’ response
On Average respondents agreed (4.19) that the IFRS transition period is inadequate. Conversion
of the existing reporting system with the new method of reporting is a strategic decision which
affects the overall accounting infrastructures of the organizations. Therefore, initially the
organizations are required to establish IFRS implementation project teams, to conduct GAP
assessments between the existing reporting standard and IFRS, changing accounting policies,
Modifying their IT systems, training staffs, recruiting consultants and conducting recognition, de-
recognition, measurement and classification of the assets and liabilities of an organization based
on IFRS requirement are some of the tasks required to conduct by the adopters. Each of the
activities are required significant period of time.
Especially in Ethiopia, there is limited availability of accounting infrastructures to switch from
existing reporting system to a new one. There is no trained manpower in the market and
experienced consultants are not available in the local market. In the case of Banks, they are obliged
to recruit international consultants (PWC) to smoothen the transition process. These all processes
are demanding a significant time and cause the delay of banks reporting deadline. As per the dead
line set by AABE the first time adopters in general banks in particular required to produce the first
IFRS based financial reports by June 30, 2018. In line with this, banks were cascaded the road map
and set deadlines for each of the deliveries in collaboration with their consultant. As per this
schedule, preparation of opening statement should have been completed by Jan 31, 2018,
completion preparation of comparative statement by February 15, 2018, and preparation if the first
IFRS based interim statements by Mach 15, 2018. Until the final data collection of this project
April, 2018 none of the activities has been delivered. This shows that banks may fail to meet the
AABE’s deadline as it nearly approaching.
To estimate the likelihoods of meeting the deadline the researcher asked the IFRS implementation
project teams of the banks and summarized their response as follows
Table 4.23: Likelihood of banks meeting the first IFRS reporting dead line
How likely are the banks able to meet the dead lines set by AABE
N=53 Label Frequency Percent
Very Likely 4 7.5
Somewhat Likely 38 71.7
Not Likely 11 20.8
Total 53 100.0
Source: Researcher’s own Survey, 2018
According to the majorities’ response the chance of banks meeting the regulator’s dead line is
somewhat likely. This shows that they are unsure on its delivery within the dead line.
The findings this study is in line with, Weaver & Woods, (2015) shown that insufficient time and
resources to adequately plan for the transition was a challenge for IFRS transition in Europe.
Similarly, Madawaki, (2012) argued that, the time lag between decision date and the actual
implementation date is not sufficiently long to be ready for IFRS implementation in Nigeria. In
addition, the case study of Malaysia revealed that significant length of time was required to issue
the first IFRS reports due to complexity of the standards (Yaacob & Che-Ahmad, 2011) and in UK
most organizations the impact assessment and understanding of the new standards took
considerably longer than was expected (NAO,2008)
Tota
l
Fre Fre Fre Fre Freq
Freque que que que que uenc
Label N ncy % ncy % ncy % ncy % ncy % y %
A policy decision of IFRS adoption has 2 3.8 3 5.7 14 26. 15 28.3 19 35.8 53 100
been made without building consensus 4
1 among concerned stake holders 53
The targets and deadlines of IFRS 1 1.9 1 1.9 10 18. 26 49.1 15 28.3 53 100
implementation has been made before 9
2 identify the obstacles 53
Decisions of IFRS implementation 1 1.9 3 5.7 13 24. 21 39.6 15 28.3 53 100
disregards identifying the resources 5
that we have on hand and what we need
3 to implement the new standard 53
Preparers, users, regulators, 1 1.9 8 15. 24 45.3 20 37.7 53 100
professional accountancy bodies and 1
educators need to be engaged in the
planning of IFRS, as well as the
4 implementation 53
A country’s transition action plan to 1 1.9 4 7.5 33 62.3 15 28.3 53
IFRS needs to have a logistical
framework of targeted activities to be
completed within a specified period of
5 time 53 100
An IFRS implementation programme 4 7.5 22 41.5 27 50.9 53 100
needs to adequately assess the state of
readiness of relevant professional
6 accountancy organizations 53
7 MEAN=4.08
8 MEADIAN=4
9 MODE=4
10 S.D=0.58
More than half percent (64%) of the respondents agreed or strongly agreed that the decision of
IFRS implementation has been made without building consensus among stake holders. On the
other hand 9% of the respondents disagreed or strongly disagreed that on this statement while the
rest 26% are neutral.
