Institutional factors and the impact of international financial reporting standards: the Central and Eastern European experience

ABSTRACT

We examine the impact of International Financial Reporting Standards (IFRS) in the institutional context of the Central and Eastern European (CEE) member countries of the European Union. Extending prior IFRS research with national or multi-country regional insights from CEE, we investigate both firm-level financial reporting benefits and country-level benefits, together with the cost–benefit relationships involved, following from IFRS adoption. We survey expert professionals employed by Big 4 firms, acting as auditors and/or consultants in the application of IFRS, in locations across ten CEE countries. Financial reporting benefits, which are mainly firm-related, are perceived to have been realised to a higher extent than country-level benefits. Our analyses of micro-level institutional factors suggest that the accounting and auditing profession was the most valuable resource in the IFRS adoption process in CEE. A serious adoption process at the micro-level, signalled by high levels of perceived difficulties and regulatory impediments, along with resources available at the country-level and enforcement initiatives, is associated with financial reporting benefits. Country-level benefits are perceived to have materialised to a higher extent in countries with a lower quality of institutions, but with more organisational enablers available at the micro-institutional level. Benefits are perceived to exceed costs to a lesser extent in larger countries and in those with stronger institutions. This perception might be driven by higher expectations from IFRS in countries allocating more resources to IFRS and already having a more developed infrastructure. Overall, the benefits from IFRS adoption are perceived to overcome the costs in the long term.

KEYWORDS:

• Central and Eastern Europe
• effects of IFRS adoption
• IFRS
• institutional factors
• audit firm professionals
• survey

1. Introduction

This study examines the effects of International Financial Reporting Standards (IFRS) post-adoption, with a focus on the role of institutional factors in this process, in the emergingly important context of the Central and Eastern European (CEE) member countries of the European Union (EU). The EU currently has 28 member states (presently including the United Kingdom, until its withdrawal from the EU), of which 11 are former communist countries, transitioning or emerging economies from an economic standpoint. CEE countries represent the “growth engine” for the wider EU economy (CEE Investment Report, 2016) and account for approximately 20% of the EU's population. These countries form a distinctive group within the EU (Farkas, 2011), characterised by a code-law tradition, concentrated ownership and poor investor protection, low enforcement and low regulatory quality.

IFRS adoption was expected to be beneficial to both companies and countries (Brown, 2013, 2011). In developing countries, including the CEE region, IFRS adoption was often seen as a passport for attracting foreign direct investment (FDI) and furthering economic development (Carneiro, Lima Rodrigues, & Craig, 2017; King, Beattie, Cristescu, & Weetman, 2001; Ramanna & Sletten, 2014). Research investigating the effects of IFRS in the institutional context of the CEE countries is scarce for various reasons, including limited large database data availability and quality of existing data (Brüggemann, Hitz, & Sellhorn, 2013; ICAEW, 2014). These countries are less present in comparative international studies covering developed and some developing countries, because of their limited capital market development (e.g. Beneish, Miller, & Lombardi Yohn, 2015; Houqe, van Zijl, Dunstan, & Karim, 2012; Isidro & Raonic, 2012), but also absent from the studies focused on developing countries, because their EU membership indicates positive economic development (e.g. Samaha & Khlif, 2016). Where existent, literature points to the different organisational responses to national reforms, to a lower cost of adoption than in western economies and to mixed results regarding the extent to which the CEE countries having a weaker institutional infrastructure have benefited from the IFRS adoption. Hence, the key purpose of our study is to investigate how the institutional context of CEE countries impacts the realisation of the benefits of IFRS in this region. We investigate any cross-sectional differences based on the development of the countries’ capital markets.

To this end, we surveyed expert professionals employed by Big 4 accounting firms in locations across the CEE countries, acting as auditors and/or consultants in the application of IFRS in the region. Auditors have been used before as experts in IFRS studies, as they have solid IFRS knowledge, are familiar with the national and international contexts, have business acumen and are proficient in English (Albu, Albu, & Alexander, 2014; Nurunnabi, 2017; Sucher & Jindrichovska, 2004).

Our respondents take a moderately optimistic view about the effects of IFRS adoption in the CEE countries. Accordingly, IFRS is perceived to have contributed to an improvement in financial reporting benefits in the CEE countries (i.e. comparability, transparency and relevance of financial information reported), while additional country-level benefits are perceived as having materialised to a lesser extent (i.e. capital market development, attracting foreign investment, and increases in the competitiveness of the local environment).

