IFRS Adoption in Ethiopia: A Critical Analysis of the Process, Issues and Implications

Abstract

This study examines the IFRS adoption process in Ethiopia with a view to explaining how the state, i.e., the Ethiopian government, other national actors and the transnational forces interacted in establishing the Ethiopian financial regulatory landscape as antecedent to IFRS adoption and subsequent implementation. It employs a qualitative research approach based on evidence collected through semi-structured interview and review of documentary evidences produced in the process of IFRS adoption to explain the outcomes of accounting reforms in Ethiopia during the period 1991-2015. By drawing on Actor Network Theory (ANT), this study theorizes IFRS adoption as a product of a series of translations in the context of interactions between supranational and national actors to integrate Ethiopia into the global economic system through IFRS-based financial reporting. Improved financial reporting environment supported by IFRS is theorized as a key Obligatory Passage Point (OPP) for Ethiopia's access to external finance and this in turn led to the development of a streamlined national accounting regulatory system through translation of institutions into a framework suitable for IFRS-based financial reporting. The country's accounting infrastructures and regulatory environment were thoroughly evaluated and examined in a transformation process through which the globalizing forces and Ethiopian actors built an actor-network that reconstructed the Ethiopian accounting regulatory set up by issuing financial reporting law and establishing the regulatory body (AABE). Accordingly, the country has mandated officially the adoption of IFRS and designed and approved five years IFRS implementation strategic plan for which its implementation is expected to be effected in the years to come until 2019 deadline. This study illustrates that the IFRS adoption in Ethiopia is the result of the translation processes involving the actor-networks of the state, accounting, professionals, the private sector and international financial institutions while the state, i.e., the Ethiopian government, played a management and mediating role of the translation processes in the context of promoting macro-economic management rationales of enhanced financial reporting supported by IFRS .The study shows that while the Ethiopian IFRS adoption experience illustrates the macro-economic rationale driven nature of IFRS adoption, the rationales and the processes of translating the idea into Ethiopian context illustrates the socially constructed nature of IFRS adoption. This study suggests that more resources and stakeholders need to be coordinated by AABE to build the capacity of preparers in terms of IFRS reporting practices to achieve the IFRS implementation strategic objectives. It suggests that self regulated, independent and strong professional body needs to be established as soon as possible. It suggests that the concerned stakeholders need to design and incorporate IFRS education in the curriculum as soon as possible to meet the IFRS implementation strategic objectives. Keywords: Accounting; Developing countries; Ethiopia; IFRS adoption