A D D I S A B A B A U N I V E R S I T Y

CHALLENGES OF IMPLEMENTING INTERNATIONAL FINANCIAL

REPORTING STANDARDS (IFRS):
A CASE OF PRIVATE INSURANCE COMPANIES IN ETHIOPIA

A Research Submitted to Addis Ababa University School of Graduate Studies

in Partial Fulfillment of the Requirements for the Degree of Master of
Accounting and Finance (MSC).

By:
Feleke Negash

Advisors:
Temesgen Worku (PhD)
 DECLARATION

I, the undersigned, declare that this project is my original work, prepared under the
guidance of Temesgen Worku (PhD). All sources of materials used for this thesis have
been duly acknowledged, the researcher further confirm that the thesis has not been
submitted either in part or in full to any other higher learning institution for the purpose of
earning any degree.

Feleke Negash ______________

Addis Ababa University, Addis Ababa

February, 2019
 CERTIFICATE
This thesis has been submitted to Addis Ababa University, School of Graduate Studies for

examination with my approval as university advisor.

Temesgen Worku (PhD) _________________

Advisor Signature
 Approval Sheet
Members of the Board of Examiner

External Examiner Signature Date

_______________ ________________ _______________

Internal Examiner Signature Date

_______________ ________________ _______________

Advisor Signature Date

_______________ ________________ _______________

 Table of Contents
Acknowledgement ............................................................................................................................ i

Acronyms & Abbreviations ............................................................................................................. ii

List of Tables .................................................................................................................................. iii

List of Figures................................................................................................................................. iv

Abstract ........................................................................................................................................... v

CHAPTER ONE .............................................................................................................................. 1

INTRODUCTION ........................................................................................................................... 1

1.1 Background of the Study ....................................................................................................... 1

1.2 Statement of the problem ....................................................................................................... 3

1.3 Objectives of the Study ......................................................................................................... 4

1.3.1 General Objective ........................................................................................................... 4

1.3.2 Specific Objectives ......................................................................................................... 4

1.4 Research Questions ............................................................................................................... 5

1.5 Scope and Limitation of the Study ........................................................................................ 5

1.6 Significance of the Study....................................................................................................... 6

1.7 Organization of the Study ...................................................................................................... 6

CHAPTER TWO ............................................................................................................................. 7

LITERATURE REVIEW ................................................................................................................ 7

Introduction ................................................................................................................................. 7

2.1 Theoretical Review ................................................................................................................ 7

2.1.1 Understanding IFRS ....................................................................................................... 7

2.1.2 Approaches to Adopting IFRS ..................................................................................... 10

2.1.3 Advantages of adopting IFRS..................................................................................... 10

2.1.4 Disadvantages of Adopting IFRS ............................................................................... 12

2.1.5 Challenges of Adopting IFRS ....................................................................................... 13

2.2 Empirical Evidence ............................................................................................................. 16

 2.3 Summary and Research Gap................................................................................................ 20

CHAPTER THREE ....................................................................................................................... 22

METHODOLOGY ........................................................................................................................ 22

3.1 Research Design .................................................................................................................. 22

3.2 Research Approaches .......................................................................................................... 22

3.3 Population and Sampling Method ....................................................................................... 23

3.3.1 Population of the Study ................................................................................................ 23

3.3.2 Sampling Method ......................................................................................................... 24

3.3 Data Type and Source ......................................................................................................... 24

3.4. Methods of Data Collection and Instruments ..................................................................... 24

3.5 Methods of Data Analysis ................................................................................................... 25

3.6 Validity test ......................................................................................................................... 25

3.7 Reliability Test .................................................................................................................... 25

3.8Ethical Consideration ........................................................................................................... 26

CHAPTER FOUR ......................................................................................................................... 27

RESULT AND DISCUSSION ...................................................................................................... 27

Introduction ............................................................................................................................... 27

4.1 Demographic information.................................................................................................... 27

4.2 General Information ............................................................................................................ 28

4.2.1 IFRS Trainings ............................................................................................................. 28

4.2.2 Adequacy of IFRS Implementation Training ............................................................... 29

4.3 Descriptive Analysis ............................................................................................................ 30

4.3.1 Management challenges ............................................................................................... 31

4.3.2 Technical Challenges .................................................................................................... 33

4.3.3 Education and Training Challenges .............................................................................. 35

4.3.4 Cost challenges ............................................................................................................. 37

4.3.5 Institutional Challenges ................................................................................................ 38

4.4 Exploratory Factor Analysis ................................................................................................ 41

4.4.1 Summary of Factor Analysis and Tests of Assumptions .............................................. 41

 4.4.2 Total Variance .............................................................................................................. 42

4.4.3 Factor Analysis ............................................................................................................. 42

CHAPTER FIVE ........................................................................................................................... 44

SUMMARY OF MAJOR FINDINGS, CONCLUSION AND RECOMMENDATION .............. 44

5.1 Summary of Major Findings................................................................................................ 44

5.2 Conclusions ......................................................................................................................... 45

5.3 Recommendations ............................................................................................................... 45

5.4 Recommendation for further studies ................................................................................... 46

REFERENCES .............................................................................................................................. 47
 Acknowledgement
First I would like to thank the Almighty God. Second, I express my deepest gratitude to
my advisor Temesgen Worku (PhD) for his unreserved follow up, valuable comments
and constructive guidance throughout conducting this research.

i
 Acronyms & Abbreviations
AABE Accounting and Auditing Board of Ethiopia
ACCA Association of Chartered Certified Accountants
AICPA American Institute of Certified Public Accountants
CPA Certified Public Accountants
ECSC Ethiopian Civil Service College
ECX Ethiopian Commodity Exchange
ECXA Ethiopian Commodity Exchange Authority
EPAAA Ethiopian Professional Association of Accountants and
Auditors
GAAP Generally Accepted Accounting Principles
GDP Gross Domestic Product
IAS International Accounting Standard
IASB Internationally Accounting Standards Board
IFAC International Federation of Accountants
IFRIC International Financial Reporting Interpretations
Committee
IFRS International Financial Reporting Standard
IFRS for SMEs International Financial Reporting Standard for Small and
Medium-sized Entities
IPSAS International Public Sector Accounting Standards
IPSASB International Public Sector Accounting Standards Board
IOSCO International Organization of Securities Commissions
MNE Multi-National Enterprises
NBE National Bank of Ethiopia
OFAG Office of the Federal Auditor General
ROSC Reports on Observance of Standards and Codes
SEC Securities Exchange Commission
SIC Standards Interpretations Committee
UNCTAD United Nations Conference for Trade and Development

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 List of Tables
Table 4. 1 Demographic Information of the respondents .............................................................. 27

Table 4. 2Management challenges on implementation of IFRS .................................................... 31

Table 4. 3 Technical challenges on IFRS implementation ............................................................ 33

Table 4. 4 Education and Training Challenges on implementation of IFRS ................................. 36

Table 4. 5 Cost Challenges on Implementation of IFRS ............................................................... 37

Table 4. 6 Institutional Challenges to implement IFRS ................................................................. 39

Table 4. 7 Summary of Factor Analysis and Tests of Assumptions .............................................. 41

Table 4. 8 Total Variance Explained ............................................................................................. 42

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 List of Figures
Figure 2. 1: IASB Structure (Source: Deloitte IFRS in your Pocket 2016) ......................................... 9

Figure 4. 1 Team members who received all IFRS standard training, ........................................... 29

Figure 4. 2 Adequacy of the training.............................................................................................. 30

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 Abstract
International Financial Reporting Standard (IFRS) is designed to serve as a common
global language for business affairs so that company accounts are understandable and
comparable across the globe. Its relative importance attracted different companies to
make IFRS as their corporate financial reporting standard. Despite this widespread
acceptance of IFRS, there are serious managerial, education and training, cost,
institutional, and technical challenges that companies need to overcome in order to
benefit fully from the implementation of IFRS in their jurisdictions. This study is intended
to identify the practical challenges of IFRS implementation; the case of private insurance
companies in Ethiopia. To achieve this objective, both primary and secondary data were
collected from IFRS implementation team members of 16 insurance companies who were
selected purposively based on their role and involvement in the implementation process.
Primary data were collected through questionnaire and interview whereas secondary
based were collected through documentary evidence and analyzed by using different
descriptive statistical tools such as mean and exploratory factor analysis by using SPSS
version 23. Finally, the result of the study revealed that lack of attention and commitment
of management, poor contribution of education and training, lack of supports from
accountancy professional bodies, weak enforcements of regulatory body, and high cost of
implementation and weak management support are the major challenges of IFRS
implementation by private insurance companies in Ethiopia. Therefore, the insurance
companies, regulatory organs and consultants are recommended to improve management
involvement, provide workplace trainings, to implement by customizing the standard, to
improve cost issues of the standard, and to improve the cooperation of the organs
involving in the implementation.

Key Words: IFRS, Implementation, challenges, insurance companies

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CHAPTER ONE
INTRODUCTION

This chapter presents introduction to about the study that includes background of the

study, statement of the problem, objectives of the study, scope and significance of the

study

1.1 Background of the Study

The process of international convergence towards a global set of standards started in

1973 when 16 professional accountancy bodies from Australia, Canada, France,

Germany, Japan, Mexico, the Netherlands, the United Kingdom and the United

States of America agreed to form the International Accounting Standards Committee

(IASC), which in 2001 was reorganized into the International Accounting Standards

Board (IASB) (UNCTAD, 2008). The IASC’s aim was to formulate uniform and

global accounting standards aimed at reducing the discrepancies in international

accounting principles and reporting practices.

The IASB has updated the already existing International Accounting Standards that

were issued by its predecessor, IASC and referred to them as International Financial

Reporting Standards (IFRS). IFRSs are a single set of high quality understandable

standards for general purpose financial reporting which are principles based in

contrast to the rules based approach (IASB, 2016).

According to Deloitte IFRS Solutions Center (2008) different countries have adopted

International Financial Reporting Standards (IFRS) as the basis for financial reporting

due to the benefits of single set of standards throughout the organization that allows

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companies to improve controls around financial reporting and to potentially achieve

significant cost savings by consolidating people, systems, and processes.

IFRS is also believed to be able to achieve a degree of comparability that will help

investors make their decisions while reducing costs of Multi-National Enterprises

(MNE) in preparing multiple sets of accounts and reports. However, those countries

which adopt IFRS has faced many practical challenges which they overcome by

devising various methods including changing their laws and enhancing the awareness

of the IFRS among the stakeholders (Radebaugh, Gray, & Black, 2006).

According to NBE (2018), Ethiopia adopted IFRS after issuing the Financial

Reporting Proclamation in 2014. The Accounting and Auditing Board of Ethiopia

which was entitled to lead the adoption of IFRS in Ethiopia has developed a road map

which sets the mandatory IFRS adoption for businesses, governmental organisations

and not for profit entities. The adoption was scheduled to start with significant public

interest entities, financial institutions and public enterprises owned by federal or

regional governments who are expected to adopt the IFRS by 8 July 2017.