Respondents’ perceptions regarding the factors associated with the IFRS adoption process are analysed as enablers, impediments, necessary improvements and the level of difficulty in the IFRS adoption process. Our paper highlights the important role played by the accounting and auditing profession in these countries to the IFRS adoption process and the materialisation of benefits. Also, we emphasise the crucial role played by the accounting and regulatory infrastructure in the process. We particularly find improvements in the role of stakeholders (such as investors, users or advisors) and organisational enablers (such as the commitment of the entity's management or the budget allocated to this process) to be fundamentally important. Finally, we indicate that more serious efforts made in the adoption process may lead to superior effects (in terms of benefits and a more beneficial cost–benefit relationship).

Respondents from larger countries, with stronger enforcement, perceive higher financial reporting benefits, thus confirming the crucial role of enforcement for the realisation of IFRS benefits (Li, 2010) and of allocated resources at the country level (assuming that country size may be a proxy for the resources available for IFRS adoption). Moreover, we find that country-level benefits materialised to a higher extent in countries with a lower quality of institutions, thus extending the results of Djatej, Gao, Sarikas, and Senteney (2011) that the less developed institutional infrastructure of CEE countries is associated with higher benefits from IFRS adoption. We find that the cost–benefit relationship is negatively associated with country size and quality of institutions, which means that smaller countries having weaker institutions benefit more from adoption. This result should be useful to any developing country envisaging adopting IFRS.

The main contribution of our study is in adding an enhanced understanding of the institutional context of the CEE countries and its influence on the effects of IFRS adoption. Institutional factors play a significant role in the realisation of the economic effects of accounting standards (Ball, 2006, 2016; Brown, 2013; Peng & Bewley, 2010; Soderstrom & Sun, 2007). As emerging economies, they have an underdeveloped accounting infrastructure and the effects of IFRS adoption are likely to be conditioned by other regulatory and business improvements (Peng & Bewley, 2010). However, few studies provide an in-depth investigation of the effects of the implementation of trans-national governance regimes such as IFRS in diverse institutional contexts (Gillis, Petty, & Suddaby, 2014).

Second, and relatedly, we provide evidence from an under-investigated region, yet increasingly important from an economic and strategic perspective (Albu, Albu, & Filip, 2017). More than ten years after the adoption of IFRS in the EU, it is clear that practitioners, regulators, professional associations and other parties are interested in the consequences of mandatory IFRS adoption in the EU region as a whole. However, while the EU countries are among the most widely studied IFRS settings (Brown & Tarca, 2012), the literature reviews conducted at the EU level (Brüggemann et al., 2013; ICAEW, 2014; Pope & McLeay, 2011) show that most of the research covers those EU countries geographically located in Western rather than Eastern Europe and is biased toward large companies where data is readily available in databases (Brown, 2013; Brüggemann et al., 2013; Singleton-Green, 2015).

Finally, our research responds to recent calls for more research on European financial reporting that has relevance to both managers and policy makers (Weetman, 2018). Further, this study responds to the call to investigate the effects of IFRS using refined samples to gain deeper insights (Brown, 2013) and employing methodologies alternative to capital market-based studies (Brown & Tarca, 2012) by utilising surveys and expert knowledge (Brüggemann et al., 2013). Surveying experts in the form of audit firm professionals gives valuable insights into the effects of IFRS not available otherwise (Brown & Tarca, 2012; Morris, Gray, Pickering, & Aisbitt, 2014).

Our paper is structured as follows: the next section presents the institutional background and factors relevant to developments in the CEE countries together with a review of relevant studies. The theoretical framework and the research methodology are then detailed, followed by the discussion of the results. Finally, we provide our conclusions.

2. The institutional context of, and IFRS literature on, CEE countries

2.1. The context of CEE countries

The CEE member states of the EU share a communist past and the struggles of continuously reforming local institutions thereafter. They all underwent radical and sustained economic and regulatory changes on their reform pathway (Kocourek & Friedberg, 2015), and their success or failure in this process remains a matter of importance for other developing countries (Orenstein, 2009). However, they still present significant differences from Western Europe and represent an independent model of capitalism (Farkas, 2011), characterised by lack of capital, underdeveloped capital markets and weaker quality institutions (Farkas, 2011). These countries also experienced one of the fastest economic growth rates in the world prior to the global financial crisis (Labaye et al., 2013). Some recent economic development increased the interest of foreign (mostly U.S. but also some Western European) institutional investors in the region (CEE Stock Exchange Group, 2012). The positive evolutionary developments in these countries included: the strong commitment to continue their reforms, a highly educated yet affordable workforce, good infrastructure and technological support, which all triggered a shift in the FDI interest from low-cost labour production to high value-added production. Further positives are stable economic and political climates, comparable to the rest of the EU; improvements in terms of fighting corruption; strategic location; and a largely harmonised legal framework (Huth, Rajčan, & Kubica, 2014; Kocourek & Friedberg, 2015; Labaye et al., 2013).

