Meyad Diriba

Implementation of International Financial Reporting Standards in Ethiopia:
Processes, Challenges, and the Way Forward
By: Meyad Diriba GSR/1279/10
A Thesis Submitted to the
Department of Accounting and Finance
College of Business and Economics
Addis Ababa University
Presented in Partial Fulfillment of the Requirements for Degree of
Masters of Science in Accounting and Finance
Addis Ababa, Ethiopia
June 2019
Statement of Declaration
I, Meyad Diriba, have carried out independently a thesis entitled “Implementation of
International Financial Reporting Standards in Ethiopia: Processes, Challenges, and the Way
Forward” independently in partial fulfillment of the requirements for the MSc in Accounting and
Finance with close advice and support of my advisor.
This study is my own work that has not been submitted for any degree or diploma program in
this or any other institution, and that all source materials used for the thesis have been
appropriately acknowledged.
Name: Meyad Diriba

Signature:__________
Addis Ababa, Ethiopia

June 2019
Addis Ababa University
College of Business and Economics
Department of Accounting and Finance
Graduate Program
This is to certify that the thesis prepared by Meyad Diriba, entitled “Implementation of
International Financial Reporting Standards in Ethiopia: Processes, Challenges, and the Way
Forward” and submitted in partial fulfillment of the requirements for the Degree of Master of
Science in Accounting and Finance complies with the regulations of the University and meets the
accepted standards with respect to originality and quality.
Signed by the examining committee:
External Examiner: Zenegnaw Abiy (PhD) Signature _____________Date____________
Internal Examiner: Alem Hagos (PhD) Signature ______________Date___________
Advisor: Wollela A. Yesegat (PhD) Signature ________________ Date___________
______________________________________________________________________________
Chair of Department or Graduate Program Coordinator

Implementation of International Financial Reporting Standards in Ethiopia: Processes, Challenges, and the Way Forward
Abstract
Implementation of International Financial Reporting Standard in Ethiopia: Processes,
Challenges, and the Way Forward
Meyad Diriba
Addis Ababa University, 2019
This study examines the implementation of International Financial Reporting Standards (IFRS)
in Ethiopia by focusing on processes, practical challenges and the way forward. The study
adopts a qualitative research approach. Specifically, the study uses in-depth interviews with key
informants from the Accounting and Auditing Board of Ethiopia (AABE), IFRS conversion
consultants, external auditors, IFRS implementation team leaders, and financial statement
preparers. In addition, the study employs data obtained through document reviews. The result of
the study reveals that implementation of IFRS in Ethiopia benefits the country by enhancing the
quality and comparability of financial reporting, reducing the inconsistent and fragmented
financial reporting, attracting foreign direct investments, and helping in the establishment of the
stock market in the country. The results also indicate that the process of IFRS implementation in
Ethiopia started in a rush without considering the minimum requirements and the readiness of
the country for the project. As a result, reporting entities in Ethiopia have encountered a number
of practical implementation challenges including lack of competent human resources with IFRS
knowledge, lack of top management’s support, lack of strong regulatory and enforcement
institution, lack of strong accounting practices in the country. The results of the study also show
that the implementation of IFRS in public enterprises is more difficult than that of financial
institutions due to such additional challenges as the problem of backlog clearances, poor
records keeping mechanisms, lack of updated book of accounts and lack of corporate memory.
This study suggests that to support the sustainable implementation of IFRS and to strengthen the
regulatory body and enforcement institution, adequate resources must be put in place.
Keywords: IFRS implementation, IFRS in Ethiopia, practical challenges, the way forward
Implementation of International Financial Reporting Standards in Ethiopia: Processes, Challenges, and the Way Forward i
Acknowledgments
It gives me great pleasure to extend my sincere gratitude for the help I have received from
different people and institutions. I would have never been able to complete this thesis without
their kind support.
First and foremost, I would like to thank the Almighty God for every blessing He enriches me
within my whole life. Next, I would like to express my heartfelt deepest gratitude to my advisor,
Wollela Abehodie Yesegat (PhD) for her persistent help in all the steps of the thesis, from title
selection to writing the final report, my debts are innumerable. Besides, this work could not have
been completed without her diligent, fascinating guidance, good advice, constructive criticisms,
and support. Additionally, my deepest thank goes to all the interviewees of this study for their
welcomed responses.
I am thankful to Addis Ababa University for the financial support provided to me during my
thesis work through the Department of Accounting and Finance. My sincere gratitude also goes
to my employer Wolkite University for sponsorship and financial support.
Finally, I would also like to express my special thanks to my loving families for their ever-
present and support. Without them, none of this would ever have happened. Besides, my thanks
go to my friends and colleagues who helped me in any form of assistance. In this regard, I am
deeply grateful to Dereje Urgecha, Bizuneh Girma, Zelelem Tsige, Haile Bayisa, Tsedal Lemi,
Kufa Bedaso, and Muridu Sirage for their encouragement and consistent support. May God bless
you all!
Meyad Diriba
Implementation of International Financial Reporting Standards in Ethiopia: Processes, Challenges, and the Way Forward ii
Table of Contents
Content page
Abstract ............................................................................................................................................ i
Acknowledgements ........................................................................................................................ ii
List of Tables .................................................................................................................................. v
List of Abbrevatiations ................................................................................................................. vi
Chapter One: Introduction .............................................................................................................. 1
1.1. Statement of the Problem ..................................................................................................... 3
1.2. Broad Research Objective and Specific Research Questions .............................................. 4
1.3. Significance of the Study ..................................................................................................... 4
1.4. Delimitation and Limitation of the Study............................................................................. 5
1.5. Structure of the Study ........................................................................................................... 6
Chapter 2: Literature Reviews ........................................................................................................ 7

2.1. Theories and History of Accounting Harmonization ........................................................... 7
2.1.1. Accounting Convergence Prior to the Establishment of IASC ..................................... 8
2.1.2. Accounting Convergence with the IASC ...................................................................... 9
2.1.3. Accounting Convergence with the IASB .................................................................... 10
2.1.4. IFRS Framework ......................................................................................................... 12
2.1.5. Current Status of IFRS Implementation in the World ................................................ 15
2.1.6. Harmonization, Convergence and Adoption of IFRS ................................................. 17
2.1.7. Benefits of IFRS ......................................................................................................... 19
2.2. Empirical Literature Reviews ............................................................................................. 20
2.3. Conclusion and Knowledge Gap ........................................................................................ 24
Chapter 3: Research Methodology................................................................................................ 25

3.1. Broad Research Objective and Specific Research Questions ............................................ 26
Implementation of International Financial Reporting Standards in Ethiopia: Processes, Challenges, and the Way Forward iii
3.2. Research Approaches ......................................................................................................... 26
3.3. Research Approach Adopted .............................................................................................. 27
3.3.1. Document Reviews ...................................................................................................... 28
3.3.2. In-depth Interviews ...................................................................................................... 28
3.4. Methods of Data Analysis .................................................................................................. 29
Chapter 4: Results and Discussions .............................................................................................. 29

4.1. Results ................................................................................................................................ 30
4.1.1. Results of Document Reviews ................................................................................... 30
4.1.2. Results of In-depth Interviews ........................................................................................ 33
4.2. Discussions ......................................................................................................................... 45
4.2.1. The Process of IFRS Implementation in Ethiopia ....................................................... 45
4.2.2. The Progress of IFRS Implementation in Ethiopia .................................................... 48
4.2.3. Benefits of IFRS Implementation in Ethiopia ............................................................. 50
4.2.4. Practical Challenges of IFRS implementation in Ethiopia .......................................... 52
4.2.5. Lessons Learned from IFRS Implementation in Ethiopia ........................................... 61
Chapter 5: Conclusion and Recommendations ............................................................................. 63

5.1. Conclusions ........................................................................................................................ 63
5.2. Recommendations .............................................................................................................. 64
References ..................................................................................................................................... 66
Appendixes…………………………………………….…………………..…………………….73
Implementation of International Financial Reporting Standards in Ethiopia: Processes, Challenges, and the Way Forward iv
List of Tables
Table 2.1 Use of IFRS Standards: the big picture from 166 jurisdictions profiled ...................... 16
Table 4.1 IFRS Implementation Progress in Ethiopia .................................................................. 42
Implementation of International Financial Reporting Standards in Ethiopia: Processes, Challenges, and the Way Forward v
Lists of Abbreviations
AABE Accounting and Auditing Board of Ethiopia
ACCA Association of Chartered and Certified Accountants
AICPA American Institute of Certified Public Accountants
AISG Accountants International Study Group
ASE Accounting Society of Ethiopia
CEO Chief Executive Officer
CICA Canadian Institute of Chartered Accountants
CPA Certified Public Accountant
ECCSA Ethiopian Chamber of Commerce and Secretariat Associations
ECXA Ethiopian Commodity Exchange Authority
EPAAA Ethiopian Professional Association of Accountants and Auditors
ETB Ethiopian Birr
EU European Union
FASB Financial Accounting Standard Board
FDI Foreign Direct Investment
GAAP Generally Accepted Accounting Principles
IAS International Accounting Standards
IASB International Accounting Standards Board
IASC International Accounting Standards Committee
ICAEW Institute of Chartered Accountants of England and Wales
ICAN Institute of Chartered Accountants of Nigeria
IFAC International Federation of Accountancy
IFRIC International Financial Reporting Interpretation Committee
Implementation of International Financial Reporting Standards in Ethiopia: Processes, Challenges, and the Way Forward vi
IFRS International Financial Reporting Standards
IMF International Monetary Fund
IOSCO International Organization on Securities Commission
MFI Micro Finance Institutions
MoFEC Ministry of Finance and Economic Cooperation
MoSHE Ministry of Science and Higher Education
NBE National Bank of Ethiopia
NSE Nigerian Stock Exchange
OECD Organization for Economic Co-operation and Development
OFAG Office of Auditor General
PAFA Pan African Federation of Accountancy
PIE Public Interest Entities
ROSC Report on the Observance of Standards and Codes
SAS Statement of Accounting Standards
SEC Security Exchange Commission
SIC Standing Interpretation Committee
SME Small and Medium Enterprises
UK United Kingdom
UNCTAD United Nation Conference on Trade and Development
US United State
USA United State of America
WTO World Trade Organization
Implementation of International Financial Reporting Standards in Ethiopia: Processes, Challenges, and the Way Forward vii
Chapter One: Introduction
International Financial Reporting Standards (IFRS) are standards used for reporting financial
information that set out recognition, measurement, presentation and disclosure requirements
dealing with transactions and events that are important in preparing general purpose financial
statements (Epstein and Jermakowicz 2008; IFRS Foundation 2017). The idea of IFRS was
germinated with the proposal to establish an Accountants International Study Group (AISG) in
1966 (Sedzani 2012; Mihret 2016). The proposed study group was established in 1967. With the
efforts of AISG, the International Accounting Standards Committee (IASC) was formed in 1973
as the result of an agreement by professional accountancy bodies of United Kingdom, Ireland,
United States, Australia, Canada, France, Germany, Japan, Netherlands and Mexico to develop a
set of accounting principles across the globe (Mirza et al. 2008; Zeff 2012).
In its early days, the IASC was aimed at promoting best practices in the preparation of financial
statements while permitting different treatments for given transactions and events (Gina et al.
2016). IASC was responsible for the development and publication of International Accounting
Standards (IAS) and issued 41 standards from 1973-2001 (Sedzani 2012). It was restructured in
the year 2001 into the International Accounting Standards Board (IASB). The IASB is
responsible for developing in the public interest, a single set of high quality, comprehensive and
enforceable global accounting standards that require transparent and comparable information in
general purpose financial statements (Robert 2006).
With the increasing interest of having a single set of high-quality and comparable financial
information, on July 2002, a Regulation was passed by the European Parliament and European
Council of Minister requiring the adoption of IFRS (Fekete et al. 2008). As the result of the
Regulation, all European Union (EU) listed companies were required to prepare their
consolidated financial statements in line with IFRS starting from 1 January 2005 (Fekete et al.
2008; Shil et al. 2009). Since then many more countries have announced their plans to adopt
IFRS, in some instances extending the scope of application beyond the consolidated financial
statements to legal entities and incorporating IFRS into their national regulatory frameworks
(UNCTAD 2008). Currently, more than 144 countries in the world have adopted the IFRS by
Implementation of International Financial Reporting Standards in Ethiopia: Processes, Challenges, and the Way Forward 1
requiring all or most domestic publicly accountable entities in their capital markets to comply
with IFRS ( IFRS Foundation 2018).
IFRS brings transparency, enhance the international comparability and quality of financial
information, strengthen accountability by reducing the information gap between the providers of
capital and the people to whom they have entrusted their money (IFRS Foundation 2018). But
the full benefits of IFRS standards are best generated if the standards are consistently
implemented in all jurisdictions. On the other hand, it is indicated that the implementation of
IFRS is not an easy task which consumes both time and financial resources (Hegarty et al. 2004;
UNCTAD 2008).
The adoption of IFRS in Ethiopia was initiated on 5th of December 2014 with the enactment of
the Financial Reporting Proclamation No. 847/2014. Following that, the Council of Minister
Regulations No. 332/2014, for the establishment of the Accounting and Auditing Board of
Ethiopia (AABE) was issued. AABE is in charge of coordinating the implementation of IFRS
and regulating the financial reporting practices of the country.
Alemi and Pasricha (2016) observed that internal and external factors motivated the introduction of
IFRS in Ethiopia. According to them, internal motivating factors include regulators, professionals,
researchers, and academicians. On the other hand, external motivating factors include lenders,
donors, World Bank, International Monitory Fund (IMF), International Audit Firms and the
Association of Chartered and Certified Accountants (ACCA). For instance, among the external
factors, World Bank recommended the government of Ethiopia to establish national accounting
and auditing standards in Ethiopia after evaluating the accounting and auditing practices and
identified different gaps in the country through its team called Report on the Observance of
Standards and Codes (ROSC) in 2007. Accordingly, full IFRS were recommended to be adopted
as accounting standards for public interest entities and simplified financial reporting standards
were recommended to be used for a set of small and medium enterprises (ROSC 2007).
There were few studies on IFRS related issues in Ethiopia. For instance, Tesfu (2012) studied the
benefits and key challenges of IFRS adoption in Ethiopia. Alemi and Pasricha (2016) studied
IFRS progress in Ethiopia. Mihret (2016) critically analyzed the process, issues, and implication
of IFRS adoption in Ethiopia. These and other studies conducted on IFRS in Ethiopia mainly
focused on the expected challenges and benefits of IFRS adoption, and also on the process and
progress in IFRS adoption up to the year 2015/16. But to the knowledge of the researcher, there
appears to be no study on practical implementation challenges of IFRS in Ethiopia and the
progress of the first phase implementors of IFRS in the country.
In the context of the above discussions, the purpose of this study is to examine the
implementation of IFRS in Ethiopia by focusing on processes, practical challenges, and the way
forward. The remaining discussions in the chapter are arranged in five sections. The first section
presents the statement of the problem. Section 1.2 discusses the broad research objective and
specific research questions. Section 1.3 discusses the significances of the study followed by
delimitation and limitation of the study in section 1.4. Finally, section 1.5 discusses the structure
of the study.
1.1. Statement of the Problem
In recent years, IFRS has been the agenda of many developed and developing countries.
Following the increase in the number of countries implementing IFRS, large numbers of research
works have been conducted to know the benefits and challenges of implementation. For instance,
Irvine (2008); Gebre (2009); Mohammed and Lode (2012); Jaafar and Rahim (2012); Owolabi
and Iyoha (2012); Sedzani (2012); Alsaqqa and Sawan (2013); Odia and Ogiedu (2013); Zakari
(2014); Hossain et al. (2015); Weaver and Woods (2016); Bahadir et al. (2016); Gina et al.
(2016); Uyar et al. (2016); Teshome (2017); Amanamah (2017); Edeigba (2017); Mbawuni
(2017) and Babil (2018) studied the benefits and challenges of IFRS adoption in different
jurisdictions.
The findings of past studies indicated that the worldwide adoption of IFRS has been successful
in some countries and unsuccessful in some other countries. It appears from their finding that,
the success of IFRS implementation depends on the practical challenges that the reporting
entities encountered in the implementation processes (Edeigba 2017). The challenges of IFRS
adoption become more severe for African countries especially when countries begin the
transition to IFRS without a critical mass of adequately trained and sufficiently experienced
accounting professionals who are familiar with the principles underlying the use of accounting
information for investment decision making (UNCTAD 2008).
In Ethiopia, as stated in the Financial Reporting Proclamation No. 847/2014, the implementation
of IFRS is planned to be fully completed within five years from the date the Proclamation was
issued. To realize the successful implementation, AABE developed a 5 years strategic plan,
which includes the adoption roadmap of IFRS in the country. According to IFRS adoption
roadmap of AABE, IFRS will be fully implemented in Ethiopia across all reporting entities by
the end of 7 July 2020 (AABE 2015).
But debate continues to rage over the future of accounting in Ethiopia after the country
proclaimed the full adoption of IFRS by 2020. For instance, an auditor with three decades of
experience and one of the founding members of Ethiopia Professional Association of
Accountants and Auditors (EPAAA), believes that the full implementation of IFRS in Ethiopia is
impractical taking the existing situation into consideration. Some others insist that the path to
adoption of IFRS has been challenging in Ethiopia and even have doubts about the
implementation of IFRS in Ethiopia within the scheduled period (Berhanu 2017).
Based on IFRS adoption roadmap of AABE, the remaining time for full implementation of IFRS
in the country is less than eighteen months by the time this research is being written. There is no
clarification on whether the implementation progress is moving as expected or not. Moreover,
the challenges that first phase implementers practically encountered in Ethiopia is the current
issue and needs to be clarified. Therefore, the above-discussed issues coupled with knowledge
gap identified and discussed under introduction triggered this study to examine the
implementation of IFRS in Ethiopia by focusing on the processes, practical challenges, and the
way forward.
1.2. Broad Research Objective and Specific Research Questions