Other public interest entities (ECX member companies and reporting entities that

meet public interest entities quantitative threshold, two if assets 100 Million, 100

employees, Liability 100 Million, revenue 50 Million) and IPSASs for charities and

societies are expected to adopt IFRS/IPSAS by 8 July 2018. All other small and

medium sized entities are required to adopt IFRS by 8 July 2019. In light of this

therefore, this study has focused on assessing the challenges of implementing IFRS in

Ethiopia (NBE, 2018).

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1.2 Statement of the problem

In 2007 the World Bank and IMF conducted a joint initiative which mainly focuses on
review of corporate sector accounting, auditing, and financial reporting practices and
supporting infrastructure in Ethiopia. In the report, the World Bank and IMF suggested
that Ethiopia need to have a well-defined financial reporting standards and a professional
body that has a legal enforceable right to monitor the accounting and auditing practice in
the country (World Bank and IMF joint initiative, 2007).

In 2014, the Ethiopian Government issued Financial Reporting Proclamation which

has the objectives of establishing a uniform financial reporting law and establishing a
body that undertakes regulatory responsibilities in financial reporting (Proclamation
847/2014, Article 4 and Regulation 332/2014).

Some government and business enterprises claimed that they were adhering to the
requirement of IFRS before Ethiopia adopt IFRS as per the Proclamation 847.
However, that claim was not certifiable as in the absence of the infrastructure in IFRS
implementation (including the shortage of qualified accountants, etc.), the auditors of
those entities not fully complying with the International Standards on Auditing
(Alemi & Pasricha, 2016).

Currently, the IFRS implementation process has been started in the country and
businesses and government entities are employing consultants to help them in the
implementation process-including the conversion process which incorporate
developing the accounting policy manual, training of staff and the actual conversion
of the books for the effects of the adoption of the IFRS vis-à-vis the current
accounting practice. The researcher is involved in IFRS conversion project in one
private company as team leader of the project and he has a good audit practices in

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 insurance companies and has good understating of the business model of insurance
companies

Previously, there were few studies conducted in Ethiopia’s adoption of IFRS. One of
the studies conducted by Tesfu (2012) focuses on adoption of International Financial
Reporting Standards (IFRS) in Ethiopia including the factors that could influence its
adoption, with particular reference to companies which adopted this standard which
he did not address the practical challenges faced by Insurance companies.

Hailemchael(2016) conducted his study in the case of financial intuitions but the
study took its target population from finance departments /directors as his
respondents , which could not give the correct IFRS implementation teams and failed
to address the practical challenges faced by Insurance companies.

Tesfu,2012, Mihre 2016, conducted their study was from the cost perspective in
inmplemtnastion International financial reporting standards and hence, they failed to
address the practical challenges faced by IFRS implementation by Insurance
companies in Ethiopia. Therefore, this study is designed to assess and identify the
challenges that were encountered by private insurance companies in Ethiopia.

1.3 Objectives of the Study

1.3.1 General Objective

The general objective of this study is to assess the challenges of implementing

International Financial Reporting Standards (IFRS) in private insurance companies in
Ethiopian.

1.3.2 Specific Objectives

The specific objectives of this study are:

i. To assess challenges from management of the private insurance companies in

Ethiopia in implementing IFRS;

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 ii. To examine the challenge of education and training to implement IFRS in
insurance companies in Ethiopia;

iii. To assess the technical challenges of the IFRS to implement in Private

insurance in Ethiopia;

iv. To analyze the challenges of cost to implement IFRS in private insurance

companies in Ethiopia; and

v. To examine the influence of institutional factors to IFRS implementation.

1.4 Research Questions

The following research questions are tried to be addressed in this study:

i. What are challenges from management of the private insurance companies in

Ethiopia in implementing IFRS?
ii. What are the challenge of education and training to implement IFRS in
insurance companies in Ethiopia?

iii. What are the technical challenges of the IFRS to implement in Private
insurance in Ethiopia?

iv. What the challenges related to cost to implement IFRS in private insurance
companies in Ethiopia?

v.What is the influence of institutional factors to IFRS implementation?

1.5 Scope and Limitation of the Study

The study has examined the challenges to implement IFRS in Ethiopian Insurance

companies. Based on the previous studies, this study has focused on the cost to

implement, the suitability of the economic, legal and regulatory framework in

implementing IFRS, assess the requirements and challenges of implementing IFRS.

The study was conducted in Addis Ababa incorporating team of the IFRS in each

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 insurance company. Moreover, the challenges considered in this study are not

exhaustive as there are other challenges in IFRS implementation that are not studied

in this specific research. The study has not considered any post implementation

challenges. This study is delimited to the insurance companies that currently

implementing IFRS.

Because of limited researches that exists on IFRS in Ethiopian context, the study has
based on the current body of knowledge and studies conducted in other countries
context. In addition, this study has not considered the detailed and specific accounting
principles and application of the IFRS.

1.6 Significance of the Study

All companies in Ethiopian are expected to adopt and implement IFRS as mandatory

financial reporting standard. This study has assessed challenges of encountering the

smooth adoption. The study result will benefit implementing companies and the

regulatory body (AABE). Researchers and other any information seekers regarding

IFRS implementation process will obtain information from the study and use the

findings as an input to their future consideration.

1.7 Organization of the Study

This study has been organized in to five chapters. The first chapter deals with the
general introduction and background of the study; chapter two presents the literature
review regarding the research area of International Financial Reporting Standards to
set out the theoretical foundations for the research; the third chapter outlines the
research methodology. The research results are presented in chapter four. The last
chapter is about the conclusions and recommendation and wind up the report by
highlighting future research areas.

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 CHAPTER TWO
LITERATURE REVIEW
Introduction
This chapter deals with the review of related literatures related to International Financial
Reporting Standards (IFRS) in general and challenges to implementation of IFRS in
particular. The chapter have three sections; theoretical reviews, empirical reviews and
conceptual framework. The reviews include understanding IFRS, use of IFRS around the
world, approaches to adopting IFRS, advantages and disadvantages of adopting IFRS for
financial reporting, practical implications and challenges of adopting IFRS, factors
affecting the adoption of IFRS, Ethiopia’s accounting practice and the journey to IFRS
aadoption and lessons learned from other IFRS adopters.

2.1 Theoretical Review

2.1.1 Understanding IFRS
Financial Reporting:

The Conceptual Framework of the IASB states that: 'The objective of general purpose
financial reporting is to provide information about the reporting entity that is useful to
existing and potential investors, lenders and other creditors in making decisions about
providing resources to the entity' (BPP Learning Media, 2016). These users need
information about: the economic resources of the entity; the claims against the entity; and
changes in the entity's economic resources and claims.

A complete set of financial statements includes a statement of financial position

(formerly known as balance sheet), a statement of comprehensive income (formerly
known as income statement), a statement of changes in equity, a statement of cash flows,
and accounting policies and explanatory notes (IASB, 2016).

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The IASB and IFRS:

The need for a global set of high-quality financial reporting standards has long been
apparent. The process of international convergence towards a global set of standards
started in 1973 when 16 professional accountancy bodies from Australia, Canada, France,
Germany, Japan, Mexico, the Netherlands, the United Kingdom and the United States of
America agreed to form the International Accounting Standards Committee (IASC),
which in 2001 was reorganized into the International Accounting Standards Board
(IASB). The IASB develops global standards and related interpretations that are
collectively known as International Financial Reporting Standards (IFRS) (United
Nations Conference for Trade and Development, 2008).

The International Accounting Standards Board, based in London, began operations in

2001. The IASB is committed to developing, in the public interest, a single set of high
quality, global accounting standards that require transparent and comparable information
in general purpose financial statements. The IASB is selected, overseen and funded by
the IFRS Foundation (formerly called the International Accounting Standards Committee
(IASC) Foundation). The IFRS Foundation is financed through a number of national
financing regimes, which include levies and payments from regulatory and standard-
setting bodies, international organizations and other accounting bodies (accounting firms,
private financial institutions and industrial companies, central and development banks,
national funding regimes, and other international and professional organizations
throughout the world). The Trustees provide oversight of the operations of the IFRS
Foundation and the IASB (IASB, 2016).

The IASB has full discretion in developing and pursuing the technical agenda for setting
accounting standards, subject to consultation with the Trustees and a public consultation
every three year. Approval of International Financial Reporting Standards (IFRSs) and
related documents, such as the Conceptual Framework for Financial Reporting, exposure
drafts, and other discussion documents, is the responsibility of the IASB. The IASB
issues its Standards in a series of pronouncements called International Financial
Reporting Standards (IFRS). Upon its inception the IASB adopted the body of

8
International Accounting Standards (IAS) issued by its predecessor, the Board of the
International Accounting Standards Committee. The term ‘International Financial
Reporting Standards’ includes IFRS, IAS and Interpretations developed by the
Interpretations Committee or the former Standing Interpretations Committee (SIC)
(IASB, 2016).

Below is the structure of the IASB

Figure 2. 1: IASB Structure (Source: Deloitte IFRS in your Pocket 2016)

IFRSs set out recognition, measurement, presentation and disclosure requirements

dealing with transactions and events that are important in general purpose financial
statements. They may also set out such requirements for transactions and events that arise
mainly in specific industries (e.g. IAS 41: Agriculture, IFRS 6: Exploration for and
Evaluation of Mineral Resources). IFRSs are based on the Conceptual Framework, which
addresses the concepts underlying the information presented in general purpose financial

9
statements. IFRSs are designed to apply to the general purpose financial statements and
other financial reporting of profit-oriented entities. IFRS provides general guidance for
the preparation of financial statements, rather than setting rules for industry-specific
reporting (IASB, 2016).

2.1.2 Approaches to Adopting IFRS

There are two approaches to adopting IFRS: adoption and convergence.

Adoption would mean that the Government (the accounting regulatory body entrusted by
the Government) sets a specific timetable when companies would be required to use
IFRS as issued by the IASB. Convergence means that the local financial reporting issuing
body and the IASB would continue working together to develop high quality, compatible
accounting standards over time. More convergence will make adoption easier and less
costly and may even make adoption of IFRS unnecessary. Supporters of adoption,
however, believe that convergence alone will never eliminate all of the differences
between the two sets of standards (i.e. the local GAAP and the IFRS) (AICPA, 2008).

2.1.3 Advantages of adopting IFRS

Multinational companies have to comply with multiple local or statutory reporting

requirements that typically involve different standards. As IFRS becomes allowed—or in
some cases required—for local or statutory reporting purposes, it provides an opportunity
to reduce the number of financial reporting standards used. The ultimate outcome is that a
single set of standards is used throughout the organization, which allows companies to
improve controls around financial reporting and to potentially achieve significant cost
savings by consolidating people, systems, and processes (Deloitte IFRS Solutions Center,
2008).

