Institutional factors and the impact of international financial reporting standards: the Central and Eastern European experience

We examine the impact of International Financial Reporting Standards (IFRS) in the institutional context of the Central and Eastern European (CEE) member countries of the European Union. Extending prior IFRS research with national or multi-country regional insights from CEE, we investigate both firm-level financial reporting benefits and country-level benefits, together with the cost–benefit relationships involved, following from IFRS adoption. We survey expert professionals employed by Big 4 firms, acting as auditors and/or consultants in the application of IFRS, in locations across ten CEE countries. Financial reporting benefits, which are mainly firm-related, are perceived to have been realised to a higher extent than country-level benefits. Our analyses of micro-level institutional factors suggest that the accounting and auditing profession was the most valuable resource in the IFRS adoption process in CEE. A serious adoption process at the micro-level, signalled by high levels of perceived difficulties and regulatory impediments, along with resources available at the country-level and enforcement initiatives, is associated with financial reporting benefits. Country-level benefits are perceived to have materialised to a higher extent in countries with a lower quality of institutions, but with more organisational enablers available at the micro-institutional level. Benefits are perceived to exceed costs to a lesser extent in larger countries and in those with stronger institutions. This perception might be driven by higher expectations from IFRS in countries allocating more resources to IFRS and already having a more developed infrastructure. Overall, the benefits from IFRS adoption are perceived to overcome the costs in the long term.