The broad objective of this study is to investigate the implementation of IFRS in Ethiopia
focusing on the processes, practical challenges, and the way forward. Based on this broad
objective, the following specific research questions are developed;
RQ1. How is the process of International Financial Reporting Standards implementation

in Ethiopia?
RQ2. How is the progress in the implementation of International Financial Reporting

Standards in Ethiopia?
RQ3. What are the practical challenges in the implementation of International Financial
Reporting Standards in Ethiopia?
RQ4. What are the lessons from reporting entities that fully implemented International
Financial Reporting Standards in Ethiopia?
1.3. Significance of the Study
Much has been written and studied on IFRS implementation in different countries, but this study
adds some insight about this issue related to Ethiopian literature. The study examines the
processes that have been used in Ethiopia in IFRS implementation. The study also examines the
progress of the first phase implementors of IFRS in the country.
Furthermore, the study highlights the practical challenges that the first phase implementors of
IFRS in Ethiopia encountered to implement IFRS. This brings the Ethiopian perspective of the
practical challenges of IFRS adoption into the international context through the literature. Apart
from contributing to the literature, this study has practical implications for different stakeholders
dealing with IFRS implementation in Ethiopia. It also provides a possible opportunity to all
interested parties to gain deep knowledge about the practical challenges of IFRS implementation
in Ethiopia.
Additionally, the study is expected to identify the lessons from IFRS implementation in Ethiopia
by considering up to date progress of IFRS implementation in the country with the experiences
of other countries. The lessons may help countries, in general, and reporting entities in
particulars, who have plans to implement IFRS. Finally, it may help other researchers as a source
of reference and as a stepping stone for those who want to make a further study on IFRS
implementation in Ethiopia and in countries with similar economic characteristics afterward.
1.4. Delimitation and Limitation of the Study
The study delimited to the implementation of IFRS in Ethiopia focusing on processes, practical
challenges, and the way forward. The study focused only on the first phase implementors from
reporting entities to identify the practical implementation challenges of IFRS in the country and
to examine the progress of IFRS implementation. The study doesn’t consider the second and
third phase implementors on IFRS implementation due to lack of resources and time.
To address each specific research question, data were solicited through in-depth interviews with
30 key informants from AABE, IFRS conversion consultants, external auditors, financial
statements preparers and IFRS implementation team leaders in addition to data obtained from
document analysis. Since the study employed a qualitative research approach, the limitation of
the study is the impossibility of generalization. Hence, the findings and outcomes can’t be spread
to larger populations.
1.5 Structure of the Study
The thesis is organized into five chapters. The first chapter presents the introduction to the thesis.
This is followed by a review of both theoretical and empirical evidence in the literature in the
second chapter. The third chapter sets the methodological approaches adopted in the study while
the fourth chapter presents the results and discussions. Finally, conclusion and recommendations
are presented in the fifth chapter.
Chapter Two: Literature Review
The previous chapter highlighted and introduced the study and the purpose of this chapter is to
review the literature on IFRS. Accordingly, the review has three sections. Section 2.1 presents a
review of theories and history of harmonization of accounting standards, followed by the
relevant empirical studies on IFRS implementation in section 2.2. Finally, the conclusions on the
literature reviews and knowledge gaps are presented in section 2.3.
2.1. Theories and History of Accounting Harmonization
Accounting has already bagged the status of the language of the business that requires reporting
of the affairs in a commonly understandable way. Muis (1999) stated as cited in Shil et al.
(2009), the power to control the language of business is important. Standard setters will come
ahead as the world grows smaller and economic independence is no longer an option but a
reality. So, it happens that today a good observer can see the preparations of the battle for the
control of the international language of business slowly unfold. In this context, Pitt (2002)
opined as stated in Shil et al. (2009), high-quality global accounting standards are needed to
improve the ability of investors to make informed financial decisions. Companies must keep
pace with this progress in order to promote and protect their business credibility in the
international market place.
To allow the gains from the global economy to be fully realized, it is argued that accounting
policy should be standardized among nations (Zeff 2012). This harmonization of accounting
standards will help the world economy in the following ways: by facilitating international
transactions and minimizing exchange costs through providing increasingly perfect information;
by standardizing information to worldwide economic policy-makers; by improving financial
markets information; and by improving government accountability. Harmonization of accounting
policy provide a level playing field globally. Regulators and auditors will be receiving the same
information, facilitating the evaluation process. In the absence of free trade, international
accounting standards will allow nations' tariffs, quotas, and other trade restraint mechanisms to
be more accurate and less risky for those engaged in trade. Investors and managers will be able
to make more valuable decisions and as the result world resources will be better managed and
allocated (Shil et al. 2009).
In the section below, the accounting harmonization/convergences are classified into three
sections and discussed as follows: accounting convergences before the establishment of IASC,
accounting convergence with IASC and accounting convergence after IASC was reconstructed
and replaced by IASB.
2.1.1. Accounting Convergence Prior to the Establishment of IASC
The concept of harmonization of accounting standards dated back to the 19th century when the
idea of International Accounting Standards was originated in the first International Congress of
Accountants held at St. Louis in 1904. Then in 1957, when the 7th International Congress of
Accountants held in Amsterdam, Mr. Jacobkraayenhof, spoke on the need of international
accounting cooperation and standardization (Shil et al. 2009). Later in 1966, the proposal to
establish an Accountants International Study Group (AISG) comprising the Institute of Chartered
Accountants of England and Wales (ICAEW), American Institute of Certified Public
Accountants (AICPA) and Canadian Institute of Chartered Accountants (CICA) was issued in
order to develop comparative studies of accounting and auditing practices in the three nations:
USA, UK and Canada (Sedzani 2012; Zeff 2012; Odia and Ogiedu 2013; Mihret 2016).
Then in 1967, the AISG, to whom the proposal was issued in 1966, was found. This study group
was regularly publishing the paper on important topics in accounting and auditing. It conducted
about twenty studies on accounting and auditing topics during eleven years of its life until it was
disbanded in 1977 (Shil et al. 2009; Sedzani 2012; Zeff 2012; Odia and Ogiedu 2013). The
papers that were published are believed to have led the way to the development of accounting
standards. Ultimately, the senior officers of the study group decided to establish international
standards and thus, Sir Henry Benson put forward the proposal for the setting up of the
International Accounting Standard Committee (IASC) at the 40th World Congress of
Accountants in Sydney, in 1972 ( Shil et al. 2009; Sedzani 2012; Zeff 2012; Odia and Ogiedu
2013).
After discussions and signature of approval by the three AISG countries and representatives of
the professional accountancy bodies in United Kingdom, Ireland, United States, Australia,
Canada, France, Germany, Japan, Netherlands and Mexico, the IASC was established on 29th
June 1973, with its secretariat and headquarters at London. Sir Henry Benson was the first
elected Chairman while Paul Rosenfield was the first secretary of the IASC (UNCTAD 2008;
Odia and Ogiedu 2013).
2.1.2. Accounting Convergence with the IASC
IASC has passed through many phases of its journey to come to the present stage. The primary
objectives of IASC formation were to (i) formulate and publish in the public interest accounting
standards to be observed in the presentation of financial statements and to promote their
worldwide acceptance and observance; (ii) work generally for the improvement and
harmonization of regulations, accounting standards and procedures relating to the presentation of
financial statements; (iii) to develop a single set of high quality IAS to replace national standards
(Mirza et al. 2008; Zeff 2012; Odia and Ogiedu 2013). To achieve its objectives, IASC had
worked with the different organization until it’s restructured in 2001.
For example, as noted in Sedzani (2012), in 1981, IASC had come to an agreement with
International Federation of Accountancy (IFAC), which was established on 19 October 1977 in
Munich, Germany, with the objectives of strengthening the worldwide accountancy profession.
In their agreement, IASC grants the responsibility to develop and publish all standards whereas,
IFAC is responsible for the promotion of accountancy profession and standards published by
IASC and IFAC.
Additionally, in the year 1995, IASC entered into an agreement with International Organization
of Securities Commission (IOSCO) on a mission to complete a comprehensive core set of
standards that could be used for cross-border and national listings. In fact, this was due to the
growing recognition of the need for global accounting standards. To give proper direction on
how to interpret these standards led to the setting up of the Standing Interpretations Committee
(SIC) in 1997 to provide authoritative guidance over the interpretation of the standards. On
December 1999, the board of the IASC has approved proposal to make changes in the structure
of the committee with a view to achieve global convergence (Shil et al. 2009; Sedzani 2012).
On May 2000, one most important breakthrough was reached when the IOSCO accepted 30 core
IASs. This backing by IOSCO for the use of IASs by member stock exchanges led to the
acceptance and recognition of the IASC as a worldwide standard setter (Shil et al. 2009). The
IASC was survived for 27 years and responsible for the development and publication of IASs
and during its existence, in between 1973 and 2001, the IASC issued and published 41 standards
before it was replaced by the IASB (Mirza et al. 2008; UNCTAD 2008; Sedzani 2012; Zeff
2012).
2.1.3. Accounting Convergence with IASB
As IASC was reconstructed into the IASB on April 2001, the Financial Accounting Standard
Board (FASB) and IASB began working towards convergence. As a result, in 2002, a
Memorandum of Understanding (MOU) was signed between the IASB and the FASB, the two
major players in the accounting standards arena, which is well known as Norwalk agreement,
expressing their commitment to convergence and pledging to make their respective standards
"compatible as soon as is practicable" as well as to maintain compatibility by coordinating
future programs. In the agreement, both the FASB and IASB pledged their joint commitment
towards the development of high quality, compatible accounting standards for both domestic and
cross border financial reporting (Shil et al. 2009; Odia and Ogiedu 2013).
In April 2001, the International Financial Reporting Interpretations Committee (IFRIC) was
constituted to replace the SIC. The committee meets periodically to discuss and spell out their
interpretations, interpret the application of IFRS standards and provide timely guidance on
financial reporting issues not specifically addressed in the standards in the context of the Board
framework as well as undertake other tasks at the request of the Board (Sedzani 2012; IFRS
Foundation 2016).
The conversion was further facilitated by a Regulation approved in the European Union in 2002
which required the preparation of the consolidated financial statements of listed companies
domiciled in the European Union in accordance with endorsed IFRS issued by the IASB starting
no later than 2005. Then the first IFRS financial statements were published in June 2003 (IFRS
1: First-time adoption of IFRS) (Fekete et al. 2008; Sedzani 2012). Since then many more
countries have announced their plans to transition of IFRS, in some instances extending the
scope of application beyond the consolidated financial statements to legal entities and
incorporating IFRS into their national regulatory frameworks. This put an end to the current
tower of Babel in financial reporting (UNCTAD 2008; Shil et al. 2009).
The primary objective of IASB is to build up a worldwide adequate arrangement of top

accounting standards. Keeping in mind the end goal to accomplish this target, IASB has issued
accounting standards that wiped out many accounting techniques with a view to expanding
likeness of financial reports, confine administrative discretions on acquiring smoothing or
overstatements (IFRS Foundation 2016). At its first meeting in 2001, IASB adopted all
outstanding IAS issued by the IASC as its own standards. Those IAS continue to be in force to
the extent they are not amended or withdrawn by the IASB. New standards issued by IASB are
known as IFRS and the IASB is solely responsible for the development and publication of IFRS
(Robert 2006).
IFRS standards constitute a globally recognized set of standards for the preparation of financial
statements by business entities. It prescribes: (i) the items that should be recognized as assets,
liabilities, equity, income, and expenses; (ii) how to measure those items; (iii) how to present
them in a set of financial statements; and (iv) related disclosures about those items (IFRS
Foundation 2017)
When referring collectively to IFRS1, it includes ISA, SIC, IFRS, and IFRIC. The objectives of
the IFRS Foundation and IASB, as stated in IFRS constitution are: (a) to develop, in the public
interest, a single set of high quality, understandable, enforceable and globally accepted financial
reporting standards based upon clearly articulated principles and these standards should require
high quality, transparent and comparable information in financial statements and other financial
reporting to help investors, other participants in the world’s capital markets and other users of
financial information make economic decisions; (b) to promote the use and rigorous application
of those standards; (c) in fulfilling the objectives associated with (a) and (b), to take account of,
as appropriate, the needs of a range of sizes and types of entities in diverse economic settings
and, (d) to promote and facilitate adoption of the IFRS Standards, being the standards and IFRIC
1
By December 2018, IFRS includes 17 International Financial Reporting Standards (IFRS), 28 International
Accounting Standards (IAS), 23 International Financial Reporting Interpretation committees (IFRIC), and 31
Standing Interpretation Committee (SIC). SIC and IFRIC represents an interpretations committee. The objectives of
the Interpretations Committee are to interpret the application of IAS / IFRS, provide timely guidance on financial
reporting issues that are not specifically addressed in IAS / IFRS and undertake other tasks at the request of the
International Accounting Standards Board (IASB) (IFRS Foundation 2018).
interpretations issued by the Board, through the convergence of national accounting standards
and IFRS Standards (IFRS Foundation 2016).
The vision of IASB and IFRS Foundation has been publicly supported by many international
organizations including the G8, the G7, Finance Ministers and Central Bank Governors, G20, the
World Bank, the International Monetary Fund (IMF), the IOSCO, the IFAC, the United Nations
(UN), and the Organization for Economic Cooperation and Development (OECD). All these
institutions have publicly recommended the adoption of a single set of global accounting
standards or the IFRS. The US Security Exchange Commission (SEC) concept released in 2000
on the IASs also encouraged the convergence towards a high quality global financial reporting
framework internationally that will enhance the vitality of capital markets (Zeff 2012; Odia and
Ogiedu 2013). The vision is consistent with the objective of the Board’s predecessor standard-
setting body, IASC (IFRS Foundation 2017). On the national level many governments and tax
authorities want global accounting standards to regulate and tax businesses that operate within
their countries (Odia and Ogiedu 2013).
2.1.4. IFRS Framework
IFRS are principles-based standards, interpretations and the framework adopted by the IASB
and it is a single set of high quality, understandable and enforceable global accounting standards
published by the London-based IASB (Babil 2018). The standards are based on its framework
which deals with the objectives of financial statements, qualitative characteristics of financial
statements, elements of financial statements, recognition of the elements of financial statements,
measurement of the elements of financial statements, and concepts of capital and capital
maintenance. The framework stated that the objective of financial statements is to provide
information about the financial position, financial performance and changes in the financial
position of an enterprise that is useful to a wide range of users in making economic decisions
(Mirza et al. 2008; Hennie et al. 2011).
The information needs of investors are deemed to be a paramount concern if financial statements
meet their needs, it is presumed, and likely, that other users’ needs would generally also be
satisfied. The framework holds that financial statements users need to evaluate the reporting
entity’s ability to generate cash as well as the timing and certainty of its generation. The financial
position is affected by the economic resources controlled by the entity, its financial structure, its
liquidity, solvency and it's capacity to adapt to changes in the environment in which it operates
(IFRS Foundation 2016).
The qualitative characteristics of financial statements as stated in the IFRS framework are
relevance, reliability, comparability, and understandability (Mirza et al. 2008). Reliability
comprises representational faithfulness, substance over form, completeness, neutrality, and
prudence. The framework does not specifically include a true and fair requirement but says that
the application of the specified qualitative characteristics should result in statements that present
fairly or are true and fair (IFRS Foundation 2016). IAS 12, presentation of financial statements
stated that, financial statements are to present fairly the financial position, financial performance
and cash flows of the reporting entity and that the achievement of a fair presentation requires the
faithful representation of the effects of the reporting entity’s transactions, other events and
conditions (Robert 2006; Mirza et al. 2008; IFRS Foundation 2016).
IAS 1 is most recently has been substantially revised in 2007, for mandatory application by
2009. Among the changes imposed is the elimination of the term balance sheet which is
replaced by a statement of financial position and the adoption of a requirement for presentation
of a statement of comprehensive income, largely modelled on the approach long in use under US
GAAP and the other great importance was on the definitions of assets and liabilities. According
to IFRS (IAS 1), an asset is a resource controlled by the enterprise as a result of past events and
from which future economic benefits are expected to flow to the enterprise. Liability is a present
obligation of the enterprise arising from past events, the settlement of which is expected to result
in an outflow from the enterprise of resources embodying future benefits while equity is simply a
residual arrived at by deducting the liabilities from assets. Neither asset nor liability is
recognized in the financial statements unless they have a cost or value that can be measured
reliably which, as the framework acknowledges, means that some assets and liabilities may
remain unrecognized (Robert 2006; IFRS Foundation 2016).
2
: IAS: 1- Presentation of Financial Statements, which was originally issued in 1975 and effective started from
January 1, 1975.
However, with the ever-expanding use of fair value measurements as well as the greatly
expanded availability of information from a wide array of sources, including that found via the
internet, there will be a continuing decline in the incidence of off-balance-sheet transactions or
events, and of those recognized at other than current fair values. The asset and liability
definitions have, in the past, not been central to financial reporting standards, many of which
were instead guided by a performance view of the financial statements (IFRS Foundation 2016).
The two assumptions underlying the preparation and presentation of financial statements are the
accrual basis and going concern. IFRS framework state that, except the cash flow statement, all
other financial statements must be prepared on an accrual basis, whereby assets and liabilities are
recognized when they are receivable or payable rather than when actually received or paid. It is
noted as financial statements should be prepared on a going concern basis unless management
intends to liquidate the entity or cease trading or has no realistic option but to do so (Mirza et al.
2008).
When upon assessment it becomes evident that there are material uncertainties regarding the
ability of the business to continue as a going concern, those uncertainties should be disclosed. In
the event that the financial statements are not prepared on a going concern basis, that fact should
be disclosed, together with the basis on which they are prepared along with the reason for such a
decision. In making the assessment about the going concern assumption, management takes into
account all available information about the future, which is at least 12 months from the date of
the balance sheet (Mirza et al. 2008).
The IFRS framework explains the hierarchy used as guidance for deciding on a given event, in
the following manner as stated in IFRS constitution. First, by reference to IAS/IFRS and
SIC/IFRIC interpretations, when these specifically apply to a transaction or condition. In the
absence of such a directly applicable standard, judgment is to be used to develop and apply an
accounting policy that is relevant to the economic decision making needs of the users, and is
reliable in that the financial statements represent faithfully the financial position, financial
performance and cash flows of the reporting entity, reflect the economic substance of
transactions, events, and conditions, rather than merely the legal forms thereof; are neutral; are
prudent; and are complete in all material respects (IFRS Foundation 2016).
If this is not possible, the preparer should then look to recent pronouncements of other standard
setters that use a similar conceptual framework to develop its standards, as well as other
accounting literature and industry practices that do not conflict with higher level guidance. If
only that fails, the preparer should look to the IASB Framework directly, and attempt to draw
inferences regarding specific applications that have not been formally addressed in promulgated
standards (IFRS Foundation 2016).
2.1.5. Current Status of IFRS Implementation in the World
The countdowns to the harmonization of national and international accounting standards and an
improvement in the quality of financial reporting at a global level are best tracked
chronologically (Shil et al. 2009). The current world scenario on the subject of harmonization
gets started going on 19 July 2002, when a regulation was passed by the European Parliament
and European Council of Minister requiring the adoption of IFRS as per Regulation (EC) No
1606/2002 of the European Parliament and of the Council of 19 July 2002 on application of IAS
in which all EU listed companies were required to prepare their financial statements in line with
IFRS starting from 1 January 2005. All non-European companies (following US GAAP or any
other standards) were required to prepare their financial statements in line with IFRS up to 2007
(Fekete et al. 2008; Zeff 2012).
The legislation came into effect in 2005. It applies to more than 8,000 companies in 30 countries
including France, Germany, Italy, Spain, and the United Kingdom. The adoption of IFRS in
Europe means that IFRS has replaced national accounting standards and requirements as the
basis for preparing and presenting group financial statements for listed companies in Europe
(Mirza et al. 2008).
Since then countries around the world are increasingly adopting IFRS directly or with necessary
modification in order to get the financial statements of entities in their jurisdictions to be widely
accepted and compared globally and outside Europe. By 2005, IFRS had become mandatory in
many countries in Africa, Asia, and Latin America as well. In addition, countries such as
Australia, Hong Kong, New Zealand, Philippines, and Singapore had adopted national
accounting standards that mirror IFRS. According to one estimate, about 80 countries required
their listed companies to apply IFRS in preparing and presenting financial statements in 2008.
Many other countries permit companies to apply IFRS (Mirza et al. 2008).
For instance, in 2011, as evidenced by Deloitte Touche Tohmatsu Limited and PriceWaterHouse
Copers (2011) as cited in Sedzani (2012), out of 196 countries in the world, 123(63%) countries,
have already adopted the IFRS. However, only 18 of 53 countries of Africa had adopted IFRS at
that time. According to Sedzani (2012), Nigeria, an economic giant in Africa is the latest country
in Africa to take up the opportunities presented by economic globalization by adopting IFRS,
even though South Africa had adopted the standards in 2005.
Currently, the vision of having high-quality, global accounting standards is being publicly
supported by more than 144 countries around the globe and by many international organizations.
According to the survey results of IFRS foundation as updated on 2018, 144 jurisdictions out of
166 surveyed (87% percent of the total jurisdictions surveyed) have adopted the IFRS by
requiring all or most domestic publicly accountable entities (listed companies and financial
institutions) in their capital markets to comply IFRS. According to the survey of 166
jurisdictions profiled, 87% (144/166 jurisdictions) already required the use of IFRS standards by
all or most domestic public companies, with most of the remaining jurisdictions permitting their
use (IFRS Foundation 2018). The table below presents the summary analysis of the IFRS profile
of different jurisdictions published on the website of the IFRS Foundation and IASB.
Table 2.1 Use of IFRS Standards: the big picture from 166 jurisdictions profiled in 2018
Number of jurisdictions profiled
Region in the that require IFRS that requires IFRS that permit or that neither require
region for all or most standards as % of require IFRS for at nor permit IFRS for
domestic publicly total jurisdictions least some domestic any domestic
accountable entities in the region publicly accountable publicly accountable
entities entities
Europe 44 43 97.7% 0 1
Africa and 51 49 96% 1 1

