Legitimacy theory may explain the failure of global adoption of IFRS: the case of Europe and the U.S.
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Legitimacy theory may explain the failure of global adoption of IFRS: the case of Europe and the U.S. Francesco De Luca1 · Jenice Prather‑Kinsey2
© Springer Science+Business Media, LLC, part of Springer Nature 2018
Abstract We investigate the reasons why “adoption” of one set of globally accepted accounting standards is presently unachievable. By “adoption” we mean that a jurisdiction incorporates IFRS instantly as its national accounting as issued by the IASB. We state that the IASB has used a Legitimacy Theory strategy to gain acceptance of its standards by more than 120 countries across the globe but it has only gained pseudo-“adoption” (not as published by the IASB) of its standards by many countries. We contend that achieving policing and enforcement of its standards globally has proven to be empirically illusive. This legitimacy deficit may explain why convergence between the IASB and FASB is currently idle. We offer a possible solution to bridging the legitimacy gap of global adoption of IFRS. We propose an internationally respected regulator and suggest the IOSCO for this role through its participation in the IFRS Foundation Monitoring Board for policing and enforcement of IFRS for cross-listed firms reporting in compliance with IFRS so that the IASB’s output legitimacy may be achieved globally.
We appreciate comments from participants at the AAA Annual Conference in Atlanta GA (USA) in August 2014, the SIDREA Annual Conference in Pisa (Italy) in September 2016, and anonymous reviews in 2015–2017. * Francesco De Luca [email protected] Jenice Prather‑Kinsey [email protected] 1
Department of Business Administration, University “G. d’Annunzio”, Viale Pindaro, 42, 65127 Pescara, Italy
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Department of Accounting and Finance, COLLAT School of Business, University of Alabama at Birmingham, BEC 306B 1720 2nd Avenue South, Birmingham, AL 35294, USA
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F. De Luca, J. Prather‑Kinsey
Keywords Global accounting standards · Regulation · FASB-IASB convergence · Legitimacy theory · IFRS adoption worldwide · Political lobbying
1 Introduction The objective of this study is to address the debate about the “adoption” of one set of globally accepted accounting standards, to explain why it is presently unachievable and finally to suggest an international regulator to achieve output legitimacy of the IASB’s standards. We consider “adoption” in the sense that the IASB is acknowledged as the legitimate body to draft and issue, through its due process, accounting standards but that jurisdictions incorporate IFRS nationally, oftentimes not as published by the IASB. We support that presently, the IASB has only gained pseudo-“adoption” (not as issued by the IASB) of its standards by many but not all countries. Legitimacy is defined as the “generalized perception or assumption that the actions of an entity are desirable, proper or appropriate within some socially constructed system of norms, values, beliefs and definitions” (Suchman 1995, p. 574). If we refer this definition to the due process of the FASB,
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