Growing interest in the global acceptance of a single set of robust accounting standards
comes from all participants in the capital markets. Many multinational companies and
national regulators and users support it because they believe that the use of common

10
standards in the preparation of public company financial statements will make it easier to
compare the financial results of reporting entities from different countries. They believe it
will help investors understand opportunities better. Large public companies with
subsidiaries in multiple jurisdictions would be able to use one accounting language
company-wide and present their financial statements in the same language as their
competitors. Companies may also benefit by using IFRS if they wish to raise capital
abroad (AICPA, 2011).

IFRS is believed to be able to achieve a degree of comparability that will help investors
make their decisions while reducing costs of Multi-National Enterprises (MNE) in
preparing multiple sets of accounts and reports (Radebaugh, Gray, & Black, 2006).
Convergence of accounting standards make information more comparable, thereby
enhancing evaluation and analysis by users of financial statements and reducing user
costs. Internationally converged standards also help maintain credibility of financial
reporting to the public and increase the efficiency of auditing that information
(www.essay.uk.com).

Another benefit some believe is that in a truly global economy, financial professionals,
including CPAs, will be more mobile, and companies will more easily be able to respond
to the human capital needs of their subsidiaries around the world (AICPA, 2011).

Convergence is not an end by itself, but it is a means to an end. Adoption of different

accounting standards causes difficulties in making relative evaluation of performance of
companies. This phenomenon hinders the valuation and consequently the decision
making process. There are numerous instances around the world of bad accounting
practices leading to corporate failures.

Another significant benefit that is expected to accrue from global convergence of

accounting standards relates to facilitating cross–border mergers and acquisitions.
Adopting international standards will make this easier by increasing the transparency and
credibility of the financial reporting (International Journal of Business and Management,
2009).

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The IFRS can help new and small investors by making reporting standards to have better
quality and become simpler, putting these investors in a similar position with professional
investors, which was not feasible under previous standards. This also entails a reduced
risk for these investors when they trade, as the professionals will not be able to take
advantage because the nature of financial statements will just be simple to be understood
by all (connectusfund.org)

Using a philosophy that is based on principles (the approach of IASB in setting

standards), instead of rules (the approach taken by national standards setters, e.g. in the
U. S.), will have the goal of arriving at a reasonable valuation with various ways to
accomplish tasks. This would give businesses the freedom to adopt IFRS to their specific
situations, which will result in financial statements that are more easily read and useful
(connectusfund.org).

2.1.4 Disadvantages of Adopting IFRS

Despite all its benefits mentioned above, adopting IFRS has the following disadvantages:

It requires high costs

Whether large or small, all businesses would feel the impact if a country adopts IFRS.
However, small companies would not have sufficient resources to implement the changes
that come with it, not to mention that they would need to train staff or hire accountants or
consultants for assistance. They would simply bear more financial burden than their
larger counterparts (connectusfund.org). Convergence would generate both transition cost
and the process costs of maintaining a standard-setting for global accounting principles.
Transition cost that will include the cost of training, retraining and education of
accounting professionals and students. Costs of training and re-training would also arise
to retrain preparers, users, auditors, students and regulators to apply and interpret the
converged global standards (www.essay.uk.com).

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It is prone to manipulation

As businesses can only use the methods that they wish, this would lead to financial
statements show only desired results, which can lead to profit manipulation. While this
new set of standards requires changes to how the rules should be applied to be justifiable,
it is often possible for businesses to come up with reasons for making such changes. This
means that stricter rules should be implemented to ensure all companies will value their
statements in a similar fashion (connectusfund.org).

It is not globally accepted

Although many countries have adopted IFRS, there are also significant hold-outs. This
means that accounting by foreign companies operating in these countries are facing
difficulties because they have to prepare financial statements using such a set of
standards and another set of principles that is generally accepted in these countries.

2.1.5 Challenges of Adopting IFRS

Conversion to IFRS is much more than an accounting exercise. It will affect many
aspects of a company's operations, from information technology systems and tax
reporting requirements, to internal reporting and key performance metrics and the
tracking of stock-based compensation-compensation plans may be based on the local
GAAP performance criteria (AICPA, 2011).

The quality of financial reporting depends on the quality of accounting standards as well
as the effectiveness of the process by which those standards are implemented. Adequate
regulatory and other supports are necessary to ensure proper implementation of standards.
Implementation of accounting standards is not an easy task. In spite of convergence, there
is no assurance that they will be implemented with same amount of vigor in every
jurisdiction (International Journal of Business and Management, 2009).

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Convergence of accounting standards with international approach will inevitably raise the
questions of rules versus principles. IASB standards are principles-based. Thus the
countries that have rules-based standards (like the U. S.) are expected to experience
considerable difficulty in converging their standards with IFRS (International Journal of
Business and Management, 2009). Although IFRS is not without its rules, it is clear that
finance professionals will have less interpretive guidance to use under IFRS. This will
require more professional judgment in the determination of accounting outcomes, which
poses an organizational challenge – especially for large multinational companies that
need to make sure that professional judgment is applied consistently throughout the
organization. In response, companies may need to focus on creating a framework for
making these judgments (Deloitte IFRS Solutions Center, 2008).

As IFRS grows in acceptance, most accountants, financial statement preparers and

auditors will have to become knowledgeable about the new rules. Others, such as
actuaries and valuation experts who are engaged by management to assist in measuring
certain assets and liabilities, who are not currently taught IFRS and will have to
undertake comprehensive training. Professional associations and industry groups have to
integrate IFRS into their training materials, publications, testing, and certification
programs, and many colleges and universities should include IFRS in their curricula
(AICPA, 2011).

The primary reasons of adopting IFRS were built on one perspective that all countries
need to prioritize investors over other firms’ stakeholders, and all countries have a
considerable number of MNE; the perspective which is widely shared by capitalists and
neoclassical economists. Consequently, countries that have less developed capital
markets and higher concentration of Small and Medium Enterprises (SME) may not be
able to reap the optimum benefits of adopting IFRS (Lasmin, 2011).

Despite a belief by some of the inevitability of the global acceptance of IFRS, others
believe that their local GAAP (especially the U. S. GAAP) is the gold standard, and that a
certain level of quality will be lost with full acceptance of IFRS. Further, certain issuers
without significant customers or operations outside their country of jurisdiction may

14
resist IFRS because they may not have a market incentive to prepare IFRS financial
statements. They may believe that the significant costs associated with adopting IFRS
outweigh the benefits. Another concern is that worldwide, many countries that claim to
be converging to international standards may never get to 100% compliance. Most
reserve the right to carve out selectively or modify standards they do not consider in their
national interest, an action that could lead to incomparability - the very issue that IFRS
seek to address (AICPA, 2011).

The notion of “one set of standards fits all countries” stands on one premise that all
countries share common institutional contexts where the relation of the IFRS adoption
and its associated economic benefits (such as a higher inflow of Foreign Direct
Investment (FDI) and higher Gross Domestic Product (GDP) growth rate) established in a
country or a group of countries is also applicable in other regions. However, IFRS that is
crafted by developed countries might not be able to induce the same relationship in
developing countries because of different socio economy and political-economy
environments. Thus, while some countries might enjoy the benefits of IFRS
internalization, countries like Botswana, Malawi, Panama, Papua New Guinea,
Tajikistan, and Tanzania are among countries that have substantially adopted IFRS but
have not experienced significant grow in their FDI inflows and GDP growth. This hints
that the process of internationalization of IFRS might not be exclusively related to its
corresponding economic benefits (Lasmin, 2011).

According to Mwaura and Nyaboga (2009) Non-existence of functional professional

accounting organizations; Complex nature of the IFRS; translating to the native
languages, lack of accounting infrastructure with corporate governance and financial
reporting practices; and impact of IFRS on the existing corporate and tax law are the
main challenges in Africa.

According to Thompson (2016), challenges of implementing IFRS can be overcome by

Devised transition plan to IFRS, as well as all implications that come with it, to be
effectively communicated and coordinated to all users, preparers, educators and
stakeholders; Gradual implementation of IFRS was deemed to be the most effective

15
strategy; Receive financial help from outside sources for the implementation of the IFRS-
such as World Bank and the International Monetary Fund; Amended local laws in order
to facilitate IFRS application; and Better coordination between the various organizations
during the process of adoption

2.2 Empirical Evidence

In a broader view, a set of accounting standards as part of accounting systems is
continuously influenced by several differing institutional factors where that set of
standards operates. These factors include culture (e.g. in regards to the implementation of
IFRS in the Arab world, it could be complicated to harmonize accounting standards to
those of western civilizations- Sanchez (2015)), enterprise ownership and activities,
finance and capital markets, economic growth and development, accounting regulation,
legal system, social system, political system, accounting profession, accounting education
and research, inflation, and international factors put it in a simpler sentence: free market
capitalism cannot be universal (Lasmin, 2011).

Ramanna & Sletten (2009) have found in their study that, in addition to the macro-level
economic and political factors, it is likely that a country’s decision to adopt IFRS is
influenced by its internal politics: e.g., the actions of special-interest lobbyists and
ideology-driven regulators. They also have the view that a country is more likely to
implement IFRS if other countries in its geographical region (and its trade partners in
other regions) are IFRS adopters (called it the network effects).

Adopting IFRS can be costly if local governance institutions that include auditor training,
auditing standards, enforcement (regulatory and judicial), precedent for the protection of
property rights, government corruption, and the role of the press, among others are
collectively not compatible with the international standards. The relative quality of extant
governance institutions refers to the ability of these institutions to facilitate the efficient
allocation of capital in an economy (Ramanna & Sletten, 2009). Ramanna & Sletten
(2009) also argue that, in countries where the quality of the existing governance
institutions is relatively high, IFRS adoption is likely to be less attractive. High quality
institutions represent high opportunity and switching costs to adopting international

16
accounting standards. The opportunity costs arise because in adopting IFRS, countries
forgo the benefits of any past and potential future innovations in local reporting standards
specific to their economies. The switching costs arise because countries with well-
developed governance institutions are likely to have well developed capital markets, and
thus more market participants needing retraining in IFRS. Ramanna & Sletten (2009)
also established that the more powerful countries like the United States are less likely to
adopt IFRS because they do not want to cede power or control to an international
organization.

Thompson (2016) found that education level of a country, existence of a financial market
and cultural membership are also factors tied to IFRS adoption. Higher economic growth
was found to be a factor as well, as the need for effective communication of information
between businesses and shareholders becomes more important. The more complex a
country’s economy becomes the more complex the accounting systems need to be in
order to effectively communicate information.

Gyasi (2013) as cited by Thompson (2016) found that the adoption of IFRS is influenced
by internal political and organizational factors, but also external factors. The study found
that external agents, including foreign investors, international accounting firms, and
international financial organizations play a major role in influencing a country to
adopt IFRS.

The study conducted by Edward Chamisa (n.d) as cited by Thompson (2016) confirmed
the relevance of a capital market within a country. This study found, predictably, that
those who implement a communist system of government are less likely to adopt
international standards, as it is not deemed to be relevant to their system (Thompson,
2016).

Leuz & Verrechia (2000) as cited by Zehri & Chouaibi (2013) explained that for German
companies, firm size, financing needs (creditors might require compliance with debt
covenants based on specific calculations) and financial performance significantly explain
the decision of adopting international standards.

