Alexandra FONTES University of Minho and University of Valencia

1. INTACCT Research Project Analysis of key national actors’ perceptions in the roll-out of IFRS model by non-listed companies in Portugal Alexandra FONTES University of Minho and University of Valencia Varna, 4-5 March 2010

2. 1. Motivation EC Regulation 1606/2002 – EU Adoption and use of IFRS Required: Listed companies financial statements from 2005 onwards Member State Option: Unlisted Companies Several approaches adopted by the MS as a response to the EC IFRS Regulation Portugal • Extension of IFRS adoption: Unlisted companies are permitted to adopt IFRS if their accounts are audited • Transposition of the IASB model adopted by the EU to the Portuguese Accounting System – “Accounting Standardization System” (in force since January 2010) • However: Main users of financial statements of Portuguese non-listed companies: Tax authorities and Banks Portuguese non-listed companies may not have incentives to increase financial reporting quality; and its users to support IFRS’ s accounting philosophy

3. 1. Motivation Reasons behind Portugal’s decision to extend IFRS model to non-listed companies - Why??? Position of the various interest groups regarding the national accounting reform Factors associated with interest groups’ support (or not) towards the adoption of IFRS-based accounting system by non-listed companies Interest groups’ position  the resulting quality of accounting information INTACCT Varna Workshop

4. 1. Motivation Gaps and shortcomings of the existing accounting literature addressing this research topic Little research analyzing in-depth the views and expectations of the various interest groups regarding the provision of IFRS- based financial reporting Lack of a comprehensive theoretical underpinning Methodological approach INTACCT Varna Workshop

5. 2. Research Questions • What are the perceptions of key actors (regulator and professional organizations) regarding the extension of the IFRS accounting underlying principles to non-listed companies in Portugal? • What (hindering and promoting) factors are perceived to influence key actors’ attitudes regarding the adoption of IFRS-based standards by non-listed companies? • What are the strategies required by the targets of the change, aimed at managing and handling with the potential problems raised by the implementation of the national adoption of IFRS model?

6. 3. Relevant Literature • IFRS-related research analyzing constituents’ perceptions (e.g.Tyrrall et al. 2007 IJA; Aljifri & Khasharmeh 2006 IBR; McEnroe & Sullivan 2006 JIAAT; Ngangan et al. 2005 AIA) • Literature on users and preparers’ perceptions of financial statements (e.g. Son et al. 2006 QRAM ; Ho & Wong 2001 IJDG) • Prior research examining perceptions towards change in the field of Information Technology (IT) implementation (e.g. Robey 1979 AMJ; Bailey & Pearson, 1983 MS), management accounting, and organizational change (e.g. Jabbar et al. 2007 MAJ; Anderson et al. 2002 AOS) • Change management literature - Hardy’s (1985 JMS, 1996 BJM) power framework - Suchman’s (1995 AMR) legitimacy framework - Actor-Network Theory (Callon 1986; Latour 1999) • Institutional Theory (e.g. Carruthers 1995 AOS; Oliver 1991; AMR; DiMaggio & Powell 1983 ASR)

7. 4. Research Methodology Grounded theory approach to Qualitative Research (Strauss & Corbin, 1990) • Interactive/circular approach of the research process • Role of Theory: preliminary assumptions Central aim Theory development through the continuous interplay between theory and data

8. 4. Research Methodology Sampling Rationale Key Features of Qualitative Sampling (Flick, 2006; Yin, 1994; Miles & Huberman, 1994; Strauss & Corbin, 1990) • Theoretical • Purposive • Flexibility • Diversity

9. 4. RESEARCH METHODOLOGY Interviews with elements of: The Portuguese accounting standards-setting board and Professional organizations representing the various interest groups, such as: the Portuguese Chamber of Certified Public Accountants (Ordem dos Técnicos Oficiais de Contas - OTOC); the National Chamber of Statutory Auditors (Ordem dos Revisores Oficiais de Contas – ROC) the Portuguese Association of Financial Analysts (Associação Portuguesa de Analistas Financeiros – APAF) the Portuguese Tax Association (Associação Fiscal Portuguesa- AFP) …. Rationale: Relevance of professional organizations in representing the views of different interest groups; and in mobilizing power to generate commitment towards accounting change (O'Dwyer et al. 2005 AAAJ; Potter 2005 Abacus) INTACCT Varna Workshop

