Accounting Standards Enforcement in an International Setting: Testing the Impact of Cultural, Religious, Political and Legal Environment on National Regulatory Efforts

As the world has become more connected through advancements in technology and expansions of multinational corporations, the call has grown louder for a global set of financial reporting standards to help compare the financial results of companies conducting business internationally to better measure performance in comparison with competitors from countries using diverse sets of local or international accounting standards. Although in theory a global set of reporting standards creates a more cohesive and comparable financial reporting environment, this argument fails to take into account how the underlying differences in the culture, political, and legal environments across nations impacts the enforcement of these standards. If the enforcement efforts of accounting standards do vary as a result of national characteristics, it adds an important dimension to the arguments for and against the globalization of accounting standards for the purposes of improved comparability and standardization, because it has implications for the comparability of financial reports across nations with differing levels of enforcement. This study evaluates whether the accounting standards enforcement efforts vary as a result of underlying differences in cultural, religious, political and legal environments. Whereas there is a body of literature focusing on the adoption of IFRS and the quality of financial reporting, this study provides a new and important contribution to the literature seeking to understand whether the often advocated widespread adoption of any set of international standards can provide the link in comparability across nations that proponents have been calling for. Rather than focusing on the standards themselves, this study focuses on the hypothesized determinants of variation in enforcement efforts across nations. The results indicate that there are systematic differences in enforcement based on underlying cultural, religious, political and legal environment differences.