Out of the respondents 75% argued that the targets and reporting deadlines has been made before
identifying the obstacles of realizing IFRS on the ground and only 4% are expressed their
disagreements and rest 19% provided neutral response.
The decision of IFRS adoption requires adequate human, material and financial resources. With
regard to this IFRS implementation project teams have been asked to forward their level of
agreement or disagreement based on the facts available on the ground. As a result 68% strongly
agreed or agreed that the reporting entities (banks) forced to implement before having the required
resources where as 8% expressed their disagreement and 24% responded neutral.
Majority of the respondents (83%) claimed that the national planning process of IFRS adoption
failed to participate the preparers, users, auditors and relevant professional bodies and 2% the
respondents’ are disagreed.
In terms of logistics of IFRS adoption, 91% of the respondents argued that a countries IFRS
transition plan should be logistically frame worked the tasks to be completed within a specified
period of time.2% answered strongly disagreed and 7% choose neutral.
Considering the role of professional associations towards the adoption of IFRS adoption, the
researcher asked the level of agreements of respondents on this issue. Therefore, all most all of the
respondent (92%) strongly agreed or agreed that the implementation program should take in to
account of the readiness of professional accountancy organizations to take over their role.
The mean of this variable shows that, on average most respondents agreed (4.08) that there was
problem of proper planning in connection with IFRS implementation. This shows that the planning
of the adoption has not been well discussed with stake holders, no effort has been made by AABE
to improve the accounting infrastructure of the country before launching the mandatory adoption
road map, the resources such as human, material and financial resources in the country as a whole
as well as the levels of reporting entities were not match with IFRS needs. Therefore, the
mandatory implementation has been launching without taking in to account the countries readiness
factor the most researchable and measures by using six parameters such as availability of the
market, the impact of the market on reliability, relevance and objectivity of the accounting data,
availability of property Valuers and Actuaries, existence of secondary stock market for financial
instrument measurement.
The parameters were measured by five point Likert scale consisting of the level of agreements or
disagreements of the respondents. The levels and their ordinal values are: 1=Strongly Disagree on
the statement (SD) 2=Disagree on the statement (D) 3=Neutral on the statement (N), 4= agreed
on the statement (A), 5=Strongly Agreed on the statement (SA). The results of the respondents’
response are summarized as follows.
In Ethiopia, there are only two professional property Valuers while there is thousands of reporting
entities. 92% of respondents of IFRS project implementation team members argued that lack of
active market and property Valuers are a challenge for IFRS implementation while 2% are
disagreed and 6% neutral.
their financial instruments. The above figure showed that, 92% of the respondents argued that lack
of secondary stock market is a challenge for implementation of IFRS in the banks whereas 4% are
disagreed.
Fig 4.13: Fair value measurement and Earning Manipulation
assets as it is possible to choose the measurement model between cost and revaluation model. The
problem is there are mandatory standards which force the banks to use market value. For instance,
loan loss provision, amortized cost, measurement of financial assets and impairment testing are
the major once. It is an inevitable that banks used management judgments in determining the fair
value of those assets which results the manipulation of the earnings and minimize the reliability of
financial reports. For, instance that banks tested impairment by using internal staffs. Therefore,
lack of availability and transparent market information is a challenge which affects the success of
IFRS implementation by banks.
This result finding is consistent with Tesfu (2012) and Gulin & Hladika (2016) shown that fair
value determination is very difficult in the absence of readily available market and doesn’t reflect
the future earning potential of the assets. This study also supported the results revealed that the
absence of liquid market leads the involvement personal judgment which would cause the
incomparableness and misguiding of accounting information (Xuexin &Slayi,2013).They also
conclude that in the absence of liquid market fair value measurement and loss reliability of
financial statements causes for profit manipulation and accounting information distortion.