However, CEE countries have different degrees of economic development, regulatory quality, overall governance, institutional strength and business climates (Aslund, 2013; Djatej et al., 2011; Huth et al., 2014) (see Table 1).

Table 1. Economic and financial market development variables of the CEE countries.

Country/Indicator	Population (mil.)	Gross National Income per capita (USD)	Gross Domestic Product (mil. USD)	Domestic companies listed on the national regulated market	Market capitalisation (mil. USD)	Market capitalisation (% GDP)	Enforcement	Quality of institutions
Bulgaria (BG)	7.178	7480	50,199	387	6666	12.7	0.75	3.5
Czech Republic (CZ)	10.546	18,150	185,156	17	37,163	18.0	1.09	4.2
Estonia (EE)	1.315	18,310	22,460	16	2332	10.3	1.47	5.1
Hungary (HU)	9.843	12,970	121,715	51	21,080	16.6	1.26	3.3
Latvia (LV)	1.977	14,980	27,026	31	1115	3.9	1.07	4.0
Lithuania (LT)	2.904	15,090	41,402	33	3964	9.4	1.14	4.2
Poland (PL)	37.986	13,300	477,337	844	177,730	35.8	0.77	4.0
Romania (RO)	19.815	9520	177,523	77	15,925	9.4	0.53	3.6
Slovakia (SK)	5.424	17,570	87,268	69	4611	5.0	1.14	3.5
Slovenia (SI)	2.064	22,250	42,777	61	6475	14.0	0.81	4.1

Note: Population, Gross National Income (GNI) per capita and Gross Domestic Product (GDP) are taken from World Bank (2017) and are based on 2015 data. Data for the number of domestic listed companies and market capitalisation are taken from World Bank (2017) and refer to 2012. Enforcement is proxied with the Regulatory quality from Kaufmann, Kraay, and Mastruzzi (2009). The quality of institutions comes from WEF (2016); the score reflects on a scale from 1 to 7 (1 is the lowest, 7 is the best) the legal and administrative framework in which individuals, firms, and governments interact to generate wealth. We excluded Croatia from the analyses given its more recent accession to the European Union (EU), in 2013, relative to the other countries. The study will then only focus on the remaining 10 CEE countries members of the EU. Country codes are taken from https://www.worldatlas.com/aatlas/ctycodes.htm.

While the CEE countries represent a group that is relevant taken as a whole (Farkas, 2011), the size of the various CEE countries varies from 1.3 to 37.9 million inhabitants (Table 1), with Poland and Romania being the largest countries. The size and development of the CEE countries’ stock markets also vary, with Poland having by far the largest stock market, followed by the Czech Republic and Hungary. Bulgaria and Romania lag behind the other countries (these two countries became EU members some years later than others) in terms of the quality of their institutions.

When CEE countries became members of the EU, they established an adherence to the European regulatory framework, yet “although the written laws of these countries are similar to or even better than those of western European countries (Mueller & Peev, 2007), enforcement mechanisms in place are rather inefficient” (Albu et al., 2017, p. 251). These countries still experience a continuous process of changing their regulatory framework and institutional infrastructure, including the mechanisms and institutional arrangements through which rules and regulations are transformed into practices. This continuous change generates difficulties for conducting archival research and especially time series analysis, questioning the relevance of available proxies (Albu et al., 2017), but offers research opportunities for alternative methodologies to capital market-based studies (Brown & Tarca, 2012).

2.2. IFRS in CEE countries

CEE countries underwent several waves of accounting reforms on their way to adopting IFRS. While national experiences may have been impacted by the different accession dates and reform strategies, all these countries ended up adopting IFRS. The EU membership requiring IFRS use by listed firms in their consolidated financial statements drives similar evolutions and expectations across the region in this respect.

The expected benefits of IFRS adoption noted in the EU's announcement in 2002 included, at the EU level, eliminating barriers to cross-border trading in securities, obtaining more reliable, transparent and comparable information, increasing markets’ efficiency and reducing the cost of capital, ultimately resulting in improvements in competitiveness and helping to boost growth (Brown, 2011; Brown & Tarca, 2012). The early European Commission's reports (EC, 2015; Ineum Consulting, 2008) were optimistic about the effects of adoption and the achievement of these objectives.

