Effect of culture on financial disclosure: Before and after IFRS

An important step has been achieved in international accounting harmonization andconvergence, with the use of International Financial Reporting Standards (IFRS) bythe European Union members and some other countries. Principal objective ofaccounting convergence is to produce globally comparable financial statements.Previous research has shown that accounting practices are influenced by nationalsocial, political, economic and cultural factors. This dissertation investigates whetherthe differences among financial statements due to cultural values has diminished afterthe use of IFRS, effective from 2005. For this purpose, disclosure index wasconstructed for 2004, 2005 and 2006 financial statements of companies selected fromseven countries. According to the results of regression analyses performed onfinancial disclosure and cultural values, cultural values affected the disclosure both in2004 (before the use of IFRS) and in 2005 and 2006 (after the use of IFRS). Theanalyses were repeated separately on the data of Common and Code Law countries.The findings suggest that cultural values significantly affected financial disclosure ofCommon Law countries before 2005, but lost their significance after the use of IFRS.The effect of culture on disclosure continued in Code Law countries after the use ofIFRS. However, it is also observed from the disclosure data, that after the use ofIFRS, level of financial disclosure increased in all countries examined. Accordingly, itis not wise to state convergence activities are completely unsuccessful. However, theimpact of cultural values on financial disclosure could not be completely eliminatedby the use of single set of accounting standards.