The case study of Kenya, Pakistan, South Africa and India shown similar result that, there were
facing problem of obtaining market information due to low trading volume and capital markets
are not sufficiently liquid (UNACTED,2008).
Regarding with the cost of staff training 36% of the respondents rated very high, 38% high, and
23 % didn’t know the magnitude (neutral), 35% of the respondents rated low.
In terms of consultant cost almost all of the respondents (92%) rated high or very high. The
percentage of their ratings are 51% very high, 42% high, 6% of the respondents didn’t know and
2% rated low. Currently, all private banks have paid around $1 million to their external consultant
(PWC).
Cost of Audit and Compliance: 15% of the participants responded that cost of Audit and
Compliance is very high, 49% rated high, 28% neutral .6% rated low and 2% very low.
IFRS requires adjustment of chart of accounts and reporting formats on the system. Therefore,
respondents were asked to rate the cost of Adjusting IT system. Accordingly, 42% rated very high,
38% high, 19% didn’t know and 2% rated cost of adjusting IT system low.
Majority of the respondents (90%) rated cost of updating accounting system very high or high and
7% didn’t know and 2% rated low.
In respect to Cost of IFRS guidelines and materials, 19% rated very high, 47% high, 26% didn’t
know and 8% rated low. There are no IFRS implementation books and guidelines available in the
local market. Therefore, the reporting entities are required to purchase the books and guidelines
online shopping.
As IFRS requires a formation of separate project teams, it is expected to increase the cost of
recruiting additional staff.
Therefore, the result of this study shows that IFRS adoption requires significant cost which
negatively affected the success of the implementation. For instance, banks sent the finance
managers and some of IFRS implementation teams abroad for training due to lack of experienced
local training institutions. Similarly, they have incurred significant costs to customize the IT
system. For their External consultant (PWC) banks shared and paid nearly $ 1,000,000.00 and
material costs has been paid for purchase of IFRS Guide lines. The researcher unable to weight
the significance of costs with actual figure except the consultant costs. Other costs are analyzed
based o the survey and interview results.
The case of Europe showed that significant preparation and transitional costs have been incurred
during implementation of Mandatory IFRS adoption (ICAEW, 2007) which is in line with the
result of this study. Similarly, the study of George et al (2013) and Stokdyk (2010) (cited in
Dowa,2017) documented that “IFRS adoption as costly to firms because of the greater effort,
knowledge, and information systems needed to implement the new standards, and the additional
effort needed to manage the risk of material misstatements appearing in IFRS-compliant financial
statements. This study also confirmed the results of Tesfu (2012) revealed IFRS adoption increase
internal staff and costs in the case of Ethiopia.
Whereas the result of this study is inconsistent with Dwommo (2017) found that Cost could not b
e a factor of IFRS adoption challenges in Ghana.
Fr
Freq Fre Freq Fre eq
Frequ
uenc % % que % uenc % que % ue %
ency
y ncy y ncy nc
Label N y
4 7.5 16 30.2 3 5.7 25 47.2 5 9.4
Management’s understanding of accounting
53
and financial reporting standards
1 53 100
4 7.5 18 34.0 4 7.5 20 37.7 7 13.2
Management’s attention to accounting and
53
financial reporting related issues
2 53 100
Experience of managers in implementing 2 3.8 12 22.6 3 5.7 27 50.9 9 17.0
53
3 IFRS 53 100
Cooperate with IFRS implementation project 3 5.7 15 28.3 10 18. 20 37.7 5 9.4
53
4 teams 9 53 100
Lack of Commitment and understanding of 4 7.5 14 26.4 4 7.5 23 43.4 8 15.1
the executive on timely and successful 53
5 implementation of IFRS 53 100
Management views IFRS as a priority than as 3 5.7 16 30.2 3 5.7 24 45.3 7 13.2
53
6 regulatory compliance 53 100
Acknowledgement of Management on the 3 5.7 17 32.1 4 7.5 25 47.2 4 7.5
53
7 importance of the IFRS transition process 53 100
Lack Acceptance of IFRS implementation 3 5.7 26 49.1 6 11. 14 26.4 4 7.5
53
8 process at the senior management level 3 53 100
Resources allocated to complete the 4 7.5 23 43.4 5 9.4 14 26.4 7 13.2
transition in addition to their day-to-day 53
9 responsibilities 53 100
10 MEAN=3.18
11 MEADIAN=4
12 MODE=4
13 S.D=0.96
Source: Researcher’s own Survey, 2018
As it can be seen from the above table IFRS implementation project teams have been asked to rate
management’s support towards the adoption activities. The first statement is Management
understands of accounting and financial reporting standards. 7% of respondents rate the
managements understanding very high, 30% rate high ,6% didn’t know the managements
understanding level,47% rate low and the rest 9% rated very low. Therefore, majority of the
respondents (56%) the respondents rated the management’s understanding low. The lower the
understanding of the management the lower will be their support.