17
Zeghal & Mhedhbi (2006) as cited by Zehri & Chouaibi (2013) concluded that the
developing countries enjoying capital markets, advanced education levels and high
economic growth rates are most inclined to adopt the IFRS. Zehri & Chouaibi (2013),
based on the empirical evidence of their research, concluded that the developing
countries most favorable to the adoption of IFRS are those having a high economic
growth rate, a high level of education and common law based legal system. The other
variables, relevant to their model: culture, the existence of a capital market, the political
system and internationality, has turned out to have no significant impact on the decision
to adopt IFRS in developing countries.

Shima & Yang (2012) on the other hand tried to explain the adoption of IFRS in relation
to the legal system of countries. According to their study, in common law countries,
information asymmetry is likely to be resolved by timely and greater public disclosures to
shareholders (“shareholder model”), whereas communication in code law countries is
more likely to be conducted more privately between major political groups (“stakeholder
model”). As a result, accounting standards in common law countries may be similar to
IFRS, thus making adoption of IFRS easier and more enforceable

Tilahun (2009) claims that since the establishment of professional bodies like the
Ethiopian Professional Association of Accountants and Auditors (EPAAA), Ethiopian
Accountancy and Finance Association (EAFA) and Accounting Society of Ethiopia
(ASE), extensive work had been done to capitalize the pool of knowledge and experience
in the areas of accounting, auditing and finance. Establishing an academic journal to
serve as medium of ideas contributed by members and other stakeholders, building good
reputation and professionalism, plus most importantly efforts towards adopting/adapting
Financial Reporting Standards are some of the work that has been done.

Gizaw (c.2009) reiterates that adopting IFRS will have significant benefits in improving
corporate transparency that is required by investors and governments. A strong financial
reporting environment is also an important institutional infrastructure for developing a
robust stock exchange market. Gizaw also pointed out that currently in Ethiopia, selection

18
and application of accounting principle for measurement and disclosure of financial
transaction is left for company’s management and its auditor (if the company has one).
Hence, without a uniform guide at a national level to select appropriate accounting
policies by the companies, different companies are currently using different accounting
rules or principles that ultimately lead to production of different set of financial
statements that have different bases for measurement and disclosure of financial
transactions. These do not significantly assist users of financial statements for decision
making. He also argues for the benefits of adopting IFRS by stating the disadvantage of
not to adopt that is countries that use their own national accounting standards or
fragmented accounting practices will be at their own peril. Because of risk premium on
investors cost of capital, such countries may not be destinations for foreign investments
or may be perceived as risky investment destinations. Unless such countries offer huge
(unwarranted) incentives to attract capital, the countries may eventually be excluded from
consideration by foreign investors.

Gizaw (c.2009) also assessed the advantages and disadvantages of the adoption of IFRS.
The most obvious disadvantage of adoption (in contrast to adaptation), in his opinion, is
that the standards are not set to serve the Ethiopian economy and cannot fully be
expected to be utilized by all the companies at the country’s current stage of
development. One of the significant advantages for Ethiopia to use the global accounting
standards is the Anglo-Saxon orientation of the country’s accounting profession. The
country’s business schools teach and the practicing accountants are qualified on Anglo-
Saxon model of accounting. This background will shorten the training that is needed to
re-train existing accountants and auditors at least to head start phased implementation of
the standards. The other advantage is that the country’s accountants, unlike many other
developed and developing countries, that were forced to translate the standards to their
own working language, Ethiopian accountants are trained using English language as a
medium of instruction and the accounting practice in the country is also predominantly
English. If the country makes important decision right from the start to adopt the English
language version of the standards as its national Financial Reporting Standards as it is, it
will save significant resources subsequently in implementing the standards.

19
Gizaw (c.2009) proposed that for the medium to long-term, an intensive education is
required through revision of accounting syllabuses of universities and colleges for nation-
wide application of the standards. He further strengthens his argument for the adoption of
IFRS by stating that Ethiopian government and businesses can save significant
investments on developing alternative national standards to resolve the country’s pressing
financing reporting problems.

2.3 Summary and Research Gap

The financial reporting process is concerned with providing information that is useful in
the business and economic decision-making process. IFRS are meant to facilitate this
financial reporting process. The globalization of the financial reporting standards started
in 1970s when the International Accounting Standards Committee (IASC) was
established in 1973 and started issuing standards that are followed by countries. The
adoption of those standards was getting momentum through decades and currently
approximately 120 nations and reporting jurisdictions permit or require IFRS or a local
variant of them for domestic listed companies. IFRS implementation is not an easy task
as it required countries huge amount of resources, and results changes in the laws
of the countries who adopt it (BPP Learning Media, 2016; United Nations Conference for
Trade and Development, 2008).

The IFRS and the countries adoption processes, challenges, etc. attracted many research
through years. However, those researches mainly focus on the adoption processes of the
developed nations as they were the pioneers in adoption and the researchers were also
from those nations. Recently there were also researches on the adoption of developing
nations including Ghana, South Africa, Brazil, India, Libya, Kenya, Ethiopia, etc.
(Thompson, 2016; Gyasi, 2009).

In relation to adoption of IFRS by Ethiopia, studies were made by Tesfu (2012) and
Mihret (2016). Tesfu’s (2012) and Mihret’s (2016) studies mainly focused on the benefits
of adoption of IFRS and the adoption process. Another study by Hailemichael (2016) was
on IFRS adoption specifically to financial institutions in Ethiopia.

20
Given the fact that Ethiopian businesses, financial institutions and Government
organizations have actually started implementing IFRS, this study seems timely as the
practical implications can be studied with the companies and government enterprises that
have already started the implementation of IFRS.
Growing bodies of literatures reveal that more complex financial reporting requirements
resulted in increased implementation costs, shortage of resources with expertise in IFRS,
the ability of amendments to regulatory requirements and tax laws and impact on IT
systems ets are the main challenges of International Financial Reporting Standards.(Iyoha
and Faboyed 2011)
Although various studies have been conducted to assess the adoption of IFRS in Ethiopia
most of the studies focuses on the analysis of the data on adoptions and they tried to see
its challenges from cost perspectives. They failed to see practical challenges of
implementing IFRS in insurance companies by taking the complete set of IFRS
implementation teams. Therefore, this study makes an attempt to bridge this gap and
elaborate that could influence the implementations of IFRS by Private insurance
companies in Ethiopia.

21
 CHAPTER THREE
METHODOLOGY

3.1 Research Design

Designing a study helps the researcher to plan and implement the study in a way that help
the researcher to obtain intended results, thus increasing the chances of obtaining
information that could be associated with the real situation (Burns & Grove, 2001). This
study has used descriptive research design. According to Kothari (2004) descriptive
research is a situation or condition at hand in which information is collected without
changing operating environment. From different methods of research designs the
descriptive research design is accepted based on the purpose of the study. Frequencies,
percentages, tables, charts and factor analysis methods were used.

3.2 Research Approaches

This study has used both qualitative and quantitative research approaches. Creswell
(2005) explains that the three methods that are commonly implemented in a research are
quantitative, qualitative and mixed, where one of them is not better than the others, all of
this depends on how the researcher want to do a research of study. Quantitative research
decides what to study, asks specific, narrow questions, collects numeric (numbered) data
from participants, analyzes these numbers using statistics, and conducts the inquiry in an
unbiased, objective manner. Quantitative approach is one in which the investigator
primarily uses postpositive claims for developing knowledge, i.e., cause and effect
relationship between known variables of interest or it employs strategies of inquiry such
as experiments and surveys, and collect data on predetermined instruments that yield
statistics data. This approach is implemented by using structured questionnaire. The
qualitative approach is implemented by using interview to collect detailed information in
the study area.

22
3.3 Population and Sampling Method
3.3.1 Population of the Study
According to Hair, et al (2010) target population is a specified group of people or object
for which questions can be asked or observed to collect required data structures and
information. This study was conducted by using team members of IFRS implementation
are direct participants in the project and who have good experience about the study area.
It includes all team members in each insurance company. According to the NBE (2018)
there are 16 private insurance companies. The number of team members in each
insurance company varies.
Insurance company Team
members
1 Abay insurance 4
2 Africa insurance 7

3 Awash insurance 6

4 Brihan insurance 5

5 Bunna insurance 6

6 Ethio-life and General 6

7 Global insurance 7

8 Lion insurance 4

9 Lucy insurance 5

10 Nib insurance 7

11 NICE insurance 8

12 Nile insurance 9

13 Nyala insurance 7

14 Oromia insurance 5

15 The United insurance 6

16 Tsehay insurance 5

Total 97
Source: NBE, 2018
Therefore, target population of the study is 97 IFRS implementation members.

23
3.3.2 Sampling Method
Since targeted population is small size the, the researcher has used census. This study has
not implemented any sampling method and sample size determination techniques.

3.3 Data Type and Source

Both primary and secondary data were used for the study. According to Biggam (2008)
primary data is the information that the researcher finds out by him/herself regarding a
specific topic. The main advantage with this type of data is that it is collected with the
research’s purpose in mind. It implies that the information resulting from primary data is
more consistent with the research questions and objectives. The primary data were
collected from the team members through questionnaire and interview. Secondary data
were obtained from published and unpublished materials such as magazines, reports and
websites.

3.4. Methods of Data Collection and Instruments

In order to achieve the objectives of the study, the researcher used both quantitative and
qualitative research methods through questionnaire and interview respectively. To cover
larger target groups than the interview, given the quality and chance of no response,
questionnaire was used. Interview was conducted to support data collected with
questionnaire and to collect detailed information. The questionnaires were prepared using
close-ended method questions; yes/no, and 5 Point Likert-Scale approaches (i.e., from
“Strongly Disagree to Strongly Agree”). For the 5-point Likert scale the respondents
were asked to indicate their level of agreement with the ratings of Strongly Disagree (1),
Disagree (2), neutral (3), Agree (4) and Strongly Agree (5). In fact there is a controversy
on the type statistically analysis used to analyze the result of the Likert- Scale data. Some
scholars argued that statistics, such as mean and standard deviations, have unclear
meanings when applied to Likert -Scale responses because of measurement observers ion,
over the years have argued that the median should be used as the measure of central
tendency for liker scale data. low , medium, neutral , high and very high.

The questionnaires were designed in English as respondents could read and understand
the questions.

24
3.5 Methods of Data Analysis
The data collected through questionnaire was analyzed using quantitative data analysis
techniques. The data collected from respondents was analyzed by using statistical
package for social science (SPSS) version 23. For presenting the data different types of
descriptive data analysis methods such as frequency, percentage, simple tabulation, mean
and standard deviation were used. The challenges of implementing IFRS were explored
by using factor analysis method through principal component analysis after VARIMAX
rotation.

3.6 Validity test

Validity is defined as how much any measuring instrument measures what it is intended
to measure. Bryman & Bell (2003) suggested that the important issue of measurement
validity relates to whether measures of concepts really measure the concept. Validity
refers to the issue of whether an indicator (or set of indicators) that is devised to gauge a
concept really measures that concept. Several ways of establishing validity are: content
validity; convergent validity concurrent; predictive validity; construct validity; and
convergent validity (Bryman and Bell, 2003). This study addressed content validity
through the review of literature and adapting instruments used in previous researches.