10. 4. Research Methodology Data Sources – Interviews and Document Analysis Interviews • Semi-structured (and theoretical driven) interview guide • Enhances comparability and completeness • Facilitates data analysis and theory development • Use of scales • Avoids the potential interviewer bias in the collection and analysis of qualitative data • Enhances the credibility of theory building from qualitative data • Enables confirmation and corroboration (Validation/confirmation) • Searches and offers theoretical explanation of the divergences and contradictions (Validation/divergence) • Offerscomplementaryresults • Informs future development of measurement scales for survey-based work

11. 4. Research Methodology Data Sources – Interviews and Document Analysis Document Analysis • Rationale: Enables to corroborate and augment the interview’s evidence Assists in avoiding the risk of the interviewee bias (i.e. the risk of the interviewee conveys his personal view, rather than the view of the representing organization) “Overall, interviews are an essential source [the most important] source of case study evidence because case studies are human affairs. These human affairs should be reported and interpreted though the eyes of specific interviewees.....However, the interviews should always be considered verbal reports only. As such they are subject to the common problems of bias, poor recall, and poor or inaccurate articulation. Again, a reasonable approach is to corroborate interview data with information of other sources” (Yin, 1994:85)

12. Interview Guide (some ideas) Reasons: Which were the motives that led the National regulator to adopt the IFRS principles for non-listed companies? To which extent the decision could be different in a difficult economic situation, as the one we are living nowadays? IFRS for SMEs: Why didn’t you adopt the pure IFRS (namely, the IFRS for SMEs)? [Regulator specific question] How would you react if the EC pushes to the adoption of IFRS for SMEs? Benefits: In your opinion, what are the key benefits of the accounting reform? Do you think that the adoption of the new accounting system will contribute to improve the quality/usefulness of accounting information at the national level? 4. Research Methodology INTACCT Varna Workshop

13. Interview Guide (some ideas) Problems/Costs: In your opinion, what are the expected problems associated with the adoption of IFRS-type accounting standards at the national level? IFRS’s in-country adequacy: Do you consider the IFRS philosophy suitable for the national environment? Do you think that the current enforcement mechanisms are sufficient to ensure the consistent application of the new accounting system? … Measures/Strategies: In your opinion, which measures/initiatives should be taken to ensure the proper adoption of IFRS model at the national level? Does your organization have any planned measures in this sense? ? 4. Research Methodology INTACCT Varna Workshop

14. Interview Guide (some ideas) Overall Value: Do you consider that the benefits of adopting IFRS-based standards by non-listed companies outweigh the costs/problems of implementation? Perceived role of the professional organization in the process of accounting change What was the role of your organization in the process of the accounting reform? Was there sufficient due process and involvement of all interested parties in the plan of convergence? … 4. Research Methodology INTACCT Varna Workshop

15. 4. Research Methodology Computer software data analysis (NVIVO 8.0) • Facilitates the appliance of the grounded theory analysis procedures • Allows flexibility and revision in the data analysis • Ensure completeness and refinement • Enables the triangulation of quantitative and qualitative data

16. 4. Research Methodology Qualitative Research Protocol • Interview recordings and transcriptions • Send a brief summary of the interview guide in advance to the organizations (c.f. O’ Dwyer, 2005) • Interview more than one individual from each organization (c.f. Flick, 2006) • Member-checks • Triangulation of data type and data sources • Maintaining a chain of evidence

17. 6. Concluding Remarks Expected Contributions • Theoretical contributions: Development a comprehensive theoretical framework to access the receptivity of the various interest groups towards the adoption of IFRS GAAP at the national level Such theoretical contribution might assist other researchers to develop comparative surveys (such as, longitudinal surveys and comparisons surveys of several countries). • Practical implications for the IASB and for national accounting standard-setters, as it is expected to provide important insights for debates about the relevance of IFRS for different interest groups.