The second statement is designed to evaluate how the management is attentive on accounting and
financial reporting related issues.Accordingly,7% of the respondents believe that management has
very high attention, 34% rate management’s attention high,8% neutral, 38% rated very low and
the rest 13% rated the management’s attention towards accounting and financial reporting issues
low. This result shows that in terms of giving attention on accounting and financial reporting
related issues banks management has some gap but it is found moderate that 41% of the
respondents supported the management’s attention is high which leads their support better.
Thirdly the question of how experienced the management in implementing IFRS was rated by the
response of the respondents. Majority of the respondents evaluated that managements experience
of implementing IFRS is low (50%) and very low (17%) whereas only 4% are rated managements
experience very high and 22% rated high. This implies that the lower the managements experience
the lower will be their support toward the implementation.
CEO‘s cooperation with IFRS implementation project team has been measured and rated as
follows. 6% of the respondent’s rate CEO Very highly cooperative, 28% highly cooperative, 19%
neutral, 37% low, and 9% very low cooperation. The aggregate result of this parameter is
confirmed the existence of low cooperation of CEOs.
The fifth statement evaluated whether the management is concerned on the success and timely
delivery of the implementation. The result of respondents shows that the top management’s
concern on the success and delivery of the IFRS project is low. The rates of the respondents
regarding these statements are 7% very high, 26% high, 8% neutral, 43% low and 15% very low.
IFRS project implementation teams also asked to evaluate the statement that Managements view
IFRS as apriority than a regulatory compliance. Accordingly, 6% of the respondents believed that
management view IFRS as very high priority, 30% measured managements view IFRS as high
priority and 8% neutral. On the other hand 45% of the respondents evaluated that management
give low priority for IFRS implementation and 13% of respondents put the managements view on
IFRS implementation very low.
The view of the respondents on the management acknowledgement on the importance of the IFRS
transition also collected. The result shows that 6% of the respondents believed that the transition
process is highly acknowledged, 32% believed that the acknowledgement level of management is
high and 8% didn’t know the managements acknowledgement level Where as 47% of the
respondents measured that the transition process is poorly acknowledge and 8% of the respondents
believed that management’s acknowledgement on the transition process is very low.
With regard to the acceptance of IFRS implementation, Majority of the respondents believed that
the implementation has got acceptance by the senior management. When we see their detail rating
6% rated the management’s acceptance very high, 49% high, 11% neutral, 26% low and 8% very
low. This shows that the banks senior management has well accepted the IFRS implementation
and this will contribute positively to the success of the implementation.
Lastly the researcher measured the level of management support by the adequacy of resource
allocated to the IFRS implementation. The result of the majority of the respondents shows that
there is adequate resources allocation to the IFRS implementation. 7% and 43% of the respondents
evaluated the resources allocated by the management for IFRS implementation very high and high
respectively where as 26% and 13% are rated the resources allocated low and very low
respectively.