Literature on the effects of IFRS worldwide or at the EU level has significantly increased in recent years. For example, ICAEW (2014) identifies 170 research papers on the effects of IFRS in the EU. Other literature reviews performed for the EU region include Soderstrom and Sun (2007), Pope and McLeay (2011), and Brüggemann et al. (2013). The main research questions addressed in such studies relate to the effects of adoption and to the degree of realisation of the expected benefits. Given the diverse economic and institutional contexts of EU countries (e.g. common law versus code law countries), various institutional variables are employed to explain the outcomes of IFRS adoption.

However, most of the international comparative studies focus on developed countries. The literature reviews performed point to the limited evidence gathered from the CEE countries.¹ Given the limited development of CEE capital markets, three countries (i.e. Poland, Hungary, and the Czech Republic) are usually the only ones from the region included in international comparative studies (Houqe et al., 2012; Isidro & Raonic, 2012). Therefore, these international comparative studies provide partial insights and are limited to just a few CEE countries. Referring to the limited available insights from CEE, Singleton-Green (2015, p. 175) argues that, for policy and practice relevance, “this is unfortunate, as it might be expected that the effects of IFRS adoption would be of particular interest for economies that are emerging into world capital markets following decades of socialist seclusion”.

The macro-economic (country) effects of IFRS adoption are also looked at in prior literature. These studies usually employ larger samples of countries and rely on information provided by various international organisations (e.g. World Bank Reports on the Observance of Standards and Codes-ROSCs, Deloitte updates on IFRS adoption around the world²) to test the determinants and consequences of IFRS adoption. For example, Chen, Ding, and Xu (2014) study a sample of 30 countries, including the Czech Republic, Hungary, Poland and Slovakia, and find that IFRS adoption may lead to an increase in FDI, the relation being stronger for country pairs with greater institutional differences. This finding suggests that CEE countries included in the studies experience high benefits from IFRS adoption, given the institutional differences from their developed economic partners.

Existing academic literature covering the CEE countries and various World Bank ROSCs suggest that the IFRS experience of CEE countries is diverse not only because of the different accession dates but also because of the various national strategies used by country regulators to converge with IFRS prior to the accession date.³ The literature (Jaruga, Fijalkowska, Jaruga-Baranowska, & Frendzel, 2007; King et al., 2001) indicates that international accounting standards were recommended as benchmarks during the early accounting reforms carried out in the CEE countries. Consequently, national financial reporting regulations converged in several countries with IAS/IFRS prior to the EU's 2002 decision to adopt IFRS for listed companies,⁴ but the degree of convergence and patterns were not comparable (Albu & Albu, 2014).

Most studies investigating IFRS adoption in the CEE countries are single country studies and mainly employ qualitative methodologies (Brown & Tarca, 2012). Such studies focus on the difficulties of IFRS adoption (Sucher & Jindrichovska, 2004; Vellam, 2004), the event of IFRS adoption given the stages in the accounting reforms (Alver, Alver, & Talpas, 2014; Jaruga et al., 2007) and some of the effects of adoption (Albu & Albu, 2012; Albu et al., 2014; Ionaşcu, Ionaşcu, Olimid, & Calu, 2007; Krzywda & Schroeder, 2007). For example, Vellam (2004) and Sucher and Jindrichovska (2004) analyse the IFRS adoption process in Poland and in the Czech Republic respectively, and point to the difficulties generated by the prevailing tax orientation, the role of the State in accounting and the unpreparedness of the accounting profession in the countries they investigated. Ionaşcu et al. (2007) look at the costs of applying international accounting standards in Romania, and find that the cost is lower than in western countries. Albu and Albu (2012) find that, in the short term, the costs of IFRS adoption in Romania exceeded its benefits, but in the long term the situation might be reversed.

Only a few studies analysed the CEE countries as a whole or performed comparative studies. Djatej et al. (2011) find that IFRS are more beneficial for Eastern European countries than for Western European ones in the sense of reducing information asymmetry. Marquez-Ramos (2011) reports that EU countries (the sample includes most of the CEE countries) benefited from an increase in FDI as a result of IFRS adoption, with those having a high uncertainty aversion (i.e. the CEE countries in the sample) having higher benefits. Lungu, Caraiani, and Dascălu (2017) investigate the extent to which 23 emerging European countries, including EU and non-EU members, benefit from a higher increase in FDI associated with the IFRS adoption. Their study reports that IFRS adopters have higher increases in FDI than the non-adopters, and that the overall benefit is higher for EU members. However, the magnitude of the FDI increase after IFRS adoption is higher for non-EU members.