3.7 Reliability Test

The level of reliability of the instrument that is the consistency of the variables is checked
by the Cronbach’s alpha statistics. Cronbach’s alpha is an index of reliability associated
with the variation accounted for by the true score of the underlying construct (Nunnaly,
1978). Cronbach’s Alpha can only be measured for variables which have more than one
measurement question. Nunnaly (1978) has stated that 0.5 is a sufficient value, while 0.7
is a more reasonable Cronbach’s alpha.

25
Table 3. 1Reliability Statistics
Variable Cronbach's Alpha N of Items
Management challenge .952 6
Technical constraints .911 6
Education and training
.948 5
challenges
Cost challenges .889 5
Institutional constraints .920 7

Source: Own Survey, 2018

The results were extracted presented in table 3.1 and Cronbach's Alpha values are more
than 0.7 implying that constructs are consistent to measure the variables.
3.8Ethical Consideration
Before the data collection, permission from the organizations was requested. During the
distribution of the questionnaire, respondents were informed about the purpose and the
benefit of the study along with their full right to refuse or accept the participation. The
respondents` were told their response would be kept confidential and their identity shall
not be exposed. Every person involved in the study was entitled to the right of privacy
and dignity of treatment, and no personal harm will be caused to subjects in the research.
Information obtained was held in strict confidentiality by the researcher. All assistance,
collaboration of others and sources from which information was drawn were
acknowledged.

26
 CHAPTER FOUR
RESULT AND DISCUSSION
Introduction
As a part of the study, this chapter presents about the results of data analysis for data
collected through structured questionnaire from members of IFRS implementing team in
private insurance companies in Ethiopia. The results are presented in tables and figures.
This chapter further presents discussion on the results. Descriptive statistics such as
frequency, percentage, mean, standard deviation and factor loading were used.

To reach at the aforementioned objectives, 94 questionnaires were distributed. But 81

(86.17%) questionnaires were returned.

4.1 Demographic information

This study is conducted by using 81 respondents from IFRS implementation team
members by using questionnaire and 3 team leaders by using interview. This section of
the study presents demographic information about the respondents of questionnaire in
table 4.1 below.

Table 4. 1 Demographic Information of the respondents

Variable Category Frequency Percent
Gender Male 54 66.7
Female 27 33.3
Age less than 30 6 7.4
31-40 51 63.0
41-50 19 23.5
above 50 5 6.2
Education Bachelor’s degree 61 75.3
Master’s degree 20 24.7
Experience below 5 33 40.7
5-10 39 48.1
above 10 9 11.1
Source: Survey, 2018
27
As presented in the table 4.1 above, 54(66.7%) of the respondents were male and
remaining 27(33.3%) of the respondents are female suggesting the majority of the team
members are male.

51(63%) of the respondents are in the age category of 31 to 40 years and followed by an
age category of 41 to 50 years which is 23.5% of the respondents. But only 6.2% of the
respondents have age of above 50 years.

Education background of the respondents is summarized as 61(75.3%) of the respondents

have bachelor’s degree and remaining 20(24.7%) of the respondents have master’s
degree.

Experience of the team members in the industry shows that 33(40.7%) have less than 5
years and 39 (48.1%) of the respondents have experienced for 5 to 10 years. But only
9(11.1%) of the respondents have an experience above 10 years.

4.2 General Information

4.2.1 IFRS Trainings

The respondents were asked if they took IFRS trainings on all IFRS standards. The result
is presented in figure 4.1 below by using pie chart.

This indicates that 64.2% of the respondents took the training but remaining 35.8% of
them did not take the training on all standard of IFRS. This suggests that some companies
are implementing IFRS without necessary trainings.

28
Figure 4. 1 Team members who received all IFRS standard training,

4.2.2 Adequacy of IFRS Implementation Training

Figure 4.2 below presents the result of the response about adequacy of the training that
team members took for IFRS implementation. According to the survey, only 34.6% of the
respondents who took the training feel that the training is adequate for the
implementation. But majority (65.4%) of the team members indicated that the training is
not adequate. Therefore, it is concluded that inefficiency of training and education is a
challenge for the practical implementations of IFRS.

29
Figure 4. 2 Adequacy of the training

4.3 Descriptive Analysis

This section of the study presents the descriptive analysis for the data collected to
describe the level of the existence of the challenge in the companies by using mean and
standard deviation. Each possible challenge identified based previous studies are
described by using each statement used to describe the challenges. In this study 5
challenges were assessed in the companies. The challenges assessed in the study are
management constraints, education and training constraints, technical constraints, cost
constraints, and institutional constraints. Mean value for the responses is computed for
the responses collected through Likert scale measurements for the agreement of
respondents on the existence of the challenge in their company. Frequency and
percentage for each response is annexed (see frequency tables annexed).

To collect detailed information that support findings through questionnaire, interview

was conducted with IFRS implementing team leaders of three companies; Awash, NICE
and Bunna insurance companies based on level of company size from groups of large,
medium and small judgmentally.

30
4.3.1 Management challenges
Challenges from the management on the implementation of IFRS are indicated with
different expressions in the table 4.2 below.

Table 4. 2Management challenges on implementation of IFRS

Management challenges N Mean Std.
Deviation
Lack of attention to accounting and financial 81 4.0247 1.23466
reporting related issues
Lack of cooperation with IFRS implementation 81 4.0123 1.37381
project teams
Lack of commitment and understanding on 81 4.3704 1.15590
implementation of IFRS
Lacks of regular follow up on the process of IFRS 81 4.0617 1.24846
implementation
Lack of knowledge about IFRS and its transitional 81 3.3210 1.55585
process
Resistance by different departments while asking 81 3.6914 1.50534
cooperation

Source: Survey, 2018

Management cooperation both at top and bottom level is very important for any change
implementation in a company. Mean value for the statement that there is lack of attention
to accounting and financial reporting related issues are 4.02. This value indicates the
respondents agree on this statement and suggests that lack of attention of the management
on accounting and financial reporting is becoming the challenge to the implementation of
the IFRS in the companies. The standard deviation value, 1.23 for this statement is
higher for the data range in Likert scale measurement. This suggests variation of the level
of the management attention in the companies.

31
The mean value for the statement that there is a lack of cooperation of management with
IFRS implementation project team is 4.01 indicated that the project implementing team
members agree that the management of the companies is not cooperating with the team.
The standard deviation for this statement is 1.37 suggesting high variation from the mean
value. This finding suggests the high existence of lack of management cooperation for the
IFRS implementation.

The study has assessed the level of commitment and understanding of management on
implementation of IFRS. The response of the team members is indicated by mean value
of 4.37 and standard deviation of 1.16 indicating that there is no commitment and
understanding of management on implementation of IFRS. This mean value is highest
score in the challenges from management. This suggests that the management is not
committed and has no necessary understanding for the implementation of IFRS.

According to the guideline of the IFRS implementation, the involvement of regulating

organ in the implementing company is very important for the success of the
implementation. This role is mainly undertaken by the management of the company. But
the response of the team members indicated that there is lack of regular follow up on the
implementation. This is confirmed by the mean value of 4.06 suggesting that the
respondents agree that there is no regular follow up from the management of the
companies about the status of the implementation. But the standard deviation of 1.25
indicates there is variation from company to company.

As the respondents agree about the lack of knowledge of the management about the IFRS
and its transitional process as it is indicated by the mean value of 3.32.

The respondents agree that there is resistance from different departments when
cooperation is asked. This is indicated by the mean value of 3.69. this mean is the lowest
mean among the challenges identified in the management. It suggests that resistance from
management of different department is the least management challenge. The possible
reason for this is implementation of IFRS does not need significance involvement of
other departments.

The interview was conducted with the team leaders of three companies to support the
finding through questionnaire for the challenges from the management of the companies

32
on IFRS implementation. The interview results are supporting the findings through
questionnaire. The responses of the two interviewee indicated that there is lack of
attention of management to accounting and financial reporting related issues that the
management is focusing on the cost side of the project and their concern is short run
profit. The management considers the implementation is the concern of only the
implementation team. Additionally, the management have no awareness on the project
and the accounting systems because of the lack of the attention to the project. These
findings indicate that management is not providing attention to the accounting and
financial related issues. Further, the interview result indicates the management has no
commitment for the implementation and cooperation with the team because it is
considered that it is responsibility of the team. Since decisions on the implementation
needs involvement of the management, lack of the attention is extending the schedules.

4.3.2 Technical Challenges

Technical challenges in the implementation of IFRS are presented in table 4.3 below with
respective mean and standard deviations. At the end of this section findings through
questionnaire is supported with interview.

Table 4. 3 Technical challenges on IFRS implementation

Technical Challenges N Mean Std.
Deviation
Lack of coherence between the qualification bodies 81 4.0741 1.14867
and standard setting bodies
Lack of communications about developments in 81 4.0864 1.09770
accounting
Lack of representation in standard setting process 81 3.9877 1.32753
Lack of understanding of IFRS requirements and 81 4.1235 .96673
reasons
Selective adoption of IFRS that creates 81 4.2222 1.23491
inconsistency in the level of adoption
The targets and deadlines of IFRS implementation 81 3.6296 1.57674
has been made before identify the obstacles

33
Source: Survey, 2018

Responses of team members indicated that there is lack of coherence between the
qualification bodies and standard setting bodies. This is indicated by the mean value of
4.07 indicating that the team members agree that the is lack of coherence between
qualification bodies and standard setting bodies. This suggests that there is inconsistency
of qualification bodies and standard setting bodies. Standard deviation for this practice is
1.15 suggesting the variation of practices in among the companies and perception of the
team members. There is lack of coherence between the qualification bodies and standard
setting bodies. Finding through interview also indicates that although the insurance
companies have implemented the standard, the standard setting bodies have not addressed
the issues in the qualification bodies. There is gap between these two organs. Due to this
after some level of implementation the standard partially of completely fails.

Another technical challenge assessed by the study is communication about the

development in accounting. The respondents indicated that there is lack of
communications about developments in accounting with mean score of 4.09. This
suggests that the companies are not updating themselves with the development in the
accounting principles. Similar to this finding, interview result indicates that companies in
Ethiopia in general and insurance industries in particular are not updated about changes
internationally in accounting development. Using older accounting systems made the
adoption of the standard difficult.

Representation of companies in standard setting is assessed by the study. Response for

this described by mean value of 3.99 and standard deviation of 1.33. The mean value
indicates respondents agree that there is lack of representation in standard setting process.
Similarly, the interview result suggests that the companies are not represented in the
standard setting process. The companies are not represented in the standard setting. This
is resulting on miss of important points.