Middle East
Asia- 34 25 73.5% 6 3
Oceania
Americas 37 27 73% 2 8
Totals 166 144 87% 9 13
As % of 166 100% 87% 5% 8%
Source: IFRS Foundation 2018
2.1.6. Harmonization, Convergence, and Adoption of IFRS
The concerns for harmonization of accounting standards, and later, convergence in the 1990s
with IFRS are due to the globalization of the capital markets. Odia and Ogiedu (2013) noted as
investors are now seeking investment opportunities all over the world, many business entities
continue to expand their operations across national borders; companies are seeking capital at the
lowest cost anywhere; securities markets are crossing national boundaries; merger talks among
some of the world’s largest stock exchanges continue and the glowing investment transactions
via the internet.
Therefore, to compete and do business in this globalized world, there is the need for transparency
in company reports so that investors, lenders and other users of financial information of
companies could compare their performance from one country to another in general and one
company to another in particular. Also there is the need to provide information that are relevant,
reliable and understandable to meet the needs of investors, for easy comparability of companies’
performance and the decision to buy, hold or sell made easy through reduction or elimination of
differences in accounting policies and principles between countries (Shil et al. 2009; Odia and
Ogiedu 2013).
The term harmonization means, the reconciliation of different accounting and financial reporting
systems by fitting them into common broad classifications, so that form becomes standard while
content retains significant differences. Convergence means the process of converging or bringing
together international standards issued by the IASB and existing standards issued by national
standard setters, with the aim of eliminating alternatives in accounting for economic transactions
and events. In this case, the ultimate objective of convergence is to achieve a single set of
internationally consistent, high-quality global accounting standards, issued by the IASB and
adopted by all the national standard setters (Shil et al. 2009; Odia and Ogiedu 2013).
The need for global convergence of accounting standard or for an international standard setter is
to: (i) recognize the growing need for IASs; (ii) ensure no individual standards setter has a
monopoly on the best solutions to accounting problems; (iii) ensure no national standard setter is
in a position to set accounting standards that can gain acceptance around the world; (iv) clarifies
that there are many areas of financial reporting in which a national standards setter funds it
difficult to act alone (Odia and Ogiedu 2013).
Convergence is the process by which standard setters across the globe discuss accounting issues
drawing on their combined experiences in order to reach the most appropriate solutions. Obazee
(2007) as cited in Odia and Ogiedu (2013) suggested that convergence could be either by
adoption (a complete replacement of national accounting standards with IASB’s standards) or by
adaptation (modification of IASB’s standards to suit peculiarities of local market and economy
without compromising the accounting standards and disclosure requirements of the IASB’s
standards and basis of conclusions). It was meant to bring standards like the US GAAP and IFRS
closer or harmonize them; to produce identical standards.
According to SEC (2010), as stated in Odia and Ogiedu (2013), there are two approaches to
IFRS adoption around the world: convergence and endorsement approach and it classified
jurisdictions which do not adopt IFRS as issued by the IASB as following the convergence
approach. In case of endorsement, jurisdictions keep their local standards but make an effort to
converge with IFRS over time. Endorsement approach is where jurisdictions incorporate
individual IFRSs into their local standards. Gradual movement is made towards IFRS through
customizing with the existing accounting standards and IFRS are applied gradually converging
few local standards to IFRS each year can allow local preparers and auditors to learn a few topics
at a time rather than immersing themselves in the full set of IFRSs as indicated in IFRS
Foundation Guide (2013) as cited in Alemi and Pasricha (2016).
But adoption of IFRS means full-scale implementation or usage of IFRS without any variation.
Adoption according to IFRS Foundation Guide (2013) as cited in Alemi and Pasricha (2016) is a
strategic decision to adopt IFRS on a single date or perhaps, a series of dates applied to
companies of different sizes. Under this approach, once IFRS is adopted, all IFRS standards
should comply while preparing financial statements and the existing accounting standards should
be replaced with IFRS. IFRS Foundation (2017) stated that countries need to establish their own
mechanisms for bringing IFRS standards formally into national law and for ensuring consistent
and rigorous application. Regardless of the mechanics of IFRS implementation, the end result
should be the same. It is full adoption of IFRS standards as issued by the Board and it would help
a company to compete globally (Shil et al. 2009).
2.1.7. Benefits of IFRS
Nowadays, the world’s financial markets are borderless due to globalization. Companies
including small companies seek capital at the best price wherever it is available. Investors and
lenders seek investment opportunities wherever they can get the best returns commensurate with
the risks involved. To assess the risks and returns of their various investment opportunities,
investors and lenders need financial information that is relevant, reliable as well as comparable
across borders (Shil et al. 2009).
Volker (2002) noted as stated in IFRS Foundation (2016 ), the developments over the past year
and more has strongly reinforced the logic of achieving and implementing high-quality
International Accounting Standards. In an age when capital flows freely across borders, it simply
makes sense to account for economic transactions, whether they occur in the Americas, Asia, or
Europe, in the same manner. Providing improved transparency and comparability will certainly
help ensure that capital is allocated efficiently. Not so incidentally, Generally Accepted
International Standards will reduce the cost of compliance with multiple national standards.
The common set of principles-based and high-quality financial reporting standards (IFRS) is
needed to support the coherence and consistency of the international financial system. It is also
used for mobilization and efficient allocation of financial resources and facilitating investment
needed for the economic development of a given country. Sound and internationally comparable
corporate financial reporting that meets the requirements of financial markets improve investor
confidence, facilitate risk assessment in making investment decisions and helps reduce the cost
of capital (UNCTAD 2008).
IFRS Foundation (2018) additionally noted that IFRS standards: (a) bring transparency by
enhancing the international comparability and quality of financial information, enabling
investors and other market participants to make informed economic decisions; (b) strengthen
accountability by reducing the information gap between the providers of capital and the people to
whom they have entrusted their money, and (c) contribute to economic efficiency by helping
investors to identify opportunities and risks across the world, thus improving capital allocation.
2.2. Empirical Literature Reviews
Following the emergence of harmonization of accounting standards in general and the

introduction of IFRS in particular, there were different studies in both developed and developing
countries especially after the germination of IASB. Those studies were basically grouped into
different categories. Most of them were mainly focused on the challenges and benefits of IFRS
implementation (Hegarty et al. 2004; Irvine and Lucas 2006; UNCTAD 2008; Gebre 2009;
Jaafar and Rahim 2012; Mohammed and Lode 2012; Owolabi and Iyoha 2012; Sedzani 2012;
Tesfu 2012; Alsaqqa and Sawan 2013; Odia and Ogiedu 2013; Zakari 2014; Hossain et al. 2015;
Weaver and Woods 2016; Bahadır et al. 2016; Gina et al. 2016; Amanamah 2017; Edeigba 2017;
Mbawuni 2017; Teshome 2017). In the section below, the previously conducted studies are
discussed.
Hegarty et al. (2004) investigated the challenges to the successful implementation of

international accounting and auditing standards. The study stated that misunderstandings as to
the nature of international standards, lack of appropriate mechanisms for granting national
authority to international standards, inconsistencies between international standards and the legal
framework, lack of appropriate linkages between general-purpose and regulatory financial
reporting, inappropriate scope of application of international standards, non-observe ability of
compliance, areas for improvement in the standards themselves, mismatch between accounting
requirements and market demands, mismatch between accounting requirements and the capacity
to comply, mismatch between accounting requirements and domestic enforcement capacity are
the practical challenges of IFRS implementation in a jurisdiction.
UNCTAD (2008) similarly studied practical challenges that arise in implementing IFRS. The
study revealed that lack of coherence in the regulatory system, the shortage of accountants and
auditors who are technically competent in implementing IFRS, the shortage of implementation
time, the limited availability of training materials and experts on IFRS at an affordable cost, the
difficulty in coping with the rapid frequency and volume of changes made by the IASB to
existing IFRS, as well as keeping pace with new standards, fair-value measurement requirements
in IFRS, the complexity of certain IFRS are the major practical implementation challenges of
IFRS in a country.
Owolabi and Iyoha (2012) examined the perception of users and preparers of financial
statements on what the benefits, prospects, and challenges of IFRS adoption are in African
countries. A questionnaire was used to gather data from respondents made up of users and
preparers of accounting information using the Twitter social network. The results of the study
indicated that IFRS adoption in Africa will have the potential to be beneficial to a wide range of
stakeholders. The benefits notwithstanding, there are, however, a number of challenges to be
faced in the process of adoption of the new standards including the ethical environment in
Africa.
Tesfu (2012) studied the benefits and key challenges of IFRS adoption in Ethiopia. The study
revealed that the introduction of IFRS in Ethiopia will improve comparability and reliability of
financial statements, ensures the transparency financial statements, reduce the firm's cost of
capital, reduce information asymmetry, improve investor confidence, and enhance the better risk
management. The study also identified that significant cost of adoption needs for training, the
complex nature of standards, the lack of adequate implementation guidance, tax-driven nature of
previous standards and fair value measurements as the expected challenges of implementing
IFRS in Ethiopia.
Baba (2013) studied on the achievements recorded in IFRS adoption in Nigeria in the stated
time, challenges being encountered and measure taken in order to ensure a smooth and
successful implementation of IFRS adoption in Nigeria. As a result, the study suggested that
most publicly quoted companies listed on the Nigerian stock exchange (NSE) were still far
behind in their implementation process. Thus, the reason for the delay was attributed to several
factors which ranges from challenge with amendment of the existing tax laws, the level of
awareness among various stakeholders, weak compliance and enforcement mechanisms, the
education level and experience, insufficient technical capacity, inadequate planning on the part
of companies’ management as well as inadequate private sector participation. To ensure smooth
and successful implementation of IFRS in the remaining phases, the study recommended that
effective evaluation and planning, amendment of existing tax laws, integrating IFRS into the
educational curriculum, raising awareness, enlightenment on retrospect nature of IFRS,
incentives for motivation, increasing private sector participation and capacity building are
required in Nigeria.
Odia and Ogiedu (2013) studied the issues and challenges associated with IFRS adoption in a
jurisdiction. The study suggested that effective IFRS adoption requires: (i) careful planning,
extensive public education, the allocation of resources and institutional support with strong
management systems; (ii) the communications system for informing users of the changes in
reporting requirements; (iii) adequate resources in place to support the sustainable
implementation of IFRS; (iv) continual training of auditors, regulators, analysts and capacity
building of the various stakeholders by the accounting profession; (v) strong accounting
institutional framework in place to champion and manage the IFRS change process; (vi)
introduction of an awareness program by government to improve the degree of compliance with
accounting requirements by specified business enterprises; (vii) an independent and strong
oversight body; (viii) extensive and on-going support from professional accounting bodies; (ix)
integrating IFRS into university accounting education and updating the curricula for the training
of accountants by tertiary institutions and professional accounting bodies.
Hossain et al. (2015) investigated the benefits and challenges of IFRS adoption in a developing
economy focused mainly on Bangladesh. The study was purely based on the information from
prior works of literature and secondary data sources. The study revealed that the adoption IFRS
reduce the cost of capital, improve financial reporting quality, increase the ability to secure
borders-listing, enhance better access to global capital markets and increase the inflow of foreign
direct investment. On the other hand, the study stated that low level of awareness and inadequate
availability of quality training, knowledge gap among professionals, regulators and preparers,
significant inconsistency in disclosure levels across various parts of annual reports, lack of
resources, inadequate evaluation and monitoring of corporate report by SEC and stock exchange
of the country, contradiction between financial reporting and tax accounting were some of the
challenges encountered to implement IFRS in Bangladesh.
Simegn (2015) studied the benefits, challenges and critical factors affecting IFRS adoption in
Ethiopia. The study was conducted by collecting primary data using a questionnaire and
secondary data from journal articles, manuals, books, and websites. The study noted that the
adoption of IFRS by Ethiopia expected to improve the quality of accounting so as to make a
judgemental decision among users of accounting information. However, lack of proper financial
reporting guidance, lack of proper instructions from regulatory bodies, additional training for
professionals and modernized IT system in handling the transitions to IFRS were identified as
the main expected challenges of IFRS adoption in Ethiopia.
Weaver and Woods (2015) studied on the challenges faced by reporting entities on their
transition to IFRS. Based on interviews with experts with aggregated experience relating to the
transition projects of over 170 reporting entities, the study highlighted the main challenges in
delivering a successful implementation of IFRS. The study stated that the problems faced in
implementation include lack of education and training, lack of securing executive-level support,
identifying and responding to the wider business-related implications of the transition and issues
with capturing the necessary information for reporting under IFRS.
Alemi and Pasricha (2016) studied IFRS adoption progress in Ethiopia. The study identified
IFRS knowledge gap, shortage of qualified professionals, resistance to change, management
knowledge gap, cost of implementation, absence of professional institutions and emergence of
unfair competition among professionals as the challenges ahead of IFRS adoption in Ethiopia.
On the contrary, the study finds out the opportunities ahead of IFRS adoption in Ethiopia as the
high commitment from the government and as IFRS avoids current problems, enhance
comparability, enhance foreign direct investment, easy access to finance, helps to establish legal
backing accounting and auditing system in the country in question.
Amanamah (2017) examined the benefits and challenges associated with the implementation of
IFRS in Ghana from accounting and business managers perspective. The study used purposive
sampling to collect data from 187 accounting professionals and managers in all business sectors
of Ghana. The study revealed that the adoption of the IFRS has among other benefits, increase
the quality of accounting information, increase investors’ confidence, increase comparability of