The mean result (3.18) of this variable also has shown the existences of the problem of
management support. Poonlar (1987) categorized mean scores ranging from 4.51-5.00 excellent
or very good, 3.51- 4.50 (good), 2.51-3.50 (average or moderate), 1.51-2.50(fair) and 1.00-1.50 is
(poor) (as cited in Adane, 2017).
According to his classification, the mean score (3.18) of this variable indicated that the existence
of the problem and its magnitude is moderate (Average) Therefore, lack of management support
is a problem of private banks hindering during their practical IFRS implementation. The researcher
found this result consistent with Weaver & Margaret (2015) IFRS was not given the support it
deserved by senior management in Europe. No evidence is found to support this finding with local
studies.
CHAPTER FIVE
5. CONCLUSION AND RECOMMENDATIONS
5.1. Conclusion
IFRS has become the financial reporting standard for a significant amount of countries around the
world. The decision of IFRS adoption would be the right choice for Ethiopia to strengthening the
country’s quality of financial information that played a major role for attracting efficient capital
inflows to the country and encourage domestic investments. However, number of practical
implementation challenges needs to address to utilize the full benefits of adopting IFRS.
Therefore, the objective of this study was to investigate the challenges that are hindering the
practical implementation of IFRS by private banks in Ethiopia.
The results of the study shown that weak corporate governance, poor quality of education and
training, lack of supports from accountancy professional bodies, weak enforcements of regulatory
body, inadequacy of transition period, improper planning, Non-availability of transparent market
information, High cost of implementation and weak management support are the major challenges
of private banks to implement IFRS successfully. Unless the challenges faced by private banks
gets an immediate attention of the government, the regulators, professional bodies, higher
institutes, academicians, preparers of financial statements, auditors and reporting entities itself the
national transition process may take longer than expected. The current status of private banks IFRS
implementation confirmed the dalliance of the transition process.
5.2. Recommendations
Based up on the findings of the study, the following recommendations are forwarded.
The adoption and implementation of IFRS in Ethiopia should not be a rushed decision. The country
commenced the actual implementation without having identifying the resources it has and what is
needed for implementation. The country even didn’t address most of the recommendations given
by ROSC (2007) as prerequisite for adoption of IFRS.
1. The regulatory body should ensure IFRS coherence with existing national laws such as NBE
directives and ERCA laws. Though NBE and ERCA are among the board members of AABE, there
are still inconsistent laws and regulations developed by this organization. These and related
governing body laws should be revised by referring IFRS requirement so as reporting entities can
implement this standard without challenging with conflicting laws. Any laws concerning financial
reporting should first be referencing IFRS instead of placing special requirement. In addition,
corrective actions should be taken based on the findings of monitoring and review programs of
reporting entities. For instance, AABE should support the reporting entities by organizing capacity
building workshops and seminars, should provide clear and proper instructions when providing
orders regarding reporting and auditing, and arrange regular meeting periods with reporting entities.
2. As IFRS is a strategic decision which affects the overall corporate reporting structures of
the entities, there should be strong management support and corporate governance
established by entities and ensures that the transition is managed effectively in a way that
the timetable is to be achieved. Management should enhance its understanding and give
due attention for IFRS implementation as one of the banks strategic issue instead of leaving
it only as accounting issue. Besides, management should recognize and motivate IFRS
implementation team members for any efforts and delivery made. All banks management
should ensure the establishment of independent team members by recruiting additional man
power. The IFRS team members of some banks are working the IFRS implementation in
addition to their regular work. Similarly, BOD of the banks should regularly follow up the
process of the implementation and cooperate the team by responding for any of their
enquiries for instance there may be resistance faced by peer departments, may also require
additional budget for implementation. Therefore, the BOD should treat the issue of IFRS
implementation with exceptions.
3. Accountancy professional bodies such as EPAAA, ASE and IIA should reassess why they
are established and existing for. These organizations should take actions to strengthen
themselves in a way they can make significant contributions to the success of this big
national accountancy project. The researcher believed that there will not be any
accountancy professional related task created Ethiopia more than IFRS adoption which
requires the major roles of these associations. In addition to the action taken by the
association themselves the government should take priorities in strengthen them before
commencing the actual implementation of the second and third phase adopters.
