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Why should Africa adopt IFRSs? Adoption is less of the story.. not practicing what you preach is the bigger evil.

In the past decade the rise in the use of the International Financial Reporting Standards (IFRS) in many countries around the world has moved the wave towards developing countries considering adopting these standards. Factually, about 120 countries presently use IFRS across the globe. Out of this number about 13 countries in Africa have already adopted (i.e as issued by the IASB without any modification) or adapted (.i.e with modification to meet local socio-economic needs of a particular accounting jurisdiction) to IFRS.

A diverse Continent a uniform accounting standard? Primarily, former Anglo-Saxon colonies have adopted IFRSs.

(Source: Data from PwC IFRS map, Own drawings)

However, it is quite surprising that Africa as whole is considering adopting IFRS given the chaotic nature of these standards on the international front and the often unseen justification given for the adoption of IFRS particularly in Africa. Many international organizations like the World Bank , the World Trade Organization , USAID and UNCTAD  have all been arguing for the adoption of IFRS in less developed countries . There are many reasons why Africa should not adopt IFRS. I will try to explain and to some extent justify this line of reasoning.

Politics over Economics

First, the merits of IFRS often mentioned include, improved comparability and uniformity of financial statements among companies and countries, resulting in a decrease in the equity cost of capital, improved transparency, a decline in information processing cost and a reduction in risk of international investment decisions amongst others. Whilst these benefits look very desirable, it is also the case that these benefits cannot be reached in every economy.

To be clear, IFRSs were designed for developed and matured capital markets. At least the economics speaks for itself. It is an undeniable fact that financial statements assist investors in making critical investment decisions. As pointed out in the general purpose of financial statements in the conceptual framework of the IASB, financial statements should aid users in valuing securities, be it when buying or when selling.

The argument for the use of IFRSs in developed countries in plausible. However, what I find puzzling is the push for IFRS adoption even in countries that have no stock markets or stock market listed companies. I do not deny that quality financial reporting should be present in economies where there are no capital markets. But I also admit that such countries have totally different financial reporting needs than industrialized countries. Accounting systems of a country are traditionally shaped by its socio- economic, cultural and political environment. Some economies are totally different from others and therefore we must recognize that these differences in accounting needs shape financial reporting.

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The Book

Governance across borders: transnational fields and transversal themes. Leonhard Dobusch, Philip Mader and Sigrid Quack (eds.), 2013, epubli publishers.
January 2019
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