financial statement among companies both nationally and internationally, reduce the cost of
equity capital, made the preparation and auditing of the financial statement very transparent and
easier. The study also noted that though the cost of implementation was very high and accounts
and business managers faced some challenges in the implementation of the standards, the benefit
derived from its implementation outweighed the challenges.
2.3 Conclusion and Knowledge Gap
The literature reviews discussed so far stated that IFRS are the globally accepted financial
reporting standards used to prepare general purpose financial statements of profit-oriented
entities, in which currently, more than 144 jurisdictions implemented and used as the financial
reporting standards (IFRS Foundation 2018). The IFRS standards are standards and
pronouncements which constitute IAS, SIC, IFRS, and IFRIC. IAS was developed and published
by IASC during 1973-2001, whereas IFRS standards are developed by IASB starting from 2001
by taking the place of IASC. The first mandatory adoption of IFRS was declared by European
Union in 2002, when European Parliament passed the Regulation that required the EU-listed
companies to prepare their consolidated financial statements according to IFRS by starting from
1 January 2005 (Fekete et al. 2008; Zeff 2012)
Since then many countries declared the mandatory implementation of IFRS in their respective
jurisdictions. Following the mandatory implementation of IFRS, different studies were
conducted to evaluate the benefits and practical challenges of implementing the standards. But,
most of the previous IFRS studies were mainly focused on developed countries, especially in EU
member countries. There were also the studies conducted in developing countries on the
mandatory implementation of IFRS in general, benefits, practical challenges and progress of
IFRS implementation, in particular. For instance, different studies were conducted in Nigeria,
South Africa, Libya, Ghana, Bangladesh, United Arab Emirates, and India, etc. regarding the
benefits and practical challenges of mandatory implementation of IFRS (Hegarty et al. 2004;
UNCTAD 2005; Baba 2013).
But in Ethiopia, as far as IFRS is concerned, limited studies have been conducted. For instance,
Tesfu (2012) studied the benefits and key challenges of IFRS adoption in Ethiopia. Alemi and
Pasricha (2016) studied IFRS progress in Ethiopia. Mihret (2016) critically analyzed the process,
issues, and implication of IFRS adoption in Ethiopia. These and other studies conducted on IFRS
in Ethiopia mainly focused on the expected challenges and benefits of IFRS adoption, and also
on the process and progress in IFRS adoption up to the year 2015/16.
But to the knowledge of the researcher, there appear to be no studies on the practical
implementation challenges encountered by first phase implementers of IFRS. Therefore, by
considering the above-stated knowledge gap, the study examines the implementation of IFRS in
Ethiopia by focusing on processes, practical challenges, and the way forward. The study will
contribute to the Ethiopian perspective of the practical challenges of IFRS implementation into
the international context through the literature.
Chapter Three: Research Methodology
The previous chapter presented a review of the literature on IFRS implementation and identified
the existing knowledge gap. The purpose of this chapter is to set the methodological approaches
adopted in the study. The chapter is organized into four sections. Section 3.1 presents broad
research objectives and specific research questions; followed by research approaches which
discuss brief theoretical discussions on the nature of the three research approaches in section 3.2.
Section 3.3 presents the research approach adopted. Lastly, section 3.4 discusses the methods of
data analysis.
3.1 Broad Research Objective and Specific Research Questions
As indicated in the first chapter, the broad objective of this study was to investigate the
implementation of IFRS in Ethiopia focusing on the processes, practical challenges, and the way
forward. Based on the broad objective, the following specific research questions were developed;
RQ1. How is the process of International Financial Reporting Standards implementation
in Ethiopia?
RQ2. How is the progress in the implementation of International Financial Reporting
Standards in Ethiopia?
RQ3. What are the practical challenges in the implementation of International Financial
Reporting Standards in Ethiopia?
RQ4. What are the lessons from reporting entities that fully implemented International
Financial Reporting Standards in Ethiopia?
3.2 Research Approaches
As noted in Creswell (2009), in terms of investigative study there are three common approaches
to business and social research namely, quantitative, qualitative and mixed methods approach.
Quantitative research is a means for testing objective theories by examining the relationship
among variables. These variables, in turn, can be objectively measured, typically on instruments
so that numbered data can be analyzed using statistical procedures. In the quantitative research
approach, there are two strategies of inquiries, namely: survey design and experimental design.
The chief advantage of this approach is making generalizations for a broader population based on
the findings from the sample.
On the other hand, a qualitative approach to research is concerned with the subjective assessment
of attitudes, opinions, and behavior. Research in such a situation is a function of the researcher’s
insights and impressions. Such an approach to research generates results either in non-
quantitative form or in the form which are not subjected to rigorous quantitative analysis
(Kothari 2004). In this case, the final written report has a flexible structure. In this method, the
researcher collects open-ended, emerging data with the primary intent of developing themes
from the data (Kothari 2004; Creswell 2009).
Mixed methods research is an approach to inquiry that combines or associate both qualitative and
qualitative forms. It involves philosophical assumptions, the use of quantitative and qualitative
approaches and mixing of both approaches in a study. Thus, it is more than simply collecting and
analyzing both kinds of data; it also involves the use of both approaches in tandem so that the
overall strength of the study greater than either quantitative or qualitative research (Creswell
2009)
3.3 Research Approach Adopted
To conduct the study, a qualitative research approach was used and the rationale for using a
qualitative research approach is due to the nature of the problem under investigation. Creswell
(2009) argued that, the qualitative research would be appropriate for the exploration of a given
phenomenon, a need to understand a group afresh, a need for complex and detailed
understanding of a phenomenon, a need to allow people to freely share their stories, a need to
minimize power relations and a need for the findings and report to be participant inductive.
Therefore, to have a better insight and to gain a richer understanding of the research problem and
to answer each specific research question, a qualitative research approach was used.
To obtain the necessary data, document reviews and in-depth interviews were employed in the
study. Sections 3.3.1 and 3.3.2 present respectively document reviewed and in-depth interviews
conducted in the study.
3.3.1. Document Reviews
Document reviews were conducted using published and unpublished documents which may take
a variety of forms such as Proclamation, Regulation, strategic plan of AABE, annual plan and
report of AABE, annual financial reports of entities and other documents related to IFRS
implementation. Data obtained from the review of relevant documents were mainly used to
answer the first two specific research questions.
As noted in Yesegat (2009) document reviews has its own strengths and weaknesses. The
literature on document reviews identifies strengths including convenience, low cost, and
replication. Weaknesses include the lack of representativeness (documents are not necessarily
the representative of their kind and thus do not allow generalizations), personal bias
(documents may be biased since they represent the view of their authors) and reliability (the
reliability of some documents is questionable).
3.3.2. In-depth Interviews
In-depth interviews were also conducted with key informants from AABE, IFRS conversion
consultants, external auditors, IFRS implementation team leaders and financial statements
preparers using unstructured questionnaires. The main reason for using the unstructured
questionnaires was due to the nature of the study and it provides room for more questions to be
asked in the context of the objective of the study. The purpose of these interviews was to
critically identify the processes and practical challenges of IFRS implementation in Ethiopia.
The interviews with respondents from AABE were intended to elicit information about processes
used in Ethiopia to implement IFRS in addition to practical challenges the Board encountered to
achieve its objectives. The interviews were held with seven (7) respondents from AABE.
The interviews were also conducted with IFRS conversion consultants. The interviews were
aimed at obtaining information on the benefits of adopting IFRS in Ethiopia, weakness of the
processes used to adopt IFRS in the country, practical implementation challenges of IFRS and
the way forward. The interviews were held with nine (9) conversion consultants of IFRS.
Additionally, the interviews were also conducted with external auditors on the issues and four (4)
external auditors were interviewed. Lastly, interviews were conducted with ten (10) IFRS
implementation team leaders and financial statements preparers of banks, insurance companies
and federal public enterprises to obtain information on the benefits and practical challenges of
IFRS implementation in the respective entities. Respondents were interviewed independently and
with no interaction with each other. Totally, interviews were conducted with 30 key informants
and the key respondents were purposely selected for the study by the researcher. Therefore non-
probablity sampling technique specifically purposive sampling technique was employed in the
study.
Boyce and Neale (2006) noted that in-depth interviews are useful when the researcher detailed
information about a person’s thoughts and behaviors or want to explore new issues in-depth. It is
often used to provide context to other data, offering a more complete picture of what happened in
the program and why. The primary advantage of in-depth interviews is that it provides much
more detailed information than what is available through other data collection methods, such as
surveys. They also may provide a more relaxed atmosphere in which to collect information
people may feel more comfortable having a conversation with you about their program as
opposed to filling out a survey. However, there are a few limitations and pitfalls of in-depth
interviews and includes it prone to bias, time-intensive, the interviewer must be appropriately
trained in interviewing techniques and not generalizable.
3.4. Methods of Data Analysis
The thematic analysis approach is used to analyze the necessary data collected from different
sources where the thematic analysis is the process of identifying pattern or themes within the
qualitative data. The goal of thematic analysis is to identify themes in the data that are important
or interesting and use these themes to address the research questions or say something about an
issue and it is much more than simply summarizing the data (Maguire and Delahunt 2017).
Accordingly, after the necessary data is collected from in-depth interviews with the help of
handwritten notes and review of relevant documents, the researcher read and re-read through the
data repeatedly to become familiar with the issue under investigation. Then by organizing the
data in a meaningful and systematic way, the theme that addresses each specific research
questions were developed in the study.
Chapter Four: Results and Discussion
The preceding chapter presented details of the methodological approach adopted in the study.
This chapter presents results and discussion. The chapter is organized into two sections. The first
one presents the results of the different research methods; this is followed by discussions in
section two.
4.1 Results
As stated in chapter three, the study employed document study and in-depth interviews with 30
key informants from reporting entities, IFRS conversion consultants, external auditors, and
AABE. Documents including the Proclamation, Regulation, strategic plan of AABE, annual
plans, and reports of AABE and annual financial reports of entities were reviewed. Sections 4.1.1
and 4.1.2 present respectively results of document reviews and in-depth interviews.
4.1.1. Results of Document Reviews
Recognizing the importance of having high-quality financial reporting and its contribution to the
improved business environment necessary to attract investment, the government of Ethiopia in
5th December 2014 passed the Financial Reporting Proclamation No. 824/2014. As stated in the
Proclamation No. 847/2014, the objectives of financial reporting law is to establish a sound,
transparent and understandable financial reporting system applicable to entities in both private
and public sectors; have a uniform financial reporting law which enhances transparency and
accountability by centralizing the hitherto decentralized financial reporting structures of
Ethiopia; ensure that the provision of financial information meets internationally recognized
reporting standards and establish a body that undertakes regulatory responsibilities in financial
reporting.
Pursuant to Article 4(1) of the Proclamation No. 847/2014, the Council of Ministers’ Regulations
No. 332/2014 for the establishment of the Accounting and Auditing Board of Ethiopia was
issued. Accordingly, provision of Article 3(1) of the Regulation provides that the Accounting
and Auditing Board of Ethiopia (hereafter the ‘Board’), is established as an autonomous
government organ having its own legal personality with the responsibility of regulating the
accounting and auditing professions and financial reporting practices in Ethiopia. Article 5 of the
Regulation No. 332/2014 indicates the objectives of the Board. One of the Board objectives is to
promote high-quality reporting of financial and related information by reporting entities. The
mission of the Board is to support investment and protect the public interest by promoting high-
quality financial reporting in Ethiopia through appropriate oversight of the accountancy
profession, in accordance with local laws and international standards (AABE 2015).
Article 4(2) of Proclamation No. 847/2014 and article 6 (1-16) of Regulation No. 332/2014 states
the powers and duties of the Board. Some of the duties include to issue standards and directives
relating to financial reporting and auditing and ensure compliance therewith; to conduct inquiry
or investigation and impose administrative sanction in accordance with the provisions of this
Proclamation where appropriate on public interest entities and public auditors to enforce
compliance with financial reporting and auditing standards; to set criteria to distinguish reporting
entities as either public interest entities or small and medium enterprises and register them
accordingly: to receive and register financial statements of reporting entities; to review and
monitor the accuracy and fairness of financial statement to enforce compliance with the reporting
standards.
The Proclamation No. 847/2014 sets out financial reporting frameworks applicable to different
reporting entities and mandated the Board with the responsibility of regulating the accountancy
profession and ensuring its development in the country. As stated on article 5 of Proclamation
No. 847/2014 which entitled, the applicable financial reporting standards, the financial reporting
standards to be used when preparing financial statements in Ethiopia should be; IFRS (Full
IFRS); or IFRS for small and medium enterprises (IFRS for SME) as issued by IASB or its
successor (IASC) as adopted, adapted or amended by the Board.
Article 5(3) of the Proclamation No.847/2014 gives the mandate for the Board to specify, in the
financial reporting standards, the minimum requirements for recognition, measurement,
presentation and disclosure in annual financial statements, group annual financial statements or
other financial reports which every public interest entity or small or medium enterprise shall
comply with, in the preparation of financial statements and reports.
Accordingly, the Board developed a five-year strategic plan to fully implement IFRS in five
years (AABE 2015). The Board decided to adopt IFRS in the country over other methods of
IFRS implementation in a jurisdiction.
The Accounting and Auditing Board of Ethiopia believes that it will be in the best interest
of the nation to adopt IFRS as issued by the International Accounting Standard Board.
The Board plans a three-phase transition over a period of three years for reporting
entities in Ethiopia (AABE 2015 pp. 87).
AABE (2015) noted that entities would need two to three years to prepare properly for reporting
under them. The transition plan of IFRS adoption in Ethiopia is prepared on the basis of Article
54(1) of the Proclamation and anchored on the understanding that the Board and all stakeholders
will follow the milestones and timelines as described and explained hereunder.
Phase 1: Significant Public Interest Entities: Primary Financial Institutions and Public
Enterprises: were required to adopt IFRS (full IFRS) as issued by IASB from the calendar year
2017, with reporting under IFRS starting 2018. Mandatory reporting for these reporting entities
is required to be July 7, 2018. This means that all financial institutions and government-owned
federal and regional public enterprises in Ethiopia are statutorily be required to issue IFRS based
financial statements for the year ended on July 7, 2018.
Phase 2: Other Public Interest Entities: all other public interest entities (Ethiopian Commodity
exchange (ECX) member companies and reporting entities that meet the qualitative thresholds
for public interest entities (PIE)) are expected to mandatorily adopt IFRS for statutory purposes,
by July 8, 2018. This means that all other PIEs in Ethiopia will statutorily be required to issue
full IFRS based financial statements for the year ending July 7, 2019.
Phase 3: Small and Medium-sized Entities: IFRS for SMEs should mandatorily be adopted as at
July 8, 2019. This means that all SMEs in Ethiopia will statutorily be required to issue IFRS
(IFRS for SME) based financial statements for the year ending July 7, 2020.
AABE (2015) stated that the Board planned to work to achieve effective implementation of IFRS in
Ethiopia and to minimize the challenges of IFRS implementation. To this end, the Board planned to
introduce a countrywide intensive capacity building program to facilitate and sustain the process
of IFRS adoption and planned to organize workshops, seminars and forums to promote awareness of
international standards; facilitate train the trainer (TOT) courses in IFRS, IFRS for SMEs, and ISA
with course presenters coming from the relevant IASB; engage in extensive preparation activities for
the implementation of IFRS to benefit all players in the financial reporting supply chain including;
academics, preparers, auditors, and regulators; develop and disseminate best practice implementation
guidance and tools on good corporate governance to support reporting entities in implementing and
monitoring effective corporate governance; provide technical advice and support to firms to
strengthen their internal capacities; and adopt a proper change management strategy supported by
intensive public sensitization and awareness campaign.
4.1.2 Results of In-depth Interviews
This section presents results of in-depth interviews held with 30 key informants from AABE, IFRS
conversion consultants, external auditors, financial statements preparers and IFRS implementation
team leaders of reporting entities.
With respect to the benefits of IFRS adoption in Ethiopia, all respondents were asked whether they
believe in the benefits of IFRS adoption in Ethiopia or not. All the respondents suggested that IFRS
is by far better than the mixed standards that had been used before by reporting entities in
Ethiopia. They stated that previously, there were no framed standards in the country that guide
reporting entities to prepare general purpose financial statements and auditors to audit financial
statements. According to them, there were fragmented and inconsistent financial reports among
reporting entities. They stated that the inconsistent reports were because of mixed standards that
reporting entities had been used in preparing financial reports in Ethiopia.
Respondents noted that the set of standards thought at higher learning institutions in Ethiopia and
the ones practiced in the professional environment are often a blend of the US and UK standards.
At times, there are industry-specific standards adopted from the personal experiences of
professionals. So, largely, reporting entities had a scattered set of standards in use in Ethiopia
previously. For instance, respondents suggested that previously reporting entities in Ethiopia has
been influenced by tax proclamation to compute the depreciation expenses of their plant asset
which couldn’t signify the economic reality of the company.
According to them, financial statements that had been prepared so far in the country were not
comparable because of the stated mixed standards. They noted that the implementation of IFRS
in the country play a major role in reducing the inconsistent and fragmented reporting and brings
the uniformity of financial reporting across reporting entities. Hence, what IFRS seeks to
accomplish is to collect all the accounting and audit standards and devise one unified template
and guideline for accounting and audit. For instance, external auditors noted that in IFRS there
are specific steps to follow when an auditor goes through financial statements; there are also sets
of standards to refer to when an auditor verifies a financial reporting is really up to the standards.
Financial statement preparers suggested that the implementation of IFRS helps entities to have
standards by which general purpose financial statements are prepared. Respondents suggested
that previously, the majority of reports that reporting entities have been preparing was special
purpose financial statements especially for tax authority and National Banks of Ethiopia.
According to them, the need for general purpose financial statements in the country was low.
Moreover, respondents stated that the way by which reporting entities previously were preparing
their financial statements didn’t show the economic realities of the company. But according to
them, IFRS helps entities to identify the entity real stand in the industry and give honest figures
of the company to the entities business partners and clients by providing a true and fair view of
financial statements.
IFRS conversion consultants additionally suggested that IFRS is better than any other standards
for the country. According to them, IFRS is better than any other standard because of the absence
of national accounting standards in Ethiopia in one hand and different countries are moving
toward IFRS implementation due to globalization on the other. They opined that in place of
developing national accounting standards where even countries with strong national accounting
standards are leaving their own and moving toward IFRS, it is not logical to develop national
accounting standards in the country.
But the majority of respondents from IFRS conversion consultants stated that the mandatory
IFRS should not be applicable to all entities stated in the road map. They argued that IFRS is not
suitable and appropriate standards for public enterprises and private limited companies. They
stated that it would be better if the application of mandatory IFRS were limited to financial
institutions. Similarly, auditors also suggested that the mandatory implementation of IFRS across
all entities has its own drawback and except for financial institutions, at least size should be
taken in to account. According to them, the implementation of IFRS in small companies will be
costly.
On the benefits of IFRS adoption in Ethiopia, the Director General of AABE noted that;
IFRS adoption in Ethiopia helps entities to prepare transparent financial statements with
clear, high-quality standards that will improve accountability and collectibles from the
tax system. Once we show that high-quality financial information is being prepared,
investor confidence will be improved and will form a basis for attracting Foreign Direct
Investment (FDI).
Respondents also suggested that IFRS enhance the readability of financial statements, enhance
the quality of decisions, facilitate the establishments of the stock market in the country and used
to maintain free movement of the labor force.
With respect to processes of IFRS implementation in Ethiopia, respondents were also asked to state
their view. The majority of respondents from financial statements preparers and IFRS implementation
team leaders stated that the processes were not comfortable with their respective reporting entities to
implement the standards. They argued that the processes didn’t consider the necessary conditions for
(the minimum requirements of) IFRS implementation in the country. They stated that the
existing constraints for implementation like non-availability of required manpower with IFRS
knowledge in the country, the existed weak accounting practices in the country, non-availability
required infrastructure for the implementation were not considered in the processes.
According to them, the issue was simply imposed on reporting entities at least without
considering the required time to capacitate the available human resources. In the same way, they
suggested that with stated obstacles and constraints on implementation, the time given for
reporting entities were too short. IFRS conversion consultants also noted that the time given for
reporting entities especially for the first phase implementers were too short. They noted that the
roadmap didn’t consider the experiences of other countries as well on the implementation.
The majority of respondents from IFRS conversion consultants, external auditors, financial
statements preparers and IFRS implementation team leaders similarly argued that the processes
of IFRS implementation in Ethiopia lack strong regulatory and enforcement institution. They
noted that the Board has no enough and competent human resources. As a result, it couldn’t be
capable enough to regulate the reporting entities in the country in all aspects in general and IFRS
implementation in particular.
According to them, in terms of awareness creation, follow-up, monitoring, reviewing and giving
the feedback to reporting entities, the role of the regulatory body was weak and not as intended.
Additionally, respondents argued that the implementation was not effectively communicated to
reporting entities and they suggested as there was a communication gap between the Board and
reporting entities. Similarly, IFRS conversion consultant suggested that there is no
communication between the Board and the conversion consultant in the implementation
processes.
Respondents also argued that the Board couldn’t even able to organize the needed material
resources helpful for the implementation of the project and it couldn’t also establish strong
institutions that help the Board in the conversion of the project. Furthermore, respondents argued
that the Board didn’t provide feedback on the audited IFRS based financial statements submitted
to it for the fiscal year ended 7 July 2018. The respondents from IFRS conversion consultants
further noted that in the processes the Proclamation No. 847/2014 stated as the IFRS
implementation will be fully completed within five years. But practically, the Board actually
started its operation by the late of the year 2016 after the preparation time was almost completed.
They stated that the implementation was started in rush without building the capacity of human
resources the country intended to be performed during preparation time.
Respondents suggested that the rush process followed in implementing IFRS in Ethiopia makes
the project more expensive than it would be and created difficulty in transferring and retaining
knowledge from IFRS consultants to the employees of reporting entities which will create a
burden on companies and enforces them to incur additional consultant costs in the near future.
Respondents further suggested that there was no integration between the Board and other
regulatory institutions like the National Bank of Ethiopia (NBE) and the Ministry of Revenue.
They noted that the lack of integration in these areas created a reporting burden on companies to
satisfy their separate requirements. They additionally suggested that the absence of
comprehensive guidance from the Board on the contentious area was another weakness of the
processes. According to respondents from conversion consultants, lack of guidance on
contentious area potentially create the practical difference among reporting entities on the
application of IFRS implementation and reduces the comparability of financial statements.
Respondents argued that the Board couldn’t perform as the regulations and even as per the
roadmap prepared by itself.
As indicated by respondents from AABE, the major challenge of the Board is lack of the
required human resources. According to them, the Board couldn’t attract and, recruit competent
staffs. They noted that employees’ turnover ratio at the Board Secretariat is very high and the
Board couldn’t retain its staff. Further, respondents from AABE suggested that with the salary
scale the government has authorized for the Board, the Board couldn’t retain its staff. As far as
the capacity of the Board staff is concerned, respondents noted that the Board lacks competent
staff that able to perform the activities of the regulatory body especially review of audited IFRS
based financial statements. They additionally indicated that the Board has no room for even
capacitating its employees.
Respondents from AABE also suggested that other regulatory bodies such as Ministry of Finance
and Economic Cooperation (MoFEC), Ministry of Science and Higher Education (MoSHE),
Ministry of Revenue and National Bank of Ethiopia (NBE) were not willing to cooperate with
the Board and support the Board on IFRS implementation in the country. They stated that the
above-stated institutions were not interested to integrate and work with the Board in the
implementation process. According to them, this brings the major challenges to the Board in
accomplishing its task.
Respondents suggested that the implementation processes would be better, if orientation,