Professional Accountancy bodies should strengthen or reorganize their organizational
structure in away to take the role of leading national initiatives and monitoring and
enforcing the domestic accounting profession. Moreover, ASE and EPAA should merge
and integrate as one single strong accounting professional association and tried to be a
member of IFAC.
4. Human-resources-development programme and mechanisms should be established at
national level. There should be accredited and qualified training institutions to alleviate the
skill gaps of preparers of financial statements in a short run and change the accounting
education curriculums of universities. Addis Ababa University has tried to include IFRS in
its accounting education curriculum. Therefore, this lesson should be shard to other
universities and forced them to integrate IFRS module in their curriculum without any
delay.
5. In addition to strengthening local capacity building institutions, there should be state
sponsored scholarship program to train property valuers and actuaries abroad. Besides,
there should be made efforts to establish stock markets in order to determine financial
instruments objectively. Other ways in the absence of liquid market and professional
Valuers, the quality of financial reports would be impaired due to high subjective and may
lead the country to financial crisis.
6. The preparation and transition period given to reporting entities should not be far from the
realities of nation. The length of the period should take in to account of the state of
readiness of the reporting entities and countries reporting infrastructure. For instance, if
there no adequate number of skilled and qualified professionals who can implement IFRS,
the length of the preparation time should take in to consideration of times required for
getting trained staffs. Besides, there are number of activities required to be accomplished
a prerequisite to produce the first IFRS based financial statement. For example,
Recognition and derecognition of assets and liabilities, measurement of assets and
Liabilities, classification of assets and liabilities and preparation of necessary adjustments
so as a reporting entity will prepare opening balance sheet, comparative financial state and
comparative statements. Therefore, the greater challenge witnessed by the first phase
adopters was inadequacy of transition period.
References
Accountants and Auditors Board of Ethiopia (AABE). (2016).Five years strategic plan from
2015/16- 2020/21, Addis Ababa, Ethiopia
Ball,R.(2016). IFRS – Ten Years Later. The University of Chicago Booth School of Business.
Bekele,A.(2016).the benefits and key challenges of using international financial reporting standard
(ifrs): a case study of Heineken brewery factory. st.MarryUniversity,AddisAbaab,Ethiopia.
Daske, H., L. Hail, C. Leuz, and R. Verdi, (2008), Mandatory IFRS Reporting around the World:
Early Evidence on the Economic Consequences, Journal of Accounting Research 46, 1085–1142.
Deyuu,T. A. and Pasricha,J.S.(2016). Corporate Financial Reporting Legal and Regulatory
Dholakia,P.(2012). A Perpetual Study of IFRS towards a True and Fair view of International
Accounting System. International Journal of Scientific and Research Publications, 2(3).Retrieved
from www.ijsrp.org.
Dunne,T.,Finningham,G.,Hannah,G.,Power,D.,Fifield,S.,Fox,A.,…..Veneziani,M.(2008).The
implementation of IFRS in UK ,Italy &Ireland. The institute of chartered Accountants of
Scotland,UK.
Hosmer, D. & Lemeshow, S.(1989). Applied Logistic Regression. New York: John Wiley & Sons.
Available at: books.google.com › Mathematics › Probability & Statistics › General [Accessed in
March, 2017].
ICAEW (2015).The effects of mandatory IFRS adoption in the EU: a review of empirical research
ICAEW (2015).The effects of mandatory IFRS adoption in the EU: a review of empirical research
Iyoha,F. and Owolabi,A.(2012). Adopting International Financial Reporting Standards (IFRS) in
Africa: benefits, prospects and challenges, African J. Accounting, Auditing and Finance, 1(1), 77-
86
Kidane, F. (2012). Accounting and Auditing practices in Ethiopia: Review, analysis, and
conclusions. Excel International Journal of Multidisciplinary Management Studies, 2(6),32-43.
http://zenithresearch.org.in/
Kaur,G.& Kumar,A.(2014). IFRS and India: Problems and Challenges. Research Directions,
1( 7),1-5
Mihret, D. G., & Bobe, B. J. (2014). Multiple informal imperial connections and the transfer of
accountancy to Ethiopia (1905 to 2011). Accounting history, 19 (3),309-331.