Even though these studies covering the region bring valuable contributions to the international literature, they investigate only some of the benefits expected from IFRS adoption, some of the CEE countries, or do not directly discuss the role of institutional factors associated with the application of IFRS.

Concluding, CEE countries represent an interesting and important institutional context to investigate, as examples of an “unfavorable environment” for IFRS (Karampinis & Hevas, 2011; Mantzari, Sigalas, & Hines, 2017), characterised by a code-law tradition, concentrated ownership and poor investors’ protection, low enforcement and low regulatory quality. CEE countries have more to learn within the process of IFRS adoption than developed countries, with an Anglo-Saxon culture and with effective regulations (Brown, 2013), given their European Continental tradition in accounting, the less developed profession, and the needed legislative and institutional processes. We emphasise ICAEW’s (2014) inference that the benefits observed across the EU are uneven and vary within the EU, given the differences in the institutional context. The underlined importance of institutional factors in relation to IFRS adoption calls for studies in the CEE region, given their particular institutional context.

3. Theoretical context

Most of the accounting literature investigating the role of the institutional context in IFRS adoption distinguishes between firm- and country-level institutional factors (Brüggemann et al., 2013; ICAEW, 2014). However, institutional theory covers more layers or levels of analysis, including the world-system, societal level, organisational field, organisation and organisational subsystems (Scott, 2008). These multiple levels of analysis are acknowledged in the IFRS literature. For example, Soderstrom and Sun (2007) advance a two-layer framework for the country-level determinants of accounting quality. Moreover, Guerreiro, Rodrigues, and Craig (2015) distinguish between the societal (macro-economic level), the organisational-field level and the organisational level in their study of the adoption of an IFRS-adapted system in Portugal. The organisational field represents a level of institutional analysis situated between the organisation and societal level, including a community of organisations sharing key stakeholders (Scott, 2008).

Following this stream of literature acknowledging more levels for an institutional-based analysis, we distinguish in our paper between macro- and micro-level institutional factors. The macro-level institutional factors are in line with the country-level variables usually employed in IFRS studies. The IFRS literature (e.g. Brüggemann et al., 2013; ICAEW, 2014) emphasises the role of enforcement and the quality of local institutions, including local GAAP, as country-level factors mediating the effects of IFRS. It is likely that countries with stronger enforcement and better regulatory infrastructure observe more benefits from IFRS adoption (ICAEW, 2014; Li, 2010). The size of a country might have an impact on IFRS application as well (Ramanna & Sletten, 2014), being a proxy for the visibility of the country at the international level as well as of the resources available for the adoption process.

One of the challenges in conducting research on CEE countries is that they underwent numerous changes in earlier decades, difficult to be captured by the usual proxies employed by archival research (Albu et al., 2017). First, literature on these countries illustrates how regulatory changes are symbolic in many cases, with significant departures or delays in practice (Sucher & Jindrichovska, 2004) and a wide variety of organisational practices (e.g. Albu et al., 2014; Ionaşcu et al., 2007), reflecting diverse responses to the macro-level reforms. Micro-level institutional factors can therefore better capture the effects of reforms in these countries. Second, existent proxies for various variables (such as enforcement or level of convergence with IFRS) do not keep the pace with regulatory and company practice developments. For example, prior studies indicate that the strength of local standards has an important role in IFRS application (Soderstrom & Sun, 2007). In this regard, CEE countries faced several rounds of reforms to bring their local standards closer to IFRS (Albu & Albu, 2014). The process is continuous and difficult to be captured by up-to-date country-level proxies.

Therefore, we employ a second level of analysis, reflective of the organisational field level (Guerreiro et al., 2015; Scott, 2008). This level of analysis echoes how groups of companies perceive the institutional context around IFRS (such as quality of national regulations), and so they are reflective of micro- rather than macro-level institutional factors. This level of analysis allows us to substitute for the lack of available recent proxies for some of the macro-level institutional factors for CEE countries, and to incorporate the variety of micro-level responses to IFRS existent in CEE countries. This variety exists, for example, because companies are subject to different firm-level factors (e.g. the budget available for IFRS), or because different groups of companies understand and react differently to country-level factors (for example, enforcement).