awareness creation, and short-term training were aggressively given at the country level to
capacitates the accountants on IFRS, different institutions that help the Board were established
and accounting curricula was revised in accordance with IFRS on time. They argued that
knowledge gaps could be reduced in the country by doing so. Additionally, IFRS conversion
consultants were suggested that the implementation processes would be better if mandatory IFRS
were applied only to financial institutions so that the focus of the Board, as well as the available
human and capital resources, were applied to them. For the other reporting entities, it would be
better if it were voluntary as they suggested. Respondents additionally stated that the processes
would be better if there were integration between AABE and other regulatory institutions so that
the reporting burden can be reduced from reporting entities.
On the other hand, key informants from AABE personnel argued that the process used in
Ethiopia for IFRS implementation was the right process except that in the process, enough
consideration was not given for the Board especially from the government. They noted that the
government didn’t understand the value of financial reporting in general and the Board in
particular. According to them, given the capacity that the Board has, the activities performed so
far by the Board was appreciating. Respondents from AABE suggested that workshop has been
developed in collaboration with the World Bank and training is being offered to most of
university accounting lecturer in the country so that they, in turn, can roll out training to their
students.
But, respondents from AABE supported the idea raised by other respondents related to the
feedback on the IFRS based financial statements submitted to the Board. They noted that the
feedback was not yet given to reporting entities by the Board on the audited IFRS based reports
submitted by reporting entities for the fiscal year ended on 7 July 2018. The reason for not
reviewing the report according to them was, due to lack of the capacity to review. They stated
that the statements were prepared with the help of internationally recognized consultants like
PriceHouseWaterCoopers (PWC), KPMG. According to them, the employees of the Board have
no technical capacity and know-how of reviewing and give feedback on the reports.
With related to the roadmap of IFRS adoption in Ethiopia, the researcher asked the respondents
from AABE, whether they believe the given time was enough or not. According to them, it is
enough time and one of the respondents from AABE argued that;
To develop the road map, in addition to the capacity of reporting entities in questions, the
Board had also considered the economic facts and circumstances of the country. In
Ethiopia, there are no complicated financial transactions. The transactions are simple
and traditional in their nature. For example, the banking sector is engaged in borrowing
and lending, but not trading, which would bring more complex financial instrument
accounting issues. Therefore, it is feasible to handle these simple transactions in IFRS

within a scheduled time.
Similarly, few respondents from IFRS conversion consultants, IFRS implementation team
leaders, and financial statement preparers supported the above-stated idea. They argued that the
scheduled time was enough to adopt IFRS with committed IFRS implementation team and full of
top management supports in the company.
The respondents were asked to explain the role of the Board in facilitating the implementation
processes. As they suggested, the role of the Board in facilitating the implementation process
was not the same in financial institutions and in federal public enterprises. Respondents from
public enterprises noted that the role of the Board in facilitating the implementation was
appreciating given the capacity it has and the implementation process is continuously followed
by both AABE and Ministry of Public Enterprises.
On the other hand, respondents from financial institutions (banks and insurance companies)
suggested that the Board contribute nothing toward the implementation of IFRS in their
respective companies. By considering this fact, the researcher asked the respondents from
AABE, why the Board treated the two sectors differently in the implementation processes.
Accordingly, respondents noted that financial institutions have the capacity to afford the costs
related to IFRS implementation. According to them, banks and insurance companies can hire
internationally competent consultants and solve the project related problem as they had done.
Additionally, the researcher asked the key informants from AABE on the mechanism by which
IFRS implementation could be better planned. One of the respondents argued that had it been
backed by everyone. The respondent noted as the Board through its personnel tried many times
to convince MoSHE to collect instructors from higher institutions and develop IFRS based
curricula for accountancy education in the country. Respondents from AABE suggested that
there were institutions with the “tone at the top” to facilitate IFRS implementation in Ethiopia.
These institutions include the Ministry of Revenue, NBE, MoFEC, MoSHE and Addis Ababa
University (AAU), as they noted. Respondents from AABE suggested that the implementation
would have been more successful if these institutions have early reacted on what the Board had
been requesting them.
Key informants from AABE were also asked to explain the number of reporting entities required
to adopt IFRS in the first transition phase, for the fiscal year ended on 7 July 2018. Accordingly,
they indicated that banks, insurance companies, and federal public enterprises, totally 58
reporting entities were required to prepare IFRS based financial statements for the fiscal year
ended on 7 July 2018. According to them, the IFRS based reporting date for microfinance
institutions and regional public enterprises were extended for one year and postponed to 7 July
2019 by considering their capacity.
According to respondents from AABE, when the roadmap was developed, microfinance
institutions and regional public enterprises were classified under first phase implementers. But
they wouldn’t be categorized under first phase implementors because, they need to see the
experiences of banks, insurance companies, and federal public enterprises. Later, they requested
the Board to extend their IFRS reporting date. As a result, respondents stated that by considering
the capacity of microfinance institutions and regional public enterprises, the Board decided to
postpone their IFRS based reporting date for one year (from 7 July 2018 to 7 July 2019).
Respondents from AABE were also asked the mechanisms the Board have been following to
communicate with reporting entities and achievement materialized so far by the Board. On the
issue, respondents suggested that the Board has a committee that run sensitization and directorate
called Financial Reports Review and Monitoring Directorate. According to them, the major
function of the indicated directorate is to review and monitor financial reports. They noted as the
Board has been helping reporting entities through the stated directorate by using full-scale of its
employee to facilitate the implementation. Respondents further argued that technically and
financially World Bank, Pan African Federation of Accountants (PAFA) and IFAC have been
helping the Board on implementation processes.
Different countries use different ways to implement IFRS in their jurisdiction and there are
different ways of implementing the standards. Therefore, IFRS could be adopted, adapted or
amended. In Ethiopia, IFRS was adopted as issued by IASB and the researcher asked the key
informants from AABE, why adoption was preferred over other methods (adaption and
amendment) in Ethiopia. They argued that the other implementation methods need both financial
and human resources and in Ethiopia, the required resources are not available. They noted as
adoption is the right option for Ethiopia with no choice.
Additionally, they argued that Ethiopia hadn’t had national financial reporting standards that
were used to prepare general purpose financial statements. Therefore, it is very difficult to adapt
or amend the sophisticated and complicated standards of IFRS for the country that has no strong
national financial reporting standards. Similarly, respondents from IFRS conversion consultants
also argued that if both national accounting standards and capacity to adapt were there in
Ethiopia, adaption could be the better way to implement IFRS in the county. But, in the case
where the country hadn’t had national accounting standards, the only option was, adopting the
standards as issued by IASB.
According to IFRS conversion consultants and respondents from AABE, in term of its benefits,
adaption was preferable over adoption in Ethiopia, but it was impossible to adapt given the
available resources in the country. They also noted that in the near future, by considering the
economic condition of the country and if the gap that the adopted IFRS will not address is
identified, the standards may be adjusted to the economic reality of the country.
Respondents were also asked to express their view on the progress of IFRS implementation in
Ethiopia. Accordingly, the key informants from AABE indicated that in the first transition phase,
out of 58 reporting entities required to adopt IFRS, 36 reporting entities were submitted the
audited IFRS based financial statements to the Board. According to them, from financial
institutions, among 18 banks and 17 insurance companies required to adopt IFRS in the first
phase, except National Banks of Ethiopia and Ethiopian Insurance Corporation, 17 banks and 16
insurance companies have prepared their financial statements based on IFRS and submitted their
audited financial statements to the Board for the fiscal year ended 7 July 2018. All regulated
banks were fully implemented and submitted the audited IFRS based financial statements as per
the scheduled time.
On the other hand, key informants from AABE noted that only 3 of 23 federal public enterprises
have prepared and submitted the audited IFRS based financial statements for the fiscal year
ended 7 July 2018. The following table shows the summary of the first phase implementors
progress and status on IFRS implementation.
Table 4.1 IFRS implementation progress in Ethiopia

Ser. Reporting entities required to submit Total reporting entities The level of their
No audited financial statements in first submitted their audited compliance with
phase transition (for the fiscal year financial statements to IFRS requirements
ended 7 July 2018) the Board
In sector In number In number In percent
01 Banks Regulated 17 17 100 Not yet reviewed

Regulatory 1 0 0 Not yet submitted
02 Insurance companies 17 16 94.11 Not yet reviewed