Mihret, D. G., James,K., and Mula,J.M. (2009), Accounting and auditing professionalization
processes amidst alternating politico-economic order of Ethiopia, Paper presented at the
Accounting and Finance Association of Australia and New Zealand, AFAANZ conference,
Adelaide, Australia. DOI: 10.2139/ssrn.2227523
Mihret, D. G., James, K., & Mula, J. M. (2012). Accounting professionalization amidst
Murray.J, (2013). Likert Data: What to Use, Parametric or Non-Parametric? International Journal
of Business and Social Science, 4(1),
National Audit Office (2008), International Financial Reporting Standards: Revised Readiness
Toolkit,uk
National Planning Commission.(2016). Growth and Transformation Plan II (GTP II) (2015/16-
2019/20). Federal Democratic Republic of Ethiopia, Volume I: Main Text,Addis Ababa, Ethiopia
Pactor,P.(2011).Why the world needs a separate standard for private companies, and why the US
does too, presentation at AAA,Tampa,FL,UK, IFRS Foundation,29 January,2011.
Sullivan,M. and Antony,R.(2013).Analyzing and Interpreting data from Likert Type scales.
Journal of Graduate Medical Education,541-542. DOI: http://dx.doi.org/10.4300/JGME-5-4-18.
Terdpaopong,K.& Mihret,D.(n.d).The role of the state and transnational accounting bodies in the
growth of accounting associations in developing countries.
Tesfu.F. (2012). The Adoption of IFRS in Ethiopia: Benefits and Key Challeges. Addis Ababa
University,Addis Abab, Ethiopia,Retrieved fromwww.aau.edu.et/library/resources/aau-
institutional-repositoryelectronic-thesis-and-diissertation/
United Nations Conference on Trade and Development. (UNACTED, 2008).Country case study
on IFRS: Practical implementation of international financial reporting standards: Lessons learned.
UN, New York and Geneva.
Warmbrod, R,(2014). Reporting and Interpreting Scores Derived from Likert-type Scales. Journal
of Agricultural Education, 55(5), 30-47. doi: 10.5032/jae.2014.05030
Weaver,L. & Woods,M. (2015). The Challenges Faced by Reporting Entities on Their Transition
to International Financial Reporting Standards: A Qualitative Study. Accounting in Europe, DOI:
10.1080/17449480.2015.1103376
World Bank. (2007). Report on the observance of standards and codes (ROSC) .Addis
Ababa,Ethiopia, Retrieved on March 5, 2017, <http://www.worldbank. org/ifa/ rosc _ aa _
ethiopia.pdf>.
Yaacob,M. & Che-Ahmad,A.(2011). IFRS Adoption and Audit timeliness: Evidence from
Mallaysis. Journal of American Academy of Business, 17 (1), 112-18
Zakari,A.(2014).Challenges of International Financial Reporting Standards (IFRS) Adoption in
Libya.International Journal of Accounting and Financial Reporting,4(2),390-412.Retrieved from
Zeytu, G.( nd). Knowledge, Attitude towards Practicing of Voluntary HIV Counseling and Testing
and the Determinants of VCT Uptake: A Case Study in Debre-birhan Teachers Training College.
Ethiopia: Debre-birhan Teachers Training College. Available
at:http://www.statssa.gov.za/ycs/SpeakerPresentations/Parthenon/SessionVIE/Session%20V20S
outhall_plenary/Zeytu%20Gashaw%20new.pdf [Accessed in March, 2017].
(http://www.ifrs.org/about-us/IFRS/Pages/organization-history.aspx).(http://en.m.wikipedia.org/
convergenceof accounting standards).
www.ifrs.org
Warmbrod, R.(2014). Reporting and Interpreting Scores Derived from Likert-type Scales. Journal
of Agricultural Education, 55(5), 30-47. doi: 10.5032/jae.2014.05030
Appendix:
I.QUESTIONNAIRE
If you have any queries regarding this questionnaire, please contact me via email:
aytenew2012@gmail.com
Part 1:
The following are list of factors affecting the implementation of IFRS by Ethiopian private Banks.
