Adoption of International Standards on Auditing (ISA): Do Institutional Factors Matter?

Abstract

Informed by the neo-institutional perspective, this study seeks for the first time to investigate empirically the determinants of ISA adoption and commitment to harmonisation on a cross-national basis (89 countries). The findings show that the protection of minority interests, regulatory enforcement, lenders/borrowers rights, foreign aid, prevalence of foreign ownership, educational attainment and particular forms of political system (level of democracy) prevailing in a country, are observed to be significant predictors of the extent of commitment to the adoption and harmonisation of ISAs. Our statistical analysis therefore suggests that coercive, mimetic and normative pressure have a significant impact on ISA adoption relative to economic (efficiency-led) factors. Our findings imply that current efforts by the International Federation of Accountants (IFAC) and other international agencies to implement ISAs need to recognise that a broad set of institutional factors, rather than narrow economic ones, are of relevance in the development of audit policymaking, practice and regulation worldwide. , 620, 705. According to the most recent ROSC reports of the countries in this table, the afore-mentioned ISAs are not complied with. It is also identified that the form and content of audit reports did not comply with relevant ISAs. b These countries do not also have a solid quality assurance in place. There is evidence of non-compliance with ISQC 1.

Why Do African Countries Adopt IFRS? An Institutional Perspective

“…Rodrigues and Craig (2007) define institutionalization in the global accounting context as the social process through which countries accept that their local standards need to be replaced by international standards, ostensibly to achieve a global harmonization of accounting practices and standards. Early scholars, who examined the process of harmonization of accounting standards, revealed that country-specific characteristics such as legal, cultural, economic, historical and political features do, to a varying extent, influence a country's decision to adopt or not a new accounting practice or system (Ding et al, 2005;Hope et al, 2006;Boolaky and Soobaroyen, 2017;Archambault and Archambault 2009;Zarzeski 1996). However, these dimensions often reflect structural conditions within a jurisdiction and offer only limited, and sometimes contradictory explanations.…”

“…The role of global audit firms in contributing to the mimetic pressures to adopt IFRS is supported by other transnational professional organizations and institutions (Chua and Taylor, 2008). In particular, IFAC has gradually positioned itself as key transnational professional agency not only in terms of the rapid development of the International Standards on Auditing (ISAs) (Humphrey et al, 2009;Boolaky and Soobaroyen, 2017;Boolaky, Ghattas, Marnet and Soobaroyen, 2020) but also in terms of taking the lead on a number of initiatives relating to the establishing of an International Accounting Education Standards Board (McPeak et al, 2012) and a model code of ethics for professional accountants (Clements et al, 2009). In this way, IFAC aims to institutionalize a set of norms and 'best practices' in terms of how national professional accounting organizations might seek to define or conceptualize the various aspects and dimensions of 'professional accountancy'.…”

Fair Value Accounting and Implications for the Auditing Profession: Historical Overview

“…Following the financial failure that led to catastrophic global downturns, attention to the development of ISA increased dramatically. This is due to the concerns about the quality of financial statements and auditing standards (Boolaky & Soobaroyen, 2017). Financial statement frauds caused by large corporations such as Xerox, Enron, WorldCom, and Tyco, resulted in the demand for better governance, audit efficiency, integrity, and credibility in financial reporting (Wells, 2005).…”

Justification of the Institutional Approach to Audit

“…Scientists from Australia and the UK (P. Boolaky and T. Soobaroyen, 2017) [16] recognize that the development of audit policy, practice and standardization internationally is influenced not by narrowly economic factors, but by a wide range of institutional factors. Analyzing audit problems, they consider Russia to be a part of the group of countries with non-equivalent translation of audit standards along with Macedonia, Montenegro, Slovakia, Slovenia, Serbia, the Greek Republic and Poland.…”