03 Federal public enterprises 23 3 13.04 Not yet reviewed
Total 58 36 62.07
Source: AABE and researcher’s own computation 2019
On the progress of IFRS implementation in Ethiopia, one respondent from AABE argued that;
As far as the IFRS implementation progress is concerned, the Board is about 70%
successful. Almost all banks and insurance companies as a significant public interest
entity have successfully submitted the audited IFRS based financial statements except
National Bank of Ethiopia and Ethiopia Insurance Corporation. But there are reporting
entities from public enterprises with severe problems and not yet started the
implementation process.
As indicated above, the progress of IFRS implementation in public enterprises was not like that
of financial institutions and not performed as scheduled. Totally 23 federal public enterprises
were required to prepare IFRS based financial statements and only 3 of them have submitted the
audited financial statements within the scheduled time. Therefore the progress of IFRS
implementation in Ethiopia in the first transition phase were around 94% (33 reporting entities
out of 35 required reporting entities) successful in financial institutions (banks and insurance
companies), delayed in public enterprises and only 13% (3 out of 23 required entities) have
prepared and submitted the audited financial statements to the Board within the required time
even though their level of compliance was not reviewed yet by the Board.
IFRS conversion consultants similarly suggested that the progress of IFRS implementation was
relatively performed smoothly in some reporting entities and not smoothly performed in other
reporting entities. According to them, the implementation in financial institutions was relatively
performed smoothly whereas in federal public enterprises the implementation was not smoothly
performed as scheduled. Based on their views, respondents were asked the reasons why the
implementation was not smoothly performed in federal public enterprises. According to them,
reporting entities from public enterprises have more implementation challenges than banks and
insurance companies.
Majority of respondents from IFRS conversion consultants, IFRS implementation team leaders
and financial statements preparers of public enterprises opined that the full implementation of
IFRS in public enterprises may need one more year. On the same issue, one respondent from
IFRS conversion consultant stated that“the full implementation of IFRS in public enterprises in
Ethiopia will never be achieved in a decade let alone in a year. It is not something I expected
even forever!”
Respondents were also asked their view on the practical challenges of IFRS implementation in
Ethiopia. All of the respondents stated that the lack of competent human resource with IFRS
knowledge was the major practical implementation challenges of IFRS in Ethiopia. According to
them, a very limited number of professional accountants (less than 500 professional accountants)
are available in the country. Hence, key informants suggested that lack of competent professional
accountants, lack of competent local conversion consultants, lack of property and actuarial
valuators in the country become the major practical challenges to implement IFRS in Ethiopia.
Respondents also indicated that the negative attitude of management towards accounting and
lack of top management supports was another major practical implementation challenge of IFRS
in the country. On the issue, one respondent from IFRS consultant argued that;
Not recognizing the importance of accounting and failure to recruit competent personnel
and purchase up-to-date accounting systems are the major problem in the
implementation of IFRS in the entire country, federal public enterprises, in particular.
This practical challenges of IFRS implementation mainly emanate from negative attitudes
of top management for accounting, where in reality the importance of accounting for
management and decision making is vital.
According to respondents, the lack of top management support become more severe in public
enterprises. They noted that it is a result of the political appointment of the Chief Executive
Officer (CEO) in public enterprises. They opined that the CEO of the stated entities don’t
recognize the importance of accounting and financial reporting because of their educational
background.
Additionally, respondents indicated that lack of strong regulatory and enforcement institution,
lack of making necessary preparation, difficult to determine the discount rate to compute the fair
market value of financial instruments, non-availability of stock market in the country,
complexities of IFRS, resistance to change, absence of strong accounting system in the country,
lack of commitment, high cost of implementation, lack of required IFRS materials, existence of
high employee turnover, lack of integration among regulatory institutions are the practical
implementation challenges of IFRS implementation in Ethiopia and negatively affect IFRS
implementation in the country.
They noted that lack of local professional accountancy association, lack of necessary data, lack
of comprehensive guideline on contentious area from regulatory institutions, lack of other
institutions that helps the Board on IFRS implementation, lack of effectively communicating the
road map to concerned parties are also the practical challenges of IFRS implementation in
Ethiopia and negatively affect the implementation of IFRS in Ethiopia.
In addition to the above-identified practical challenges, the additional challenges were identified
by respondents on implementation of IFRS in federal public enterprises. The additional
challenges according to IFRS conversion consultants of federal public enterprises includes poor
records keeping mechanism, lack of corporate memory, lack of updated book of accounts (not
closed book of accounts or closed book of accounts with disclaimer, adverse and qualified audit
opinion), existence of vast and complex transactions, problem of backlog clearance, taking
responsibility slightly, lack of proper planning on implementation and lack of up to date
accounting system. One respondent from IFRS consultants on the issue suggested that;
There are major challenges in federal public enterprises in Ethiopia in relation to

retained knowledge and documentation. In the public sector, there is often a lack of
evidence and people to know how things work. There may not be any succession
planning, so only one person knows about an issue and when they leave, that knowledge
is lost. This needs to be resolved and better corporate memory and system for
information retention established.
4.2 Discussions
This section pools data obtained from different sources and tries to answer the research questions
detailed in chapter three. Accordingly, the first section shows the processes of IFRS
implementation in Ethiopia which is followed by the progress of IFRS implementation in
Ethiopia in the second section. The third section discusses the benefits of IFRS implementation
in Ethiopia, followed by practical challenges of IFRS implementation in Ethiopia. Lastly, the
lessons learned from the up to date progress of IFRS implementation in Ethiopia with
experiences of other countries are presented. Each research question is addressed using data
obtained from different sources concurrently.
4.2.1 The Process of IFRS Implementation in Ethiopia
Data obtained from key informants and document reviews were employed to discuss the process
of IFRS implementation in Ethiopia. The section discusses the processes of IFRS
implementation in Ethiopia with IFRS implementation processes of few other countries. To
discuss the issues, the motivation of introducing the standards, the extent of mandatory
application of IFRS in a jurisdiction, the methods used for implementing the standards into the
jurisdiction and the regulatory institution responsible for enforcing IFRS in a jurisdiction are
considered.
In Ethiopia, the requirements of improving the financial reporting of the country, the need for
having high quality financial reporting to ensure the economic growth of the country, the need of
mobilizing huge financial resource from domestic and foreign direct investment (FDI), lack of
national accounting and auditing standards in the country and a desire to raise national financial
reporting requirements to international best practices were the major factors contributed for the
introduction of IFRS in the country (AABE 2015).
Similarly, a desire to raise national financial reporting requirements to international best

practices was the major motivating factor for the introduction of IFRS in Kenya, South Africa,
and Turkey. Again, in EU-member countries, a desire to harmonize domestic financial reporting
requirements with international standards was the factor contributed to the introduction of IFRS
(UNCTAD 2008). Therefore, the motivating factor for most of the countries introduced IFRS
was a desire to raise their financial reporting requirements to an internationally recognized
benchmark and facilitate cross border investments.
On the other hand, the extent of the mandatory application of IFRS in jurisdictions varies from
country to country. For instance, in Ethiopia, the mandatory IFRS are applicable in all public
interest entities3 and small and medium-sized enterprises in preparing their separate financial
statements and consolidated financial statements (if any) (AABE 2015). Similarly, in Kenya, all
listed and non-listed companies are required to prepare their financial statements both
consolidated and non-consolidated in accordance with IFRS. In India, entities are classified into
three tiers system (level I, II, III)4 and all entities are required to apply IFRS, as adapted in the
country (UNCTAD 2008; Hons and HOD 2014).
But most of the other jurisdictions didn’t mandatorily requires all companies to implement IFRS
and prepare IFRS based financial statements. For instance, in South Africa and Turkey,
mandatory IFRS were applicable only to listed companies whose shares are widely circulated
and widely held. In Germany, listed companies were required to apply IFRS for preparing their
consolidated financial statements and non-listed companies were also allowed to use IFRS for
the preparation of their group financial statements. However, both listed and non-listed
companies are prohibited from using IFRS for preparing their separate financial statements.
3
: Public Interest Entities (PIE) are classified in to Significant public interest entities and other public interest
entities for the purpose of IFRS implementation in Ethiopia. Under the first category all financial institutions
(banks, insurance companies and micro finance institutions) and both federal and regional public enterprises are
included (AABE 2015). Other Public Interest Entities are those reporting entities that meet PIE quantitative
threshold. The threshold is determined based on the following four criteria. These are: -
1. Annual Turnover: of ETB50,000, 000 (ETB fifty million) and above
2. Total Liability: of ETB100,000,000 (ETB one hundred million) and above
3. Number of Employee: of 100 (one hundred) and above and
4. Net worth: of ETB100,000,000 (one hundred million) and above.
Respondents from AABE and IFRS conversion consultants noted that, those entities that fulfill at least two criteria
of the above listed criteria are categorized under other public interest entities and required to adopt full IFRS.
Small and Medium enterprises: required to adopt simplified IFRS as issued by IASB (AABE, 2015)
4
Those in the first-tier are required to apply IFRS, as adapted for the country whereas, those entities classified
under level II and level III were required to adapt the simplified version of IFRS as adapted for the country
(UNCTAD 2008).
Similarly, EU member countries listed companies were required to prepare the consolidated
financial statements in accordance with endorsed IFRS (UNCTAD 2008).
Nobes (2011) noted that the reactions of different jurisdictions to IFRS differ greatly. Some have
ignored it, some have allowed it; some have required IFRS for some purposes, whereas others
have abolished national GAAP in favor of IFRS. Very few jurisdictions have simply imposed
IFRS as issued by the IASB, although some countries (For example, Canada and South Africa
for the listed companies) do incorporate IFRS into law without amendment. Others make
amendments and then insert the result into law.
Among different ways of introducing IFRS into a jurisdiction, adoption is used in Ethiopia and
reporting entities5 in Ethiopia are required to adopt IFRS as issued by IASB. As presented in the
result section, Ethiopia directly adopted IFRS due to lack of capacity (lack of human and capital
resources) to adapt or amend the standards in one hand and lack of national accounting and
auditing standards in the country on the other.
Ball et al. (2003); Ashraf and Ghani (2005); Assenso-Okofo et al. (2011) similarly noted that
many developing countries reasons for adopting IAS/IFRS in full or part is for them, to be
accepted in the international community and to prevent the problems that arise where there is a
limited resource in terms of human, technical, logistics or otherwise to prepare national
standards. Therefore, for developing countries like Ethiopia, given the available human and
financial resources, adoption is the easiest and simplest way to implement IFRS into the country
(Zeff and Nobes 2010).
The institutions responsible for enforcing IFRS need to realize that as a result of the growing
globalization of financial markets, their enforcement efforts often protect both domestic and
international investors. The responsibility of enforcing IFRS rests with a number of parties such
as securities exchange commissions, banking and insurance supervisory authorities, stock
exchanges and capital market authorities and these parties play important roles in enforcing
financial reporting requirements like IFRS. In this regard, these institutions play a major role in
5
: According to respondents from AABE, reporting entities are entity with annual turnover of ETB 1,000,000 (ETB
one million) and above. Accordingly, they are required to prepare financial statements at the end of fiscal year.
implementing IFRS in Germany, South Africa, Turkey, Kenya, and India. For instance, in India
and Kenya, there were peer-review programs that the respective professional accountancy bodies
in these countries introduced to ensure proper implementation of financial reporting and auditing
standards (UNCTAD 2008).
But in Ethiopia, there is no local professional accountancy body, stock exchanges, and capital
market authorities. The mandate of monitoring, supervising and enforcing the implementation of
IFRS is given to AABE, the only institution that supervises and control over the implementation
project. Respondents noted that AABE is not strong enough to supervise the implementation
project in the country. Therefore, the data obtained from key informants revealed that lack of
local professional accountancy association, lack of stock exchange and capital market authority
and lack of strong enforcement institution negatively affect the implementation of IFRS project
in Ethiopia.
4.2.2 The Progress of IFRS Implementation in Ethiopia
Data elicited from key informants and review of relevant documents is used to discuss this
section. Accordingly, the issues of IFRS implementation in Ethiopia were initiated with the
enactment of Financial Reporting Proclamation No.847/2014 in 2014. The Proclamation was a
ground-breaking piece of legislation enshrining the accounting profession’s role in fostering the
growth of the economy and ensuring the stability of the economy (AABE 2015)
The Proclamation No. 847/2014 in tandem with related Council of Minister Regulation No.
332/2014, the first federal-state regulatory body called Accounting and Auditing Board of
Ethiopia was established on 14 January 2015 (AABE, 2015). Before the promulgation of the
Proclamation, there was no single organized body responsible for regulating the accounting and
auditing professions and financial reporting practices in Ethiopia and very minor provisions have
been issued in various separate laws that were not found in a single place and issued by the
various regulatory body (Alemi and Pasricha 2016).
The initial task of the Board was to develop a five-year strategic plan for 2015/16-2020/21. The
Board used a phased approach by considering a few qualified accounting professionals in the
country and reporting entities (AABE 2015). As significant public interest entities, financial
institutions and public enterprises were required to adopt IFRS and submit the audited full IFRS
based financial statements for the fiscal year ended 7 July 218. Among them, respondents from
AABE opined that the IFRS reporting date of microfinance institutions and regional public
enterprises were postponed and extended for one year by considering their capacity.
Accordingly, in the first transition phase, only 58 reporting entities were required to implement
and prepare IFRS based financial statements. These reporting entities were 18 banks, 17
insurance companies, and 23 federal public enterprises. Among them, 36 of them have submitted
the audited IFRS based financial statements to AABE within the scheduled time as presented in
the result section. All regulated banks from financial institutions have submitted the audited
IFRS based financial statements within the scheduled time. This finding contradicts with the
conclusion of Babil (2018) who opined that the banks in Ethiopia probably fail to meet the Board
deadline in implementing IFRS. Except for Ethiopian Insurance Company, all insurance
companies have also fully implemented IFRS and submitted the audited financial statements to
AABE within the scheduled time.
On the other hand, only 3 reporting entities from federal public enterprises were able to
implement IFRS and submit their IFRS based audited financial statements to the Board. From
these, one can understand that the progress of IFRS implementation is good in financial
institutions and worse in federal public enterprises in submitting their IFRS based financial
statements within the scheduled time.
But the audited IFRS based financial statements submitted to the Board were not yet reviewed,
and the level of each reporting entities compliance with IFRS requirements was not yet
determined. Therefore, there is the probability of non-compliance with IFRS requirements by
reporting entities submitted their audited financial statements to the Board. For instance, in
Kenya, when the level of compliance with IFRS was reviewed after seven years of
implementation in 2006, there were no entities with complete compliance with IFRS
requirements (UNCTAD 2008). This may be the case in Ethiopia too. The only known at this
stage is, the number of reporting entities submitted their audited financial statements within the
scheduled time, which doesn’t mean that the reporting entities have fully complied with IFRS
requirements and which will be determined once it's reviewed by the Board.
4.2.3 Benefits of IFRS Implementation in Ethiopia
The discussion is based on data solicited from in-depth interviews with key informants of the
study. According to accounting theory, financial reporting reduces information asymmetry by
disclosing relevant and timely information (Simegn 2015). In line with this, respondents noted
that IFRS adoption in Ethiopia provides numerous benefits for different stakeholders of the
country. According to them, IFRS;
Attract Foreign Direct Investment (FDI): the data obtained from key informants revealed that
IFRS adoption in Ethiopia is useful in attracting FDI for the country. Gebre (2009) noted that
since business today has turned global, it is highly desirable for Ethiopia to create a conducive
atmosphere for investors, who wants to invest in the country for a mutual benefit, otherwise, the
investor prefers to go somewhere else, where IFRS is practiced. AABE (2015) also stated that
enterprises that provide potential investors with reliable and comparable financial statements are
more likely to attract domestic and international investment. IFRS is the sound and
internationally comparable corporate financial reporting that meets the requirements of financial
markets, improves investor confidence, facilitates risk assessment in making investment
decisions and attract international investors (Hegarty et al 2004; Petrovets 2005; UNCTAD
2008; Hossain et al. 2015; Gina et al. 2016; Amanamah 2017). Okpala (2012) in coherence with
this view noted that there is a significant relationship between IFRS adoption by companies and
FDI in Nigeria.
Input for stock market establishment: respondents suggested that having reliable accounting
information is the precondition for the establishment of a stock market in a jurisdiction. The
stock exchange needs to have technology infrastructure, reliable accounting information and
trained manpower. Therefore, by adopting IFRS which is expected to enhance the quality and
reliability of financial reporting in Ethiopia, it is expected that Addis Ababa stock exchange is
going to be launched by the year 2020. For the establishment of the planned stock exchange in
Addis, respondents noted that IFRS adoption is input and precondition. Mihret (2016) similarly
opined that IFRS adoption in Ethiopia may contribute to the possible establishment of the stock
market in the long run.
Enhance the transparency of financial reporting: respondents stated that IFRS is very
conservative and will force companies to report the facts as it is, which is used to portray the
economic reality of the company by which transparency of their financial reports is enhanced.
Consistent with this finding different studies noted that IFRS improves the transparency of
financial statements (Mike 2009; Apostolos et al. 2010; Essien-Akpan 2011; Bendovschi 2016;
Amanamah 2017; IFRS Foundation 2018).
Enhance the quality of financial reporting: the result of interviews revealed that IFRS adoption
in Ethiopia improves the quality of financial reporting in the country. As a result, the improved
financial reports would be helpful in facilitating loan arrangement based on financial reporting
and reduce the currently available collateral-based lending, which is perceived to have restricted
access to finance for firms. ROSC (2007) stated that the lending culture in Ethiopia is largely
based on collateral security and financial statements play a small secondary role in facilitating
lending. This mainly results from a lack of trust in a financial statement prepared by business
entities in Ethiopia as respondents indicated. This finding is in coherence with the theoretical
argument which states adoption of IFRS enhance the quality of financial reporting (UNCTAD
2008; Apostolos et al. 2010; Jain 2011; Aljifri 2012; Bendovschi 2016; Amanamah 2017; Babil
2018; IFRS Foundation 2018).
Used to maintain free movement of the labour force: as the world became a globalized village
for doing the day to day business transaction, the need for a single set of standards in financial
reporting is beneficial. Among the benefits, respondents noted that IFRS facilitates the free
movement of workforce. They opined as this mainly results when everybody speaks, learn and
work with the same language. Accordingly, the adoption of IFRS in Ethiopia will help
professional accountants in the country to freely move and work in other countries too.
Enhance the uniformity of financial statements and reduce the fragmented reports: as
presented in the result section, adoption of IFRS in Ethiopia will bring about uniformity among
financial reports of entities and reduces the fragmented and inconsistent reporting practices in the
country. The finding is consistent with the school of thought that explains adopting a common
accounting language improve the comparability of financial statements (Jermakowicz 2004;
Apostolos 2010; Bendovschi 2016; Amanamah 2017)
4.2.4 Practical Challenges of IFRS Implementation in Ethiopia
Data obtained from an in-depth interview with key informants of the study are used to discuss
this section. UNCTAD (2008) stated that following the widespread international adoptions of
IFRS, jurisdictions are encountering different practical implementation challenges. Even though
the level of challenges varies from country to country, no jurisdiction implements IFRS without
encountering implementation challenges. Accordingly, different practical implementation
challenges of IFRS in Ethiopia were identified by respondents and includes;
Lack of competent human resources with IFRS knowledge: data obtained from key informants
of the study revealed that lack of competent professional accountants capable of applying highly
sophisticated and voluminous global standards of IFRS was the major practical implementation
challenges in Ethiopia. Accordingly, in Ethiopia less than 500 professional and certified
accountants are available and they are also not adequately trained on the practical
implementation of IFRS. ROSC (2007) noted that, having a shortage of professional
accountant’s means that there are positions in the private and public sector that are filled by
persons with lower qualifications.
The challenge was anticipated by previous studies conducted in Ethiopia. The previous
researcher stated that the major reasons that implementing IFRS in Ethiopia might be difficult is
lack of qualified professional’s accountants who can perform the task with the required standards
(Gebre 2009; Tesfu 2012; Simegn 2015; Mihret 2016; Alemi and Pasricha 2016). Additionally,
there is evidence from existing literature and empirical evidence that shows, IFRS knowledge
gap was an issue for those involved with the adoption of IFRS (UNCTAD 2008; Alp and
Ustundag 2009; Weaver and Wood 2015).
However, in Ethiopia data obtained from in-depth interviews indicated that the issue was deeper
rooted than simply having little knowledge of specific IFRS requirements. This may be due to
the gap between the accounting courses delivered by both public and private university and
colleges in Ethiopia with regard to the international standards and non-existence of strong local
professional association in the country. ROSC (2007) in line with this indicated that the available
accounting degrees and diplomas in Ethiopia are said to meet the current demands of the
business community; however, the accounting curricula, as well as textbooks, may not prepare
graduates well for enhanced financial reporting requirement. Accordingly, ROSC noted that the
textbooks in use in Ethiopia are not up to date with recent trends in financial reporting. Similarly,
the gap between education in Kenya and the requirements of IFRS, the lack of training and
inability of accountants to remain abreast of the standards issued by IASB was the major
implementation challenges of IFRS in Kenya (UNCTAD 2008).
Schachler et al. (2012); Laga (2012); Masoud (2014) and Zakari (2014) additionally stressed that
one of the major implementation difficulties of IFRS in Libya was lack of technical skills and
inadequate knowledge of Libyan professional accountants. Madawaki (2012) similarly opined
that the shortage of manpower for IFRS implementation was the major implementation of IFRS
in Nigeria. Bendovschi (2016) also suggested that a lack of knowledge and experience among
accounting professionals regarding IFRS application was the major practical challenges of IFRS
implementation in Romania.
Respondents noted that the challenges become more severe in federal public enterprises.
According to them, accountants of the majority of public enterprises in Ethiopia are not
knowledgeable and even committed in learning new tasks. According to them, accountants of the
entities had mastered with their previous and routine tasks and not willing to learn how tasks are
performed with IFRS. This creates the problem of taking responsibility slightly and lack of
commitment which leads to improper planning of the implementation project. As a result, lack
of proper planning negatively affects the implementation of the standards in federal public
enterprises.
The negative attitude of management towards accounting: respondents suggested that the
negative attitude of management toward accounting was the major challenge of IFRS
implementation in Ethiopia especially in federal public enterprises. The result of data obtained
from interviews revealed that the negative attitude of management brings a lack of top
management support and commitment. In other words, management does not view financial
reporting in general and IFRS in particular as an important issue and give priority for it, sees
little benefit in devoting resources to it and it has only decided to produce IFRS financial
statements to fulfil a regulatory obligation. In essence, there was an inappropriate tone at the top
which indirectly hindered the implementation of the standards.
Respondents indicated that the lack of top management’s support is also more severe in public
enterprises than in banks and insurance companies. They opined that the CEO of most of the
public enterprises are mainly attached to a political appointment. Thus, they don’t recognize the
importance of financial reporting due to their lack of finance background. It seems that the lack
of support from senior management could impact on the quality of financial reporting through
tolerance of poor accounting practice by IFRS implementation team (UNCTAD 2008).
Jermakowicz and Gornik-Tomaszewski (2006); Weaver and Wood (2015) similarly suggested
that lack of top management support is the practical implementation challenges of IFRS in a
jurisdiction.
Lack of strong regulatory and enforcement institution: lack of strong regulatory and
enforcement institution was also the major practical implementation challenge of IFRS in
Ethiopia as noted by the respondents. IFRS implementation requires strong regulatory and
enforcement institution in place and the effective enforcement mechanisms are essential for
achieving high-quality financial reporting (ROSC 2007; UNCTAD 2008). But in Ethiopia,
respondents suggested that the Board couldn’t be strong enough in supervising, enforcing,
assisting and facilitating the implementation process as per the road map laid down. This shows a
lack of enough preparation for the implementation at the country level and as the project was
started in rush without fulfilling the minimum requirements of implementation, at least without
building the capacity of enforcement institution.
Key informants from AABE noted that lack of competent staff, lack of adequate support from
the government, lack of integration and coordination with other regulatory institutions are the
major factors that contributed for the weakness of the Board. UNCTAD (2008) stated that when
laws and regulations overlap or become inconsistent with each other, lack of coherence in the
regulatory system becomes the cause for serious misunderstandings and inefficiency in the
implementation of IFRS and this was the issue in Ethiopia too. For instance, there were no
coordination and integration among AABE, NBE, and Ministry of Revenue. ROSC (2007)
recommended that, when established, the Board should collaborate with the other regulators on
matters of defining financial reporting, accounting and auditing requirements for particular
institutions and enforcement of the same.
UNCTAD (2008) noted that IFRS is developed to maintain the consistency of the financial
statements. Therefore, there should be clear instructions and guidelines from regulatory systems
in the country on IFRS implementation. But in Ethiopia, the Board didn’t develop the
comprehensive IFRS implementation guidance, contentious area concerning the practical
application of IFRS. This lack of comprehensive guideline on contentious area created reporting
entities to implement the standards differently. Respondents stated that the absence of the stated
guideline from AABE could distort the comparability of financial statements among reporting
entities.
In Ethiopia, respondents noted that the level of capacity building which should focus on
technical personnel, practical training of reviewers, administrative support and the necessary
logistics support expected to be done by the Board was not performed as required and this
negatively affect the implementation of the project and considered as the major practical
challenges of IFRS in the country. ROSC (2007) on the issue documented that the technical
capacity of regulators should be enhanced to enable the regulators to effectively handle the
complex IFRS-related issues.
Hegarty et al. (2004) similarly documented that to strengthen the regulatory arrangements
essential for the successful implementation of IFRS, countries should give greater attention to
regulatory preconditions. Aljifri (2012) additionally indicated that IFRS adoption in countries
which have weak regulatory frameworks and enforcement mechanisms will not be able to
improve the quality in their financial reporting. Cairns (2001) similarly concluded that the major
challenge of implementation of IFRS is the enforcement mechanisms of IFRS, especially in
jurisdictions with weak institutions and enforcement agencies.
Lack of accounting infrastructure and strong accounting system in the country: successful
implementation of IFRS requires, different accounting infrastructures. For instance, among the
required infrastructures, materials on IFRS is one of them. In Ethiopia, there is a lack of IFRS
related materials in general and the limited availability of training materials on IFRS in
particular, at an affordable cost. Additionally, there is a lack of trainers on IFRSs at affordable
costs as well, to train such a large group of accountants which poses a great challenge to IFRS
adoption in the country. The previous study noted that IFRS is complex to adopt with existing
financial reporting infrastructures in Ethiopia and the required accounting infrastructures is