Please provide your level of agreement or disagreements with each of the statements. Please put
only one tick mark (✓) for each line in the labeled column where (1-Strongly disagree; 2-
Disagree; 3- Undecided/Neutral; 4 Agree; 5-Strongly agree.)
No. Challenges of IFRS Adoption SD D N A SA
I Corporate Governance 1 2 3 4 5
1. The Bank Lacks strong BOD which undertakes regular follow up on the process of
IFRS implementation
2. BOD knowledge about IFRS and its transitional process is poor.
3. There is high resistance by different departments while asking cooperation
II Capacity and Strengths of the Financial reporting regulatory Body (AABE) 1 2 3 4 5
4 There is no effective practice review mechanisms and support that ensure proper
and effective implementation of the IFRS implementation roadmap
18 Lack of adequate technical capacity building schemes is a challenge for IFRS implementation
19 IFRS Implementation requires a high level of education & highly skilled and competent accounting
professionals.
20 The numbers of qualified professional accounts are inadequate to meet the needs of private banks
21 Gap between the accounting education thought in Ethiopian Higher education and IFRS requirement is a
challenge to get competent accountants
22 Inadequacy of training institutions and facilities with an affordable cost is a challenge to fill skill gaps of IFRS
implementing teams
23 There was limited training on IFRS prior to its implementation
24 Inadequate training institutions and facilities at an affordable cost is a challenge to fill skill gaps of
IFRS implementing teams
25 There was limited training on IFRS prior to its implementation
26 Limited availability of training materials at an affordable cost is a challenge for the transition process
29 The preparation & transition period of 22 months given by AABE is not adequate for conducting
the IFRS transition process
30 Banks require additional time for preparing training manuals, organizing seminars and workshops
and sharing experiences with other countries
31 Lack of Adequate transition time will affect the quality of the financial statements by increasing the
possibility of errors and omissions.
VI Proper Planning 1 2 3 4 5
32 A policy decision of IFRS adoption has been made without building consensus among concerned
stake holders
33 The targets and deadlines of IFRS implementation has been made before identify the obstacles
34 Decisions of IFRS implementation disregards identifying the resources that we have on hand and
what we need to implement the new standard
35 Preparers, users, regulators, professional accountancy bodies and educators need to be engaged in
the planning of IFRS, as well as the implementation
36 A country’s transition action plan to IFRS needs to have a logistical framework of targeted activities
to be completed within a specified period of time
37 An IFRS implementation programme needs to adequately assess the state of readiness of relevant
professional accountancy organizations
VII Availability and Transparency of Market Information 1 2 3 4 5
38 There is problem of measuring effective interest rate due to lack of active market
39 Lack of liquid market affects the reliability and relevance and affects the objectiveness of accounting
data.
40 Lack of active market and property Valuers in the country is a challenge to measure the value of
the assets
41 Lack of Actuaries are a challenge for determining employees post-employment benefit
42 There is Problem of measuring financial instrument due to lack of active secondary market
43 Manipulation or subjectivity in estimates of fair value opens space for manipulation of the earnings
of banks
VIII Cost of IFRS Implementation
No impact
Extremely
Very high
High
low
low
No impact
Extremely
Very high
High
low
low
51 Management’s understanding of accounting and financial reporting standards
52 Management’s attention to accounting and financial reporting related issues
53 Experience of managers in implementing IFRS
54 Cooperate with IFRS implementation project teams
55 Lack of Commitment and understanding of the executive on timely and successful implementation
of IFRS
56 Management views IFRS as a priority than as regulatory compliance
57 Acknowledgement of Management on the importance of the IFRS transition process
58 Lack Acceptance of IFRS implementation process at the senior management level
59 Resources allocated to complete the transition in addition to their day-to-day responsibilities