Another description used to explain the technical challenge is level of understanding of

IFRS requirements and reasons. The mean value of this expression is 4.12 indicating that
IFRS implementing team members agree that there is lack of understanding of IFRS

34
requirements and reasons by team and other stakeholders. The interview result also
confirms that IFRS requirements are not easily understandable. The broader nature of the
standard made it not easily understandable. It makes easy issues complicated and
complex. These findings suggest that IFRS requirements and reasons are not easily
understandable.

According to different finding in previous studies selective adoption of IFRS creates

inconsistency in the level of adoption and it is among the challenges of the
implementation of IFRS. The mean value of responses the selective adoption of IFRS is
4.22 suggesting the team members agree that selective adoption of IFRS is creating
inconsistency in the level of adoption. This challenge is the main challenge among the
technical challenges. The interview result is similar to findings through questionnaire.
The selective adoption became challenge to the implementation of IFRS because the
adopted standard does not best fit the reporting system of the industry. The interviewees
suggest the standards to be customized after adopting the standard. But the it has no room
for customization.

The moderate challenge among the technical challenges is fixing the targets and
deadlines before identify the obstacles which is indicated by the mean value of 3.63.

The finding based on questionnaire and interview results about the technical challenges
indicate that there is selective adoption, lack of understanding about IFRS requirements
and reasons, lack of communication about the development of the accounting,
inconstancy of qualification bodies and standard setting bodies, and lack of representation
in standard setting process in implementation of IFRS.

4.3.3 Education and Training Challenges

The other challenge assessed by the study about the implementation of IFRS is education
and training challenges and the descriptive analyses for different expressions of this
challenge are presented in table 4.4 below by using mean and standard deviation. This
category of challenges only one expression has mean value above 4.00 and 3 expressions
are moderately existing two expressions with mean of 3.55 and one expression with mean
of 3.6.

35
Table 4. 4 Education and Training Challenges on implementation of IFRS
Education and Training Challenges N Mean Std.
Deviation
The numbers of qualified professional accountants 81 3.6049 1.72249
are inadequate
Lack of qualified people to provide training in 81 3.8519 1.18439
profession/workplace
Lack of coherence between educational programs 81 3.5556 1.25499
and professional programs
Limited access to training material, seminars and 81 4.0988 1.34727
workshop for working professionals
Limited training on IFRS prior to its 81 3.5556 1.36015
implementation

Source: Survey, 2018

Adequacy of qualified professional accountants is assessed by the study. The result of the
assessment described by the mean value of 3.6 that indicates the respondents moderately
agree that the number of qualified professional accountants is inadequate. This suggests
that the professional accountants in the area of IFRS implementation are inadequate to
facilitate the implementation. The higher standard deviation value of 1.72 indicates
higher variation of agreement about the adequacy of the professional accountants.
Similar to the finding through questionnaire interview result indicates although there are
number of certified accountants in the country especially in Addis Ababa, professional
accounts and auditors in the area of IFRS implementation are very few and they have no
adequate skill in this area. This suggests that there is shortage of professional accountants
in the area of IFRS implementation that became challenge to the IFRS implementation in
private insurance companies. The result in table 4.4 above indicates that there is lack of
qualified people to provide training in workplace. This is indicated by mean value of 3.85
indicating that team members agree that there is lack of qualified people to provide
36
training in profession. This suggests that there is shortage of on job training providers
that became challenge to proper implementation of IFRS in private insurance companies
in Ethiopia. The interview result indicates there are different institution that give training
on IFRS but they have no experience of providing workplace training. The paper based
trainings became value less when the companies start the implementation. Majority of
trainings are unnecessary because they are not supporting the actual implementations.
The limited access to training material, seminars and workshop for working
professionals is the main educational and training challenge that is described by mean
value of 4.1. The respondents agree that access to training material, seminars and
workshop for working professionals is limited. The interview result further suggests
expensiveness of training material and its inaccessibility and lack of seminars and
workshop for working professionals become challenge to the implementation. One of the
interviewee explained that the company has trained the team members in abroad because
there is no adequate training material, seminars and workshop for professional in the
country.

4.3.4 Cost challenges

Economic costs of implementing IFRS are assessed by the study and the result is
presented in the table 4.5 below. The study assessed 5 expressions for this challenge but
the responses indicated that only 2 challenges are practiced and one challenge moderately
exists.

Table 4. 5 Cost Challenges on Implementation of IFRS

Cost challenges N Mean Std. Deviation
Cost of external consultants is high 81 4.1481 1.07367
Cost of auditing and compliance standards is high 81 3.3704 1.56879
Cost of adjustment of information systems is high 81 3.6296 1.32707
Cost of updating accounting system is high 81 3.3580 1.02845
Cost of purchasing IFRS guiding materials and staff 81 3.8889 .98742
training is expensive
Source: Survey, 2018

37
The high cost of the external consultant is explained by mean value of 4.15 indicating the
respondents agree that cost of external consultants is high. The interview result also
indicates the cost the companies pay for external consultant is very high. The companies
are comparing the benefits they earn from implementing the standard and the cost to
implement. In this stage, the companies are not sure about how much they will be
benefited but the cost they pay is surely that makes them not to implement. The external
consultant is for the insurance industry not for the single company.

The second main challenge among the cost challenges is expensive cost of purchasing
IFRS guiding materials and staff training. This is indicated by mean value of 3.89
suggesting that the team members agree that cost of purchasing IFRS guiding materials
and staff training is expensive. Interview result also indicates similar finding to finding
through questionnaire. As it is indicated in the education and training challenges section,
the companies are sending professional with very high costs and paying too much to
purchase the training materials. The shareholders and top management are not willing to
pay this amount. This has resulted on pending of implementation.

Result for responses of high cost of auditing and compliance standards and cost of
updating accounting system is indecisive with mean values of 3.3704 and 3.3580
respectively. But the respondents moderately agree that Cost of adjustment of
information systems is high with mean value of 3.63.

4.3.5 Institutional Challenges

Institutional challenges to implement IFRS are presented in the table 4.6 below with their
respective statistical values that explain their level of existence based on the response of
the IFRS implementing team members. Mean and standard deviation are used to analyze
the responses. Seven expressions were assessed under institutional challenge. All
challenges are found existing in the companies.

38
Table 4. 6 Institutional Challenges to implement IFRS
Institutional challenges N Mean Std.
Deviation
Lack of coherence between existing local laws and 81 4.1235 1.09980
IFRS
Lack of the readiness by the organization and 81 3.7901 1.45530
entities of IFRS implementation.
Lack of coherence in the regulatory systems of the 81 3.7778 1.39642
country (government and other regulatory
structures.
Lack of an extensive and ongoing support from 81 3.6790 1.30218
professional accountancy associations
Lack of strong accountancy body limits the option 81 3.6667 1.26491
of getting technical capacity building trainings
There is no effective monitoring and process review 81 3.8025 1.24920
by regulatory organ
The IFRS transition road map is not realistic and 81 4.0988 1.18959
not takes into account the capacity and readiness of
the nation in general the entities in particular
Source: Survey, 2018
The lack of coherence between existing local laws and IFRS is the main challenge among
the institutional challenges. This is described by the mean value of 4.12 indicating that
the respondents agree that there is lack of coherence between existing local laws and
IFRS. This suggests that there is inconsistency of local laws and IFRS. The interview
result used to support this finding indicates that the local laws are not updated according
IFRS such as tax law and NBE directives are not in line with IFRS standards. For
exampling valuing system is not modified in the local laws but many organizations are
implementing IFRS.

Another important institutional challenge in implementation of IFRS is lack of the

readiness by the organization and entities of IFRS implementation. This challenge is

39
described by mean value of 3.79 and standard deviation of 1.46. The mean value
indicates that the respondents agree that there is lack of the readiness by the organization
and entities of IFRS implementation. the interview result indicates similar practice. The
skills of the entities are not better than the skills of implementing company. The entities
order to implement but they do not provide any assistance how to implement.

As it is indicated by the mean value of 3.78 for the response from team members, there is
lack of coherence in the regulatory systems of the country. The respondents moderately
agree that there is lack of coherence between the government and other regulatory organs.
As the interview result indicated, there is variation with regulations of AABE and
Ministry of Revenue.

Responses for the challenge that there is lack of an extensive and ongoing support from
professional accountancy associations; and lack of strong accountancy body limits the
option of getting technical capacity building trainings moderate mean values of 3.68 and
3.67 respectively indicating moderate existence of the challenge. The interview result
indicates that implementation of the IFRS in insurance industry conducted by foreign
consulting company.

The monitoring and process review by regulatory organ is not conducted in the IFRS
implementation in the companies. The response for this is described by the mean value of
3.8 indicating the respondents agree that there is no effective monitoring and process
review by regulatory organ. This suggests that regulatory organ is not monitoring and
reviewing the process. The interview result also indicates regulating organs are not
monitoring the implementation except expecting the completion report at the end of fiscal
year.

The second most important institutional challenge is unrealistic IFRS transition road map
that do not take the capacity and readiness of the nation in general and the entities in
particular into account. This is indicated by mean value of 4.1 indicating the IFRS
transition road map is not realistic and not takes into account the capacity and readiness
of the nation in general the entities in particular.

40
4.4 Exploratory Factor Analysis
This is a statistical technique that is used to reduce data to a smaller set of summary variables
and to explore the underlying theoretical structure of the phenomena. It is used to identify the
structure of the relationship between the variables and the respondent.

The assumption used in Factor analysis are ; variables should be metric, sample size must
be more than 200 or 5 observation per variables, and homogenous samples.
Factor analysis was applied to identify key challenges. The factor analysis was computed
by using principal component analysis extraction method. Kaiser-Meyer-Olkin (KMO)
Measure of Sampling Adequacy and Bartlett's Test of Sphericity are used as an
assumption to conduct further analysis. KMO above 0.5 is assumed significant that the
factors used in the analysis are uncorrelated and explains the latent variable.

4.4.1 Summary of Factor Analysis and Tests of Assumptions

Factor analysis is conducted to identify the key challenges in implementing IFRS.
Summary of Factor Analysis and Tests of Assumptions are presented in table 4.7 below.

Table 4. 7 Summary of Factor Analysis and Tests of Assumptions

Variable Items KMO Bartlett

χ2 df sig

Management 6 .796 683.422 15 .000

Technical 6 .831 405.824 15 .000
Education and Training 5 .809 429.481 10 .000
Cost 5 .660 519.927 15 .000
Institutional 7 .872 405.227 21 .000
Total 29

Thus, for 29 items of 5 variables were performed for communalities and rotated
components matrices. The coefficients of Kaiser-Meyer Olkin (KMO) against all latent
variables were more than 0.50 (i.e. Minimum = 0.660 and Maximum = 0.872). Bartlett’s
Coefficient against all latent variables was found significant at p = 0.01. This suggests all
components used in the study are not correlated and can be used for further analysis.

41
4.4.2 Total Variance
Factor solution with Eigen value greater than 1 was considered for analysis by using
Varimax Rotation method that makes the interpretation of factor analysis makes easier
when compared other rotation methods. In addition, this method is used because there is
no complex variable in the principal component analysis. Table 4.8 below presents the
result of total variance in challenges of implementing IFRS.