limited to switch from existing reporting system to IFRS in the country (Mihret 2016; Babil
2018).
According to respondents, accounting practices in Ethiopia is at its infant stage and it is not yet
developed. This is due to the nature of business transactions and the existence of a few
multinational companies in the country. They suggested that most of the accounting functions in
the country are traditional and it contributes to the existences of weak accounting practices in the
country. Hence, the lack of strong accounting practices in the country negatively affects the
implementation of IFRS in the country. The study confirmed what the previous study forecasted.
For instance, Mihret (2016) forecasted that the existence of weak accounting and auditing
practices in the country could be the prohibiting factors of IFRS implementation in Ethiopia.
Hossen (2014) similarly opined that lack of strong accounting system in place is the major
practical challenges of IFRS implementation in a jurisdiction.
Absence of property and actuarial valuators: as presented in the result section, the other
practical challenge of IFRS implementation in Ethiopia is the absence of property and actuarial
valuators. IFRS implementations require experts from other departments including property and
actuarial valuators. The availability of these experts facilitates for the implementation of the
standards and non-availability of the expert become the challenge for the successful
implementation of IFRS (UNCTAD 2008). For instance, IAS 39, employee benefits, requires an
actuarial valuation to measure the obligations of a reporting entity. As far as the issue is
concerned, respondents argued that only two certified property valuators are available in the
country in which no actuarial valuators are there. It seems as it was resulted from, the existences
of weak accounting practices in the country and low demand of these experts before the
enactment of Financial Reporting Proclamation in the country.
Lack of local professional accountancy associations: successful implementation of IFRS needs

extensive and ongoing support from professional accountancy associations. The associations
play a role in the enforcement of IFRS as they discharge their responsibilities with respect to
ensuring adherence to their membership by-laws. Furthermore, such organizations contribute to
promoting regulatory coherence on IFRS implementation by working closely with various
national regulators and resolving practical implementation issues that arise when introducing
IFRS in the jurisdiction (UNCTAD 2008). ROSC (2007) stated that the local professional
qualification will assist in increasing the number of professional accountants in the country. But
in Ethiopia, there are no local professional accountancy associations and respondents suggested
that non-availability of the association negatively affect the implementation of IFRS in the
country.
The complexity of IFRS and difficulty of fair value determination: respondents suggested that
IFRS is complex and requires technical expertise for their understanding and implementation.
According to them, the complexity of IFRS is another practical implementation challenge of
IFRS in Ethiopia. In this case, parties involved in implementation should be competent enough to
deal with the complexity of the standards. But to be competent in IFRS, there are no IFRS
materials in the country as stated earlier. Bendovschi (2016) similarly opined that the difficulties
of understanding IFRS by the accounting professionals is the challenges of IFRS implementation
in Romania.
Aljifri (2012) documented that fair value measurement is a market-based technique and is
difficult to implement, especially where markets do not operate effectively. According to him,
measuring assets and liabilities using fair value practices can lead to controversial outcomes,
especially when markets suddenly become illiquid. In Ethiopia, the determination of fair value
has been very difficult as stated by respondents because of a lack of reliable market information
especially in determining the fair value of financial instrument due to lack of reliable data in
determining the discount rate. Respondents noted that the problem is related to lack of stock
market in the country. Bendovschi (2016) similarly suggested that the difficulty of applying the
fair value concept was the major practical implementation challenges of IFRS in Romania.
Resistance to change: respondents indicated that the implementation of IFRS in Ethiopia didn’t
get the support it deserves from senior management as well as employees of reporting entities
especially in public enterprises. The transition project was viewed negatively by almost everyone
involved in the country. The accounting personnel simply saw the transition as a huge and
unnecessary change that brought about extra work, tighter deadlines and the need for re-
education and could possibly threaten people’s jobs. There was a strong push to stick with what
they had previously done. They saw the changes as creating more complexity and an increased
workload. This resistance from different stakeholders involved in the implementation process
was yet another practical implementation challenge of IFRS in Ethiopia. Weaver and Wood
(2015) similarly stated that resistance to change is the major implementation challenge of IFRS.
Costs of implementation: costs of IFRS implementation was also identified as the other practical
implementation challenge of IFRS in Ethiopia. According to respondents, due to the costly
procedure of IFRS implementation followed in the country the cost incurred was much higher
than it would be. Respondents noted that the costs paid for IFRS conversion consultants were the
major cost incurred in the implementation project. Those conversion consultants were mainly
from abroad6 and they were paid in foreign currency. Hegarty et al. (2004) in coherence with this
view stated that the lack of financial resources and cost of IFRS implementation is a significant
impediment to the implementation of IFRS by companies. Bendovschi (2016) similarly
suggested that significant costs IFRS in general and cost of consultancy services in particular is
the major practical implementation challenges of IFRS in Romania.
Lack of preparation both at country and reporting entities level: as presented in the result
section, the shortage of implementation time was another practical implementation challenge of
IFRS in Ethiopia. The shortage of conversion time according to respondents, forced reporting
entities to directly enter into implementation without making sufficient preparation. The result of
an interview revealed that the time stated in the roadmap was not enough to train a required
number of competent staff and professionals given the constraints in the country. Existed
literature and empirical evidence suggested as IFRS implementation requires a significant period
of time. For instance, Madawaki (2012) stated that the adoption of IFRS requires substantial
preparation both at the country and entity levels to ensure coherence and provide clarity on the
authority that IFRS will have in relation to other existing national laws. ROSC (2007) stated as
6
In the first transition phase of IFRS in Ethiopia, conversion consultants involved were mainly from abroad. For
instance, the IFRS conversion consultants of all banks except, Ethiopian Commercial banks and National Banks of
Ethiopia and most of insurance companies was PriceWaterhouseCoopers (PWC). PWC is a multinational
professional services network headquarters in London, United Kingdom. It ranks as the largest professional
services firm in the world, and it is one of the Big Four Auditors along with Deloitte, Earnest and Young (EY) and
KPMG. KPMG was the IFRS consultants of Ethiopian Insurance Company, Ethiopian Logistic and Shipping
Enterprises. Among the federal public enterprises, Berhanena selam Printing Entrprises was implemented IFRS
with the help of Grant Thornton, the global consultants.
well-planned transition arrangements and good timing for launching the awareness campaign
would be essential for IFRS implementation. Hegarty et al. (2004) similarly opined, the greater
the gap between existing national and international standards and the shorter the period to
complete the transition, the greater the capacity building challenge to overcome.
Lack of required data for IFRS: the difficulty to obtain the required information to prepare the
first IFRS compliant financial statements was another practical implementation challenge of
IFRS in Ethiopia. As indicated by respondents, it was difficult to get all the information’s needed
under IFRS, where that information was not needed under previous GAAP. Jermakowicz and
Gornik-Tomaszewski (2006); Weaver and Wood (2015) similarly noted that the difficulties in
accessing the necessary information for the first IFRS based financial statements is one of the
practical implementation challenges in a jurisdiction.
As indicated under the progress of IFRS implementation in Ethiopia, the implementation