Generally, the analysis of the institutional experience with IFRS at the micro-level is based on a filter of institutional factors and it refers to difficulties, enablers and impediments. Based on Larson and Street (2004) and on country-based materials (Albu & Albu, 2012; Sucher & Jindrichovska, 2004; Vellam, 2004; World Bank reports), we expect companies from the CEE countries to face impediments including, but not limited to, the complicated nature of IFRS, the close relation between accounting and taxation, the gap between national regulations and IFRS, the insufficient guidance in the implementation of the standards, the underdeveloped capital markets, the satisfaction with national regulations, translation issues and the lack of specific transactions. Conversely, other factors are expected to be enablers of IFRS adoption: the qualification of accountants, the budget allocated to the application process, the developments of the IT system, the degree of convergence of existing regulations with IFRS, the external advice received, and the availability of training and management support (Albu et al., 2014; Alver et al., 2014). Furthermore, developments in the local context, such as improvements in corporate governance, enforcement, separation of accounting from taxation, training and increasing user demands are expected to influence the long term effects of IFRS adoption (Soderstrom & Sun, 2007).

We conduct a cross-sectional analysis based on the development of the countries’ capital markets. In line with prior literature (Larson & Street, 2004; Sucher & Jindrichovska, 2004; Vellam, 2004), we expect countries with less developed capital markets to face more impediments in the IFRS adoption process. Moreover, we explore how the benefits are perceived in countries with different stages of development of their capital markets. Prior research provides mixed results in this respect. On the one hand, some studies contend that benefits resulting from IFRS adoption are perceived to be lower in countries with less developed capital markets of their limited infrastructure (professional development, enforcement etc.) (Ramanna & Sletten, 2014). On the other hand, prior studies investigating particular benefits (and especially the consequences of IFRS adoption on attracting FDI) find that less developed countries enjoy higher benefits (Beneish et al., 2015; Chen et al., 2014; Djatej et al., 2011; Gordon, Loeb, & Zhu, 2012).

4. Methodology

To overcome the difficulties of conducting cross-country studies in the CEE countries as reported in prior research, we collected data for this study by employing a questionnaire-based survey of IFRS experts. Surveys, along with interviews, provide researchers with the opportunity to investigate complex, multi-facet phenomena (Speklé & Widener, 2018) and to collect data in settings with limited availability of other type of data about accounting practices (Albu et al., 2017). These methods collect the perceptions of respondents reflecting their understanding of a phenomenon (Fontes, Rodrigues, & Craig, 2016) which is critical in cases of change (such as IFRS application). A number of studies using expert (preparers, users, investors, academics, Big 4 auditors) opinion on IFRS adoption issues have recently been conducted (e.g. Daske & Gebhardt, 2006; De George, Ferguson, & Spear, 2013; Fox, Hannah, Helliar, & Veneziani, 2013; Morris et al., 2014; Navarro-Garcia & Bastida, 2010). This type of research likely gives useful insights into the costs, benefits and adoption issues involved (Brown & Tarca, 2012; Morris et al., 2014).

The experts surveyed for this study are Big 4 professionals acting as auditors and/or consultants in the application of IFRS in CEE countries. The Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, and Slovakia together with Slovenia acceded to the EU in 2004, Bulgaria and Romania in 2007, and Croatia in 2013. Given that Croatia acceded to the EU much later than the other countries, we exclude it from our sample.⁵ These professionals have extensive IFRS knowledge (Fontes et al., 2016; Hoogendoorn, 2006; Tokar, 2005) and are recognised as important actors at a global level (Guerreiro, Rodrigues, & Craig, 2008) and in the CEE region (Albu, Albu, Fekete Pali-Pista, & Cuzdriorean Vladu, 2011). Several studies investigating issues around IFRS adoption are based solely on auditors’ opinions (Abdullah, Khadaroo, & Zhameshov, 2014; Larson & Street, 2004; Nurunnabi, 2017). Big 4 professionals are experts in standards and regulations, and have had access to various client companies applying them. Therefore, they have had the opportunity to see with external eyes, in-depth, the organisational context of the companies applying IFRS. Moreover, Big 4 professionals have been shown to have a good understanding of the macro-economic environment as well. Prior survey and interview-based literature mobilises auditors’ understanding of the local institutional context to investigate the issues surrounding the IFRS application (Albu et al., 2014; De George et al., 2013; Nurunnabi, 2017; Sucher & Jindrichovska, 2004). The interview-based studies employed auditors’ views on the strengths of the enforcement system, education issues, the impact of culture and the role of various stakeholders in the application of IFRS. Furthermore, the studies conducted in the region (Albu et al., 2014; Sucher & Jindrichovska, 2004) suggest that Big 4 firms and their professionals have a stronger role than in Western European countries, representing enforcement mechanisms, IFRS education providers and regulatory advisors. Therefore, their views are significant and go beyond the immediate audit implications of the IFRS application.