Table 4. 8 Total Variance Explained

Compone Initial Eigenvalues Rotation Sums of Squared Loadings
nt Total % of Cumulative Total % of Cumulative
Variance % Variance %
1 14.453 49.838 49.838 6.649 22.929 22.929
2 5.134 17.704 67.543 6.147 21.197 44.126
3 2.271 7.829 75.372 5.740 19.793 63.919
4 1.710 5.897 81.270 4.899 16.892 80.811
5 1.290 4.447 85.717 1.423 4.905 85.717
Source: Survey, 2018

The analysis produced five factors which indicate the key challenges in implementation
of IFRS in private insurance companies in Ethiopia. The factor analysis confirmed that
the key challenges measured five dimensions that explained 85.717% of variance in the
challenges of the IFRS implementation.

4.4.3 Factor Analysis

Factor loading values explain how closely the variables are related to each one of the
factors. All items are strongly loaded to these five factors with lowest factor loading of
0.622. this suggests that all challenges indicated in the study significantly affect the
implementation of IFRS in the companies. High cost of external consultants, lack of
qualified people to provide training in profession/workplace, lack of coherence between
the qualification bodies and standard setting bodies and lack of coherence in the
regulatory systems of the country (government and other regulatory structures are key

42
challenges in affecting implementation of IFRS in private insurance companies in
Ethiopia (see annex factor loading).

43
 CHAPTER FIVE
SUMMARY OF MAJOR FINDINGS,
CONCLUSION AND RECOMMENDATION
5.1 Summary of Major Findings
This study was conducted with an objective identifying the challenges to implementation
of IFRS in private insurance companies in Ethiopia. Team members of IFRS
implementation in the companies were used as respondents. 81 respondents for
questionnaire and 3 respondents for interview involved in the study as source of primary
data. Based on previous literatures, five constraints were developed with different
challenges in the categories. These constraints were management constraints, technical
constraints, education and training constraints, cost constraints, and institutional
constraints.

The descriptive statistics of mean was mainly used to identify the existence of the
challenges. The result about management challenge indicates that lack of commitment
and understanding on implementation of IFRS is main challenge among the management
challenges with mean value of 4.37 and followed by lack of regular follow up on the
process of IFRS implementation with mean value of 4.06.

The second challenge category in the study was technical challenges. Selective adoption
of IFRS is main challenge that creates inconsistency in the level of adoption with mean
value of 4.22. Lack of understanding of IFRS requirements and reasons is the second
main challenge among the technical challenges with mean value of 4.12.

Education and training challenges were assessed by the study. Limited access to training
material, seminars and workshop for working professionals with mean value of 4.1 is the
main education and training challenge that affect the implementation of IFRS. Lack of
qualified people to provide training in profession/workplace is the second main education
and training challenge with mean value of 3.85.

Cost challenges include cost of external consultants, cost of auditing and compliance
standards, cost of adjustment of information systems, cost of updating accounting system,

44
and cost of purchasing IFRS guiding materials and staff training. Among these challenges
high cost of external consultants is main problem with mean value of 4.15 and followed
by expensive cost of purchasing IFRS guiding materials and staff training.

Institutional challenges include lack of coherence between existing local laws and IFRS,
lack of the readiness by the organization and entities of IFRS implementation, lack of
coherence in the regulatory systems of the country, lack of an extensive and ongoing
support from professional accountancy associations, lack of strong accountancy body
limits the option of getting technical capacity building trainings, ineffective monitoring
and process review by regulatory organ, and unrealistic IFRS transition road map. Lack
of coherence between existing local laws and IFRS is the main institution challenge with
mean value of 4.12. unrealistic IFRS transition road map is the second main institutional
challenge with mean value of 4.1.

The factor analysis conducted to identify key challenges of implementing IFRS indicates
that all items are strongly loaded with lowest factor loading of 0.622. High cost of
external consultants, lack of qualified people to provide training in workplace, lack of
coherence between the qualification bodies and standard setting bodies and lack of
coherence in the regulatory systems of the country are key challenges in affecting
implementation of IFRS in private insurance companies in Ethiopia.

5.2 Conclusions
The study concludes that IFRS implementation for Insurance company in Ethiopia was
challenging. The study also concludes that in adequate skill in IFRS , technical know-
how to the standards, as a result of lack of management dedications, education and
professional bodes are the main implementation challenges being encountered by the
implementing insurance companies in Ethiopia. Unless the challenges are properly
addressed , the subsequent periods reporting activities will be challenging.

5.3 Recommendations
Based on the conclusions drawn, following recommendations are provided to the IFRS
implementation stakeholders especially the insurance companies, regulatory organs.

45
 • The management of the insurance companies has to provide attention about the
implementation of IFRS. It has to be committed and has to understand the
importance and processes of IFRS implementation. The regulatory organ and
consulting companies have to create awareness to the management through
trainings and meetings. There has to management follow up for the
implementation and cooperation with the implementing team.

• The consulting organ and training providers have to create technical skills for the
implementing team before the project is started about the adoption of the
standard. The insurance companies are recommended to customize the standard
instead of adopting the standard.

• Since there is a limited access to training material, seminars and workshop for
working professionals and lack of qualified people to provide training in
workplace are main problems, the regulatory organs have to work with workplace
training providers and higher institutions.

• Since the cost of external consultants and expensive cost of purchasing IFRS
guiding materials and staff training are the main cost challenges, the regulatory
organ is recommended to develop strong local consultants especially by
government and competitive firms.

• Since there is lack of coherence between existing local laws and IFRS, the local
laws have to be reviewed according to the standard; IFRS transition road map
must be reviewed based on the capacity of the organization and accounting
development of the country.

5.4 Recommendation for further studies

This study was conducted with an objective of identifying challenges to implementation
of IFRS in insurance companies in Ethiopia. Since this study is limited to only insurance
companies further studies are recommended to include other sectors to reach at stronger
conclusions. This study has used only the insurance companies despite different organs
involving in the implementation. Therefore, further studies are recommended to include
different stakeholders in the process of IFRS implementation

46
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50
APPENDICES

51
 Questionnaire

Addis Ababa University

College of Business and Economics

Dear Respondent,

I am student in Addis Ababa University Maters in Business Administration (MBA)

Program. As a requirement for partial fulfillment of Degree of Master of Accounting and

Finance (MSC) I am conducting research with the title of ‘Challenges of Implementing

International Financial Reporting Standards (IFRS) in Private insurance companies in

Ethiopia’.

No personality identifiable information is being collected from you and all information

you provide will be combined with other respondents’ data and analyzed in aggregate.

Responses will be kept Confidential at all times and used only for academic purpose.

I thank you in anticipation of your cooperation and for taking your valuable time!

Kind regards,

Feleke Negash

52
Section 1: General Information
1. Gender
Male
Female
2. Your age in years
Below 30
31 to 40
41 to 50
Above 50
3. Your highest education level
Diploma
Bachelor’s degree
Masters and Above
4. Work experience in the company
Below 5 years
5 to 10 years
Above 10 years
5. Did you get training on all IFRS standards?
Yes
No
If your answer is ‘Yes’ for the Question No.5, is the IFRS training adequate for
implementation of IFRS?
Yes
No

53
Section 2: Challenges to implementation of IFRS

To what extent do you agree with the existence of the following practices? (please indicate your

responses in the respective boxes): where SD = strongly disagree, D= disagree, N = neutral, A =

Agree and SA = Strongly agree

Management constraints SD D N A SA

Lack of attention to accounting and financial

reporting related issues
Lack of cooperation with IFRS implementation
project teams
Lack of commitment and understanding on
implementation of IFRS
Lacks of regular follow up on the process of IFRS
implementation
Lack of knowledge about IFRS and its
transitional process
Resistance by different departments while
asking cooperation

Education and Training constraints SD D N A SA

The numbers of qualified professional accounts

are inadequate
Lack of qualified people to provide training in
profession/workplace

Lack of coherence between educational programs and

professional programs

Limited access to training material, seminars and

workshop for working professionals

Limited training on IFRS prior to its

implementation

54
Technical constraints SD D N A SA

Lack of coherence between the qualification bodies and

standard setting bodies

Lack of communications about developments in accounting

Lack of representation in standard setting process

Lack of understanding of IFRS requirements and reasons

Selective adoption of IFRS that creates inconsistency in the level

of adoption

The targets and deadlines of IFRS implementation has

been made before identify the obstacles

Cost Constraints SD D N A SA

Cost of external consultants is high

Cost of auditing and compliance standards is high
Cost of adjustment of information systems is high
Cost of updating accounting system is high
Cost of purchasing IFRS guiding materials and staff
training is expensive
Lack of financial resource

55
Institutional constraints SD D N A SA

Lack of coherence between existing local laws and IFRS

Lack of the readiness by the organization and entities of IFRS

implementation.

Lack of coherence in the regulatory systems of the country

(government and other regulatory structures.

Lack of an extensive and ongoing support from

professional accountancy associations
Lack of strong accountancy body limits the option of
getting technical capacity building trainings
There is no effective monitoring and process review by
regulatory organ
The IFRS transition road map is not realistic and not
takes into account the capacity and readiness of the
nation in general the entities in particular