progress of IFRS in federal public enterprises was not moving as scheduled. For instance, only 3
of 23 required reporting entities from public enterprises were submitted their audited IFRS based
financial statements for the fiscal year ended 7 July 2018. According to key informants of the
study, it is due to the following additional implementation challenges of the entities and includes;
The problem of backlog clearance: as indicated in the result section, the problem of backlog
clearance was the major practical implementation challenges of IFRS in federal public
enterprises in Ethiopia. They suggested that the majority of reporting entities from public
enterprises have huge amounts of long-term receivables and payables from their book of account
with no source documents that show the existence or non-existence of the accounts. As a result,
clearing the account takes a long time and brings delay on IFRS implementation progress of the
entities.
Poor records keeping mechanism and lack of updated book of accounts: respondents noted that
the majority of public enterprises in Ethiopia had the lack of good record keeping mechanism
and continuously updating their book of accounts. According to them, the majority of public
enterprises in Ethiopia have no experience of closing their book of accounts regularly and there
were reporting entities among federal public enterprises that didn’t close its book of account
since 2012. Additionally, they indicated that there were reporting entities from public enterprises
with disclaimer, adverse or qualified audit opinion. In both cases, to prepare IFRS based
financial statements, the issue should be solved first and thus becomes the major practical
impediment of IFRS implementation in public enterprises. According to them, the challenge was
mainly emanated from the weakness of the ministry of public enterprises in controlling or
supervising the stated reporting entities previously.
Existences of vast and complex transactions: respondents suggested that four years back, the
government of Ethiopia merged reporting entities from public enterprises with a different history
of transactions and accounting policies, even from different industries. As a result, the merged
reporting entities become vast with complex transactions with no unqualified audit reports as
stated above. Therefore, solving the problems and implementing IFRS in the institutions was the
other major implementation challenges of IFRS in the majority of public enterprises in Ethiopia
as stated by respondents.
Lack of corporate memory: lack of retained knowledge and documentation in public enterprises
in Ethiopia was another major practical implementation challenge of IFRS in federal public
enterprises. Respondents indicated that there is often a lack of evidence and people to know how
things work in most federal public enterprises in Ethiopia. There may not be any succession
planning, so only one person knows about an issue and when they leave, that knowledge is lost.
This lack of corporate memory in the entities causes significant inefficiencies and diverts scarce
resources to paper chasing and information gathering. As a result, it brings delay on the
implementation of the project in the enterprises.
Lack of having up-to-date accounting system: respondents additionally stated that the
accounting system that the majority of reporting entities from public enterprises are using is an
outdated accounting system, traditional accounting system. They noted that the data keeping
mechanism of the entities is traditional too. As a result, the required data for IFRS
implementation become difficult to get and bring delay to the implementation processes.
Bendovschi (2016) similarly opined that lack of using updated accounting system is the major
practical implementation challenges of IFRS in a jurisdiction.
4.2.5 Lessons Learned from IFRS Implementation in Ethiopia
Considering the up to date progress of IFRS implementation in Ethiopia with the experiences of
other countries, the following five (5) major lessons are identified. They are considered as very
crucial and critical for successful and effective implementation of IFRS and includes;
Lesson No. 1: strong national enforcement and regulatory body: the strong regulatory body or
enforcement institutions with adequate professionals and resources are required to provide the
technical support in the implementation process and contributes for the successful
implementation of IFRS in the country or in a given jurisdiction. ICAEW (2014) similarly noted
that a strong national enforcement regime is essential to realize the potential benefits of adopting
global accounting standards. In the initial phase of IFRS implementation, enforcement institution
contributes to technical capacity-building by providing training on IFRS to the reporting entities.
Similarly, different previous studies suggested that strong national enforcement and regulatory
body is crucial for the successful implementation of IFRS in the jurisdiction (Hegarty et al. 2004;
UCTAD 2005; ROSC 2007)
Lesson No. 2: considerable preparation both at the country and entity level: this indicates that
IFRS implementation is a complex process that requires extensive preparations. Thus, it should
take into account the time and resources needed for efficient and effective implementation at the
entity level. Additionally, IFRS implementation program needs to adequately assess the state of
readiness of enforcement institution so that the necessary resources are available in place to
ensure competent and continuous support from such organizations because successful
implementation of IFRS needs extensive and ongoing support from enforcement institution
(UNCTAD 2008). The Korean experience similarly indicated that countries planning IFRS
adoption need to have sufficient preparation period and thorough plans preceding the IFRS
implementation (Mihret 2016).
Lesson No. 3: effective communication and coordination: the conversion of IFRS and its
implications should be effectively coordinated and communicated to different concerned
stakeholders including preparers, users, regulators, and educators. They need to be engaged in
the planning of IFRS, as well as the implementation. The experiences of other countries such as
Korea, South Africa, Kenya, Germany, India, Jamaica, Pakistan, Brazil, Turkey, and Napel also
noted that the effective communication and coordination is needed for effective implementation
of IFRS in a country (UNCTAD 2008; ROSC 2015; Mihret 2016)
Lesson No. 4: having trained people at different levels and locations: having human resources
with IFRS knowledge facilitates the smooth implementation of IFRS in the country and provide
a broader talent pool as people transfer or advance within the country. Anyone who is
moderately involved in the IFRS conversion should have some basic understanding of what is
driving the need and system upgrades. Therefore, reporting entities need to provide IFRS
training for staff at all levels affected by the transition to IFRS. The implementation process
requires commitment from all the parties involved starting with top management to those
responsible for financial reporting. Following the initial burst of training, companies will need to
develop an ongoing program that keeps staff current on IFRS developments and fast-tracks new
hires into this new knowledge arena. Hegarty et al. (2004) in the same way noted that the
implementation of IFRS requires qualified individuals at a different level, which mainly depends
on the availability of opportunities for relevant and adequate education, training and experience.
Lesson No. 5: starting the planning and implementation process as early as possible:
companies should start the implementation process of IFRS on time. In this case, starting the
implementation process in early enables reporting entities to complete the implementation
process within the required time and the difficulty in accounting or systems issues should be
identified early in the process. It would be a mistake to leave such items to the tail end of a
planning or implementation process. Researching and securing the judgment of professionals on
technical issues usually takes time (UNCTAD 2005).
Chapter Five: Conclusion and Recommendations
The previous chapter presented the results and discussion of the findings obtained from different
data sources. This chapter shows conclusions and recommendations. Accordingly, the chapter is
organized into two sections, the first section presents the conclusions and the second section
presents the recommendations.
5.1 Conclusions
The broad objective of this study was to examine the implementation of IFRS in Ethiopia
focusing on the processes, practical challenges, and the way forward. To achieve the broad
objective, the study used a qualitative research approach. More specifically, in-depth interviews
and review of relevant documents were used to obtain the necessary data. To this end, data
collected from thirty (30) key informants and review of relevant documents were analyzed
qualitatively. The subsequent paragraphs present the key findings of the study.
First, the result of the study suggested that the adoption of IFRS in Ethiopia benefits different
stakeholders in the country. Among other benefits, IFRS increase the transparency of financial
reporting, attract foreign direct investment, used as an input for the stock market establishment,
enhance the quality of financial reporting, maintain free movements of labor, enhance the
comparability of financial statements and reduce inconsistent financial reports previously
available in the country.
Second, with respect to the process of IFRS implementation in Ethiopia, the result of the study
revealed that the process didn’t consider the minimum requirements and necessary conditions for
IFRS implementation and the implementation was started in rush. For instance, respondents
suggested that the process didn’t consider the readiness of the country, the readiness of reporting
entities and the experiences of other countries.
Thirdly, far as the progress of IFRS implementation in Ethiopia is concerned, the result of the
study indicated that IFRS reporting date of microfinance institutions and regional public
enterprises were extended for one year and postponed to 7 July 2019. In the first transition phase,
58 reporting entities were required to implement IFRS and submit IFRS based financial
statements to AABE as of 7 July 2018. Among them, 36 reporting entities were submitted their
IFRS based audited financial statements in the scheduled period. The study also found that the
reviewing activities were not yet started by the Board due to lack of human resource.
Additionally, the practical implementation challenges of IFRS implementation in Ethiopia were

identified and among other challenges lack of competent human resources with IFRS knowledge,
negative attitude of management towards accounting, lack of strong regulatory and enforcement
institution in the country was found to be the major practical challenges of IFRS implementation
in Ethiopia. The data solicited from in-depth interviews suggested that, in Ethiopia, IFRS
implementation in federal public enterprises were more difficult than in financial institutions.
Lastly, considering the up to date progress of IFRS in Ethiopia and the experiences of other
countries, the crucial and critical lessons were identified for successful and effective
implementation of IFRS in a jurisdiction. Accordingly, for successful and effective
implementation of IFRS in a jurisdiction strong national enforcement and regulatory body,
considerable preparation both at the country and entity level, effective communication and
coordination, IFRS trained people at different levels and starting the planning and
implementation on time are the key factors.
5.2 Recommendations
Based on the findings of the study, the following possible recommendations were forwarded:
Adequate resources must be put in place to support the sustainable implementation of IFRS and
to ensure the strength of the regulatory body and enforcement institution. In this manner, the
government should actively work on capacitating and ensuring the strength and effectiveness of
the Board.
The AABE should recruit competent staff and review the audited financial statements submitted
by reporting entities for the fiscal year ended on 7 July 2018. The Board should review the
reporting entities level of compliance with IFRS requirements and identify areas of non-
compliance (if any), as fast as possible so that reporting entities adjust themselves and focus on
their areas of non-compliance.
AABE should ensure the coordination and integration with other regulatory institutions such as
NBE, Ministry of Revenue and Ministry of Public Enterprises. They should work together to
design an awareness program on the importance of compliance with IFRS requirements.

Additionally, the Board should support the reporting entities by organizing capacity building
workshops and seminars, provide clear and proper instructions when providing orders regarding
reporting and auditing and arrange regular meeting periods with reporting entities so that they
can share experiences and learn from each other.
Management should enhance their understanding and give due attention to enhancing the quality
of financial reporting in general and IFRS implementation in particular instead of leaving it only
as an accountant issue. Besides, management should recognize and motivate IFRS
implementation team members toward IFRS implementation. There should be strong
management support and corporate governance established by entities and ensures that the
transition is managed effectively in a way that improves the quality of their financial reporting.
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Appendix
IFRS Implementation in Ethiopia: Processes, Challenges, and the way forward
Some questions that key informants from AABE were asked on in-depth interviews
1. Do you think that IFRS is more important in Ethiopia? How and/why?

2. How do you describe the process followed in the adoption and implementation of IFRS in
Ethiopia?
3. Do you think it is the right process to be followed for IFRS implementation? If not why?
4. What steps has AABE been following in the adoption and implementation of IFRS?
5. The financial reporting proclamation provides for the adoption, adaption or amendment
of IFRS and adoption has been chosen; how was the adoption chosen?
6. AABE has IFRS implementation roadmap, how is the progress in light of the roadmap?
7. Can you explain the strengths and weaknesses of processes used in light with the other
countries’ experiences?
8. Do you think the processes used for IFRS implementation brings challenges/ obstacles to
reporting entities? How?
9. What are the challenges that AABE is facing in accomplishing its responsibilities related
to the implementation of IFRS?
10. How many reporting entities do you think have fully implement IFRS and prepare IFRS
based financial statements?
11. Out of how many reporting entities which are expected to be IFRS compliant?
12. What is the mechanism you follow to communicate with reporting entities and help them
in the process of conversion (aware them that they are required to be IFRS compliant
etc)?
13. Which reporting entities have already fully converted to IFRS as per the roadmap?
14. Can you explain activities performed so far to achieve what is intended to be achieved?
15. What are the achievements materialized so far of the IFRS implementation process in
Ethiopia?
16. Can you explain the challenges that you encountered during your involvement with IFRS
implementation?
17. Can you explain the challenges that reporting entities encountered during in
implementing IFRS?
18. What are the causes of the challenges?
19. Can you prioritize these challenges and explain your reasoning?
20. What were the activities performed by reporting entities, IFRS consultant of reporting
entities and AABE as a regulatory body to address/handle those challenges?
21. With the benefit of hindsight, how might IFRS implementations be better planned?
22. What key variables do you feel affect the successful implementation of an IFRS in firms?
23. Which variables affect the process the most?
24. Can you explain the challenges of IFRS implementation in Ethiopia at a country level?
Some questions that key informants from IFRS conversion consultants were asked on in-
depth interviews
1. Do you believe on the benefits of IFRS implementation in Ethiopia?
2. How do you describe the process used by AABE in the adoption and implementation of
IFRS in Ethiopia?
4. Can you explain the strengths and weakness of the processes used in Ethiopia to
implement IFRS?
reporting entities?
6. If yes, how the process brings challenges and obstacles to reporting entities?
7. How do you see the mechanism followed by AABE in the implementation of IFRS?
8. What were the roles of AABE in facilitating the implementation of IFRS in your client?
9. What do you think the practical challenges of implementing IFRS in Ethiopia are (from
the perspective of reporting entities, AABE, and others)?
10. Do you think the progress of IFRS implementation in Ethiopia is moving as planned?
11. Can you explain the reasons for the delay of IFRS progress, if any?
12. Which year did your client start implementing IFRS?
13. What is the current status of the implementation?
14. Can you explain the practical challenges that you encountered during your involvement
with IFRS implementation at your client?
16. What were the activities performed by AABE, reporting entities and you as IFRS
consultant to address/handle those challenges?
17. With the benefit of hindsight, how might IFRS implementations be better planned?
19. Which variables affect the process the most and why?
Some questions that key informants from financial statements preparers and IFRS
implementation team leaders were asked on in-depth interviews
1. Do you think IFRS is better than the standards your companies had been using before?
2. What do you think, the benefits of IFRS implementation for your company?
3. Are you comfortable with the processes used in IFRS implementation in Ethiopia?
your company?
5. If yes, how the process brings challenges and obstacles to your company?
6. How do you describe the progress of IFRS Implementation in your company?
7. Can you describe your involvement with IFRS implementation?
8. What challenges were faced in the IFRS implementation project (processes)?
9. Which year did your company start using IFRS?
10. What is the current status of the implementation?
11. How do you see the mechanism followed by AABE in the implementation of IFRS in
your company?
12. What were the roles of AABE in facilitating the implementation of IFRS in you’re your
company?
13. Can you explain the practical challenges that you encountered to implement IFRS and
prepare IFRS based financial statements?
15. Can you explain the reasons for the challenges you identified and how were those
challenges addressed and resolved?
19. Which variables affect the process the most and why?
Some questions that key informants from audit firm (external auditors) were asked on in-
depth interviews
1. Do you think IFRS is better than the standards reporting entities in Ethiopia had been
using before?
2. What do you think, the benefits of IFRS implementation in Ethiopia for different
stakeholders (auditors, reporting entities, government, investors, a country in general,
etc)?
4. Can you explain the strengths and weakness of the processes used in Ethiopia to
implement IFRS?
reporting entities?
6. Do you think the progress of IFRS implementation in Ethiopia is moving as planned?
7. Can you explain the reasons for the delay of IFRS implementation progress, if any?
8. For how many reporting entities your audit firm audited their IFRS based financial
statements?
9. What practical challenges did you encounter in processes of auditing IFRS based
financial statements?

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Implementation of International Financial Reporting Standards in Ethiopia:

Processes, Challenges, and the Way Forward

By: Meyad Diriba GSR/1279/10

A Thesis Submitted to the

Department of Accounting and Finance

College of Business and Economics

Addis Ababa University

Presented in Partial Fulfillment of the Requirements for Degree of

Masters of Science in Accounting and Finance

Addis Ababa, Ethiopia

Name: Meyad Diriba

Addis Ababa, Ethiopia

Signed by the examining committee:

External Examiner: Zenegnaw Abiy (PhD) Signature _____________Date____________

Internal Examiner: Alem Hagos (PhD) Signature ______________Date___________

Advisor: Wollela A. Yesegat (PhD) Signature ________________ Date___________

Chair of Department or Graduate Program Coordinator

Addis Ababa University, 2019

1.2. Broad Research Objective and Specific Research Questions .............................................. 4

1.3. Significance of the Study ..................................................................................................... 4

1.4. Delimitation and Limitation of the Study............................................................................. 5

1.5. Structure of the Study ........................................................................................................... 6

Chapter 2: Literature Reviews ........................................................................................................ 7

2.1.1. Accounting Convergence Prior to the Establishment of IASC ..................................... 8

2.1.2. Accounting Convergence with the IASC ...................................................................... 9

2.1.3. Accounting Convergence with the IASB .................................................................... 10

2.1.4. IFRS Framework ......................................................................................................... 12

2.1.5. Current Status of IFRS Implementation in the World ................................................ 15

2.1.6. Harmonization, Convergence and Adoption of IFRS ................................................. 17

2.1.7. Benefits of IFRS ......................................................................................................... 19

2.2. Empirical Literature Reviews ............................................................................................. 20

2.3. Conclusion and Knowledge Gap ........................................................................................ 24

Chapter 3: Research Methodology................................................................................................ 25

3.2. Research Approaches ......................................................................................................... 26

3.3. Research Approach Adopted .............................................................................................. 27

3.3.1. Document Reviews ...................................................................................................... 28

3.3.2. In-depth Interviews ...................................................................................................... 28

3.4. Methods of Data Analysis .................................................................................................. 29

Chapter 4: Results and Discussions .............................................................................................. 29

4.1.1. Results of Document Reviews ................................................................................... 30

4.1.2. Results of In-depth Interviews ........................................................................................ 33

4.2. Discussions ......................................................................................................................... 45

4.2.1. The Process of IFRS Implementation in Ethiopia ....................................................... 45

4.2.2. The Progress of IFRS Implementation in Ethiopia .................................................... 48

4.2.3. Benefits of IFRS Implementation in Ethiopia ............................................................. 50

4.2.4. Practical Challenges of IFRS implementation in Ethiopia .......................................... 52

4.2.5. Lessons Learned from IFRS Implementation in Ethiopia ........................................... 61

Chapter 5: Conclusion and Recommendations ............................................................................. 63

5.2. Recommendations .............................................................................................................. 64

Table 4.1 IFRS Implementation Progress in Ethiopia .................................................................. 42

AABE Accounting and Auditing Board of Ethiopia

ACCA Association of Chartered and Certified Accountants

AICPA American Institute of Certified Public Accountants

AISG Accountants International Study Group

ASE Accounting Society of Ethiopia

CEO Chief Executive Officer

CICA Canadian Institute of Chartered Accountants

CPA Certified Public Accountant

ECCSA Ethiopian Chamber of Commerce and Secretariat Associations

External Examiner: Zenegnaw Abiy (PhD) Signature _Date

Internal Examiner: Alem Hagos (PhD) Signature ____Date_

Advisor: Wollela A. Yesegat (PhD) Signature ______ Date_