Big 4 firms have financial interests associated with the application of IFRS (Chand & White, 2007). However, Big 4 auditors have publicly discussed difficulties in the adoption of IFRS in the EU (Hoogendoorn, 2006; Tokar, 2005). While, arguably, preparers would be inclined to be more pessimistic about IFRS effects (Morris et al., 2014) and Big 4 professionals more optimistic, the literature does not find significant differences between the perceptions of these groups (see Lantto, 2007 for Finland; Joshi, Bremser, & Al-Ajmi, 2008 for Bahrain or Fox et al., 2013 for the UK and Italy). Additionally, surveying preparers generates limitations in the data because many benefits are likely difficult to identify at the company level (Ball, 2016). By surveying Big 4 professionals we have access to the experience of more companies and to a more general view at the country level.

The main challenges in collecting survey data in multiple countries include access to experts and language barriers. We overcome these difficulties with our methodological choices of surveying Big 4 professionals who are reported to be fluent in English. Accordingly, only the English language was used in the survey instruments.

Our questionnaire included in total 13 questions collecting demographic information about the respondents (first 5 questions) and questions on the application of IFRS by non-financial companies (8 following questions, including an open-ended one). The survey instrument is detailed in Appendix. In the cover letter we asked our respondents to complete the survey having regard to their experience with non-financial companies when answering the questionnaire. The IFRS experience of financial institutions and banks differs significantly from that of non-financial companies (e.g. World Bank, 2005a, 2007, 2008a, 2008b), so we exclude these entities for the purposes of our study. We did not ask respondents to distinguish between mandatory and voluntary IFRS adoption by the companies they worked with. The reason for doing so is that the scope of IFRS changed over time in the countries covered by our study, which makes it possible that at some point some companies were required to apply IFRS (or national standards based on IFRS) and later they were outside the regulatory requirement, but voluntarily continued to apply IFRS.

The first group of questions collected demographic data (respondent's country, their IFRS experience in terms of number of years and number of companies, type of IFRS experience (auditor, consultant, or both), and gender) and were followed by IFRS-related questions. In the cover letter and by the framing of the questions,⁶ respondents were solicited to use their overall IFRS experience, which alleviates the short-termism of the opinions expressed immediately after or before IFRS adoption. The questions covered the following issues related to IFRS adoption: the perceived difficulty of transitioning to IFRS; the level of costs⁷ (expressed as a percentage in total sales, for comparability reasons with prior studies [De George et al., 2013; Ionaşcu et al., 2007]); the perceived benefits (a list of benefits derived from the literature, for example Brown [2011], with an assessment on a 5-point Likert scale); the perceived relationship between costs and benefits; and the perceived importance of the factors enabling or impeding IFRS adoption (Larson & Street, 2004). The questions pertain to the cost–benefit analysis of IFRS in practice, a matter of importance for standard setters, regulators, local enforcers, and preparers, but difficult to be operationalised in accounting research. Since more than one construct is assessed by respondents, we employ PCA as an appropriate approach to deal with survey data (Nazari, Kline, & Herremans, 2006).

The survey was pre-tested with three auditors working in the Romanian firm member of the network of independent firms affiliated with one of the Big 4 firms. Best practice in the conduct of surveys recommends that individuals for pre-testing should be selected based on two criteria: be representative of the population that will complete the survey and be willing to provide constructive feedback (Nazari et al., 2006). Moreover, literature on the methodological issues surrounding surveys emphasises the importance of identifying the “knowledge location” (Noy, 2008). Consequently, we selected individuals for pre-testing who were previously interviewed for other studies by the research team, for their knowledge and understanding of the field and also for their willingness to support IFRS research. Since the targeted population to be surveyed is mostly comprised of auditors, three auditors having different levels of experience are representative of the population.

Several questions were adjusted as a result of the pilot testing, to improve clarity and relevance. One major change was the elimination of the question related to the name of the firm, to mitigate any risk of biased responses. This elimination did not allow us to test within the sample any potential differences between firms. However, prior work on interviews with Big 4 auditors on the issues surrounding IFRS application did not point towards the existence of a “firm opinion” biasing responses (Albu et al., 2014; Nurunnabi, 2017; Sucher & Jindrichovska, 2004). Another adjustment was related to introducing a question regarding the type of job in which the respondent had experience with IFRS, i.e. auditor, consultant, or both. During the pre-testing it emerged that respondents would feel more comfortable in responding if the role was more clearly identified and not given only the general label of “auditor”. The questionnaires filled-in during the pre-testing were not included in the sample.