Lack of attention to accounting and financial reporting related issues

Cumulative
Frequency Percent Valid Percent Percent

Valid strongly disagree 6 7.4 7.4 7.4

disagree 1 1.2 1.2 8.6

neutral 21 25.9 25.9 34.6

agree 10 12.3 12.3 46.9

strongly agree 43 53.1 53.1 100.0

Total 81 100.0 100.0

56
 Lack of cooperation with IFRS implementation project teams

Cumulative
Frequency Percent Valid Percent Percent

Valid strongly disagree 6 7.4 7.4 7.4

disagree 13 16.0 16.0 23.5

agree 17 21.0 21.0 44.4

strongly agree 45 55.6 55.6 100.0

Total 81 100.0 100.0

Lack of commitment and understanding on implementation of IFRS

Cumulative
Frequency Percent Valid Percent Percent

Valid strongly disagree 6 7.4 7.4 7.4

neutral 8 9.9 9.9 17.3

agree 11 13.6 13.6 30.9

strongly agree 56 69.1 69.1 100.0

Total 81 100.0 100.0

Lacks of regular follow up on the process of IFRS implementation

Cumulative
Frequency Percent Valid Percent Percent

Valid strongly disagree 6 7.4 7.4 7.4

disagree 8 9.9 9.9 17.3

agree 28 34.6 34.6 51.9

strongly agree 39 48.1 48.1 100.0

Total 81 100.0 100.0

57
 Lack of knowledge about IFRS and its transitional process

Cumulative
Frequency Percent Valid Percent Percent

Valid strongly disagree 19 23.5 23.5 23.5

disagree 9 11.1 11.1 34.6

neutral 2 2.5 2.5 37.0

agree 29 35.8 35.8 72.8

strongly agree 22 27.2 27.2 100.0

Total 81 100.0 100.0

Resistance by different departments while asking cooperation

Cumulative
Frequency Percent Valid Percent Percent

Valid strongly disagree 13 16.0 16.0 16.0

disagree 6 7.4 7.4 23.5

neutral 11 13.6 13.6 37.0

agree 14 17.3 17.3 54.3

strongly agree 37 45.7 45.7 100.0

Total 81 100.0 100.0

Lack of coherence between the qualification bodies and standard setting bodies

Cumulative
Frequency Percent Valid Percent Percent

Valid strongly disagree 7 8.6 8.6 8.6

neutral 8 9.9 9.9 18.5

agree 31 38.3 38.3 56.8

strongly agree 35 43.2 43.2 100.0

Total 81 100.0 100.0

58
 Lack of communications about developments in accounting

Cumulative
Frequency Percent Valid Percent Percent

Valid disagree 8 9.9 9.9 9.9

neutral 21 25.9 25.9 35.8

agree 8 9.9 9.9 45.7

strongly agree 44 54.3 54.3 100.0

Total 81 100.0 100.0

Lack of representation in standard setting process

Cumulative
Frequency Percent Valid Percent Percent

Valid strongly disagree 8 9.9 9.9 9.9

disagree 1 1.2 1.2 11.1

neutral 20 24.7 24.7 35.8

agree 7 8.6 8.6 44.4

strongly agree 45 55.6 55.6 100.0

Total 81 100.0 100.0

Lack of understanding of IFRS requirements and reasons

Cumulative
Frequency Percent Valid Percent Percent

Valid disagree 1 1.2 1.2 1.2

neutral 30 37.0 37.0 38.3

agree 8 9.9 9.9 48.1

strongly agree 42 51.9 51.9 100.0

Total 81 100.0 100.0

59
 Selective adoption of IFRS that creates inconsistency in the level of adoption

Cumulative
Frequency Percent Valid Percent Percent

Valid strongly disagree 8 9.9 9.9 9.9

disagree 1 1.2 1.2 11.1

neutral 3 3.7 3.7 14.8

agree 22 27.2 27.2 42.0

strongly agree 47 58.0 58.0 100.0

Total 81 100.0 100.0

The targets and deadlines of IFRS implementation has been made before identify the
obstacles

Cumulative
Frequency Percent Valid Percent Percent

Valid strongly disagree 7 8.6 8.6 8.6

disagree 26 32.1 32.1 40.7

agree 5 6.2 6.2 46.9

strongly agree 43 53.1 53.1 100.0

Total 81 100.0 100.0

The numbers of qualified professional accounts are inadequate

Cumulative
Frequency Percent Valid Percent Percent

Valid strongly disagree 14 17.3 17.3 17.3

disagree 19 23.5 23.5 40.7

strongly agree 48 59.3 59.3 100.0

Total 81 100.0 100.0

60
 Lack of qualified people to provide training in profession/workplace

Cumulative
Frequency Percent Valid Percent Percent

Valid strongly disagree 5 6.2 6.2 6.2

disagree 1 1.2 1.2 7.4

neutral 30 37.0 37.0 44.4

agree 10 12.3 12.3 56.8

strongly agree 35 43.2 43.2 100.0

Total 81 100.0 100.0

Lack of coherence between educational programs and professional programs

Cumulative
Frequency Percent Valid Percent Percent

Valid strongly disagree 5 6.2 6.2 6.2

disagree 14 17.3 17.3 23.5

neutral 17 21.0 21.0 44.4

agree 21 25.9 25.9 70.4

strongly agree 24 29.6 29.6 100.0

Total 81 100.0 100.0

Limited access to training material, seminars and workshop for working professionals

Cumulative
Frequency Percent Valid Percent Percent

Valid strongly disagree 11 13.6 13.6 13.6

disagree 1 1.2 1.2 14.8

agree 26 32.1 32.1 46.9

strongly agree 43 53.1 53.1 100.0

Total 81 100.0 100.0

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 Limited training on IFRS prior to its implementation

Cumulative
Frequency Percent Valid Percent Percent

Valid strongly disagree 6 7.4 7.4 7.4

disagree 17 21.0 21.0 28.4

neutral 13 16.0 16.0 44.4

agree 16 19.8 19.8 64.2

strongly agree 29 35.8 35.8 100.0

Total 81 100.0 100.0

Cost of external consultants is high

Cumulative
Frequency Percent Valid Percent Percent

Valid disagree 11 13.6 13.6 13.6

neutral 8 9.9 9.9 23.5

agree 20 24.7 24.7 48.1

strongly agree 42 51.9 51.9 100.0

Total 81 100.0 100.0

Cost of auditing and compliance standards is high

Cumulative
Frequency Percent Valid Percent Percent

Valid strongly disagree 13 16.0 16.0 16.0

disagree 20 24.7 24.7 40.7

neutral 2 2.5 2.5 43.2

agree 16 19.8 19.8 63.0

strongly agree 30 37.0 37.0 100.0

Total 81 100.0 100.0

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 Cost of adjustment of information systems is high

Cumulative
Frequency Percent Valid Percent Percent

Valid disagree 28 34.6 34.6 34.6

neutral 7 8.6 8.6 43.2

agree 13 16.0 16.0 59.3

strongly agree 33 40.7 40.7 100.0

Total 81 100.0 100.0

Cost of updating accounting system is high

Cumulative
Frequency Percent Valid Percent Percent

Valid disagree 20 24.7 24.7 24.7

neutral 25 30.9 30.9 55.6

agree 23 28.4 28.4 84.0

strongly agree 13 16.0 16.0 100.0

Total 81 100.0 100.0

Cost of purchasing IFRS guiding materials and staff training is expensive

Cumulative
Frequency Percent Valid Percent Percent

Valid strongly disagree 5 6.2 6.2 6.2

neutral 14 17.3 17.3 23.5

agree 42 51.9 51.9 75.3

strongly agree 20 24.7 24.7 100.0

Total 81 100.0 100.0

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 Lack of coherence between existing local laws and IFRS

Cumulative
Frequency Percent Valid Percent Percent

Valid strongly disagree 3 3.7 3.7 3.7

disagree 5 6.2 6.2 9.9

neutral 11 13.6 13.6 23.5

agree 22 27.2 27.2 50.6

strongly agree 40 49.4 49.4 100.0

Total 81 100.0 100.0

Lack of the readiness by the organization and entities of IFRS implementation.

Cumulative
Frequency Percent Valid Percent Percent

Valid strongly disagree 10 12.3 12.3 12.3

disagree 10 12.3 12.3 24.7

neutral 5 6.2 6.2 30.9

agree 18 22.2 22.2 53.1

strongly agree 38 46.9 46.9 100.0

Total 81 100.0 100.0

Lack of coherence in the regulatory systems of the country (government and other
regulatory structures.

Cumulative
Frequency Percent Valid Percent Percent

Valid strongly disagree 6 7.4 7.4 7.4

disagree 16 19.8 19.8 27.2

neutral 5 6.2 6.2 33.3

agree 17 21.0 21.0 54.3

strongly agree 37 45.7 45.7 100.0

Total 81 100.0 100.0

64
 Lack of an extensive and ongoing support from professional accountancy
associations

Cumulative
Frequency Percent Valid Percent Percent

Valid strongly disagree 6 7.4 7.4 7.4

disagree 12 14.8 14.8 22.2

neutral 13 16.0 16.0 38.3

agree 21 25.9 25.9 64.2

strongly agree 29 35.8 35.8 100.0

Total 81 100.0 100.0

Lack of strong accountancy body limits the option of getting technical capacity
building trainings

Cumulative
Frequency Percent Valid Percent Percent

Valid strongly disagree 6 7.4 7.4 7.4

disagree 11 13.6 13.6 21.0

neutral 13 16.0 16.0 37.0

agree 25 30.9 30.9 67.9

strongly agree 26 32.1 32.1 100.0

Total 81 100.0 100.0

There is no effective monitoring and process review by regulatory organ

Cumulative
Frequency Percent Valid Percent Percent

Valid strongly disagree 8 9.9 9.9 9.9

disagree 5 6.2 6.2 16.0

neutral 9 11.1 11.1 27.2

agree 32 39.5 39.5 66.7

strongly agree 27 33.3 33.3 100.0

Total 81 100.0 100.0

65
 The IFRS transition road map is not realistic and not takes into account the capacity
and readiness of the nation in general the entities in particular

Cumulative
Frequency Percent Valid Percent Percent

Valid strongly disagree 6 7.4 7.4 7.4

disagree 3 3.7 3.7 11.1

neutral 8 9.9 9.9 21.0

agree 24 29.6 29.6 50.6

strongly agree 40 49.4 49.4 100.0

Total 81 100.0 100.0

66
 Rotated Component Matrixa

Component

1 2 3 4 5 6

Cost of external consultants

.922
is high
Lack of communications
about developments in .825
accounting
Lack of knowledge about
IFRS and its transitional .780
process
Lack of representation in
.745
standard setting process
Cost of adjustment of
.736
information systems is high
Resistance by different
departments while asking .731
cooperation
Lack of understanding of
IFRS requirements and .715
reasons
Cost of updating accounting
.641
system is high
Lack of qualified people to
provide training in .874
profession/workplace
Cost of purchasing IFRS
guiding materials and staff .839
training is expensive
Limited access to training
material, seminars and
.822
workshop for working
professionals
Limited training on IFRS
.758
prior to its implementation
Lack of coherence between
educational programs and .746
professional programs

67
The targets and deadlines of
IFRS implementation has
.737
been made before identify
the obstacles
The numbers of qualified
professional accounts are .721
inadequate
Cost of auditing and
compliance standards is .602 .713
high
Lack of coherence between
the qualification bodies and .877
standard setting bodies
Selective adoption of IFRS
that creates inconsistency in .848
the level of adoption
Lacks of regular follow up
on the process of IFRS .803
implementation
Lack of commitment and
understanding on .799
implementation of IFRS
Lack of attention to
accounting and financial .715
reporting related issues
Lack of cooperation with
IFRS implementation project .604
teams
Lack of coherence in the
regulatory systems of the
.878
country (government and
other regulatory structures.
Lack of the readiness by the
organization and entities of .850
IFRS implementation.
There is no effective
monitoring and process .819
review by regulatory organ

68
Lack of an extensive and
ongoing support from
.809
professional accountancy
associations
The IFRS transition road
map is not realistic and not
takes into account the
.781
capacity and readiness of
the nation in general the
entities in particular
Lack of coherence between
.705
existing local laws and IFRS
Lack of strong accountancy
body limits the option of
.667
getting technical capacity
building trainings
Continuous professional
development is not well .881
monitored
Implementation costs are
.880
too high
Absence of involvement of
regulatory bodies (including
.821
auditors) makes
enforcement difficult
IFRS is complex and
therefore too difficult to .821
enforce
Lack of adequate technical
resources makes the .709
enforcement difficult
The preparation & transition
period is not adequate for
.692
conducting the IFRS
transition process

Extraction Method: Principal Component Analysis.

Rotation Method: Varimax with Kaiser Normalization.
a. Rotation converged in 7 iterations.

69