IFRS in National Regulatory Space: Insights from Sweden

Abstract

Based on two empirical cases, this paper illustrates and comments on the complexities of implementing and enforcing International Financial Reporting Standards (IFRS) in a national setting. The paper sheds light on the difficulties that arise in the local regulatory space when IFRS requirements start to shape national accounting legislation and regulations. The findings suggest that the investor focus and requirements for managerial judgement of IFRS can pose two problems. Firstly, an extended influence of IFRS creates tension with established institutions that have developed in the local accounting tradition. Secondly, local organisations can respond strongly to new IFRS regulations and their potential implementation, even if the contradiction with local practice bears no immediate economic consequence to them. The study contributes to the contextualisation of financial accounting in national culture by highlighting the different understandings and uses of IFRS by actors involved in the Swedish regulatory space.

Keywords:

• IFRS
• regulatory space
• national regulation
• accounting change

Disclosure Statement

No potential conflict of interest was reported by the author(s).

Acknowledgements

The authors would like to thank the participants of the 14th Workshop on European Financial Reporting for their constructive feedback on an earlier version of this paper and the anonymous reviewers for their helpful comments.

Notes

1 Note that Hofstede Insights (2019) finds a low extent of uncertainty avoidance while GLOBE (2004) finds a high score for uncertainty avoidance. This seems contradictory at first but can be explained by the different definitions of uncertainty avoidance. Hofstede Insights’ (2019) definition is focused on the extent to which a culture feels threatened by ambiguous or unknown situations, while GLOBE (2004) defines uncertainty avoidance as ‘the extent to which a society, organization, or group relies (and should rely) on social norms, rules, and procedures to alleviate unpredictability of future events’. Hofstede Insights (2019) explains the low score with a Swedish lenience towards regulation and enforcement. Consequently, we interpret these findings in the light of the Swedish trust in the collective that is dominant in both culture studies. Swedish society strongly relies on social norms and rules, rather than legal enforcement, to alleviate unpredictability of future events. This explains the low score of uncertainty avoidance in the Hofstede Insights (2019).

2 The high level of taxes in Sweden reflects the extensive responsibility taken on by the state and local governments for collective services like, e.g., pension, education, and elderly care (Holmberg & Åkerblom, 2007, p. 42).

3 The difference in court judgements regarding compliance was based on different interpretations of the standard concerning the calculation of volatility of future cash flows (see Table 2 for an overview of the different judgements).

4 This study considers the mandatory IFRS adoption in Sweden as the original intrusive event in this case, as IFRS represent a conceptualisation of accounting that disagrees with pre-existing Swedish accounting tradition. Even if the mandatory adoption was five years before the disciplinary action, the HQ case was the first case in Sweden of such severe regulatory action, setting a precedent case for the enforcement of IFRS in Sweden.

5 We do not further discuss the role of EBM here, the specialty investigator and prosecutor of economic crimes in Sweden, as they share the views of the prosecution in the trial.

6 FFFS 2008:25 and FFFS 2015:12 follow IFRS to the maximum extent possible within Swedish legislation. With respect to financial instrument valuation and disclosure, banks must follow IFRS in full.

7 Of course, it is possible that the mutual insurance companies see indirect financial consequences of not reporting equity, such as hesitation by customers to buy new policies. However, in the interviews, the company representatives expressed their concerns by saying that reporting no equity would simply be ‘wrong and unfair’.