Accounting harmonization in the BRIC countries: A common path?

Highlights

•	The aim of this study is to examine the adoption of the IAS/IFRS by the BRICs.

•	We develop a three-dimensional framework (political, economic and cultural dimensions) to investigate the different accounting harmonization processes.

•	We find that China and India issue national accounting standards based on the IAS/IFRS (‘translation/editing’), whereas Brazil and Russia fully adopt the IAS/IFRS (‘imitation’).

•	The political dimension, supported by the national culture and ‘community’, drives the decision process, even if the three dimensions are strictly interconnected.

•	National interests, as the highlighted ‘varieties of capitalism’ show, are currently limiting the standardization process and more broadly, the globalization.

Abstract

The aim of this paper is to understand the similarities and differences in the accounting convergence process of the BRIC countries. The study examines the evolution of these countries’ accounting systems by developing a three-dimensional framework based on the political, economic and cultural elements. Brazil and Russia merely imitate, whereas China and India edit and translate the international standards (‘informed divergence’). The political aspect, supported by the national culture and ‘community’, represents the main driver, even if the three dimensions are closely interconnected and overall, we show the current emergence of limits of the implementation of the dominant market model.

Keywords:

• BRICs
• Accounting harmonization
• Accounting systems
• IAS/IFRS
• GAAP

Acknowledgements

We are grateful for comments and suggestions from the Editor (Glen Lehman), the anonymous reviewers and from Lisa Baudot.

Notes

1 The four different patterns are:

1. Accounting within a macroeconomic framework;

2. The microeconomic approach;

3. Accounting as an independent discipline;

4. Uniform accounting.

2 The nine factors are:

1. Type of users of the published financial statements of listed companies;

2. Degree to which law or standards prescribes in detail and excludes judgment;

3. Importance of tax rules in measurement;

4. Conservatism/prudence (e.g. valuation of building, inventories, debtors);

5. Strictness of application of historical cost (in the main statements);

6. Susceptibility to replacement cost adjustments in main or supplementary statements;

7. Consolidation practices;

8. Ability to be generous with provisions (as opposed to reserves) and to smooth income;

9. Uniformity between companies in application of rules.