We emailed an electronic version of the questionnaire to the Big 4 local firms in the region with an invitation to participate (first main mailing in October 2014, second main emailing in March 2015); additional reminder emails were sent to Big 4 firms in the region and to other contacts to endorse the participation in countries with initial low rates of response. We invited auditors and consultants with IFRS experience to complete the questionnaire. We did not ask for specific positions (such as managers, seniors etc.) to respond since respondents were invited to incorporate their entire IFRS experience in their feedback.⁸ Inferences can be made, however, regarding the respondents’ views based on the number of years of experience with IFRS reported in the answers. Given the low rates of response to surveys usually reported in prior literature (Van der Stede, Young, & Chen, 2007) we encouraged both online completion and in hard copy, to cope with any preference of respondents. The online instrument is reported to be an inexpensive tool to reach large and difficult-to-obtain populations access (Brandon, Lomg, Loraas, Mueller-Phillips, & Vansant, 2014). For the purposes of our study we also benefited from the support of the Romanian Big 4 offices, whom we asked to encourage participation from the local firms in other countries in the region. In doing so, the Romanian firm members of the Big 4 networks functioned as an endorsement for the survey – an approach recommended in survey-based research (Speklé & Widener, 2018; Van der Stede et al., 2007) to increase participation.

By the end of March 2015 a total number of 156 questionnaires were received. 4 questionnaires were discarded for having more missing answers than completed ones. Of the remaining 152 questionnaires, some had missing answers for one or two questions, and we decided to deal with them on an individual basis, rather than discarding entirely the completed questionnaire.⁹ The demographic data for our sample are shown in Table 2.

Table 2. Demographic data of respondents.

Country	Number of respondents		Gender		Experience with IFRS
	Total	% total sample	Male	Female	Length (in years) Mean (median)	Number of companies Mean (median)	Type of experience (number of respondents)
							Audit	Consultancy	Audit and consultancy
BG	13	8.55	5	8	5.62	14.77	11	0	2
					(5.0)	(10)
CZ	15	9.87	9	6	6.07	17.67	5	3	7
					(5.0)	(15)
EE	10	6.58	5	5	6.7	9.0	7	0	3
					(6.0)	(9.0)
HU	15	9.87	8	7	7.13	14.4	6	0	9
					(7.0)	(12.0)
LV	11	7.24	4	7	6.36	5.82	8	0	3
					(5.0)	(5.0)
LT	10	6.58	5	5	7.4	16.5	7	0	3
					(5.0)	(5.5)
PL	24	15.78	14	10	7.92	12.33	16	0	8
					(8.0)	(10.0)
RO	28	18.42	13	15	6.82	17.64	22	0	6
					(6.0)	(10.5)
SK	16	10.53	9	7	6.19	11.88	11	2	3
					(5.0)	(10.0)
SI	10	6.58	7	3	6.6	20.5	6	0	4
					(5.5)	(10.0)
Total	152	100	79	73	6.77	14.32	99	5	48
					(6.0)	(10.0)

Table 2 shows that the number of respondents per country ranges from 10 to 28, with fewer responses from the smaller CEE countries (Estonia, Lithuania, Slovenia) and more responses from the larger countries (Poland and Romania). The sample size and country representation is comparable to other IFRS studies using surveys (Cole, Branson, & Breesch, 2011; Jermakowicz & Gornik-Tomaszewski, 2006).¹⁰

To check for non-response bias, we used two-tailed Mann–Whitney tests on the first and last 25 respondents. No significant differences were obtained at the conventional level of 1%. We did not find any significant differences between the answers provided by males and females either. Moreover, gender is not significantly correlated with the answers to any of the questions. The average length of work experience with IFRS is 6.77 years¹¹ (mode 5 years). Given the respondents’ experience with more than one company (sample mean 14.32 companies), the utilisation of Big 4 professionals as experts allows for a significantly higher access to national practices than using other experts such as preparers. Approximately two thirds of the respondents (99 respondents; 65.13%) have experience in auditing IFRS financial statements, 31.57% (48 respondents) have experience in both auditing and consulting, and only a few respondents (5; 3.3%) have only IFRS consultancy experience.

5. Empirical results

5.1. Effects of IFRS adoption

We examine, first, the most obvious effects of accounting standards which include the benefits and the costs of adoption (Haller et al., 2012; ICAEW, 2014). We asked respondents to assess a list of potential benefits derived from IFRS on a 5-point Likert scale (1 = less important; 5 = very important). All benefits were perceived to have been realised to a medium to high extent (mean values of 3.5 and higher) (Table 3).¹²

Table 3. Benefits perceived for CEE countries.

Benefits	CEE region		Perceived level of benefits experienced by country
	% some and strong importance	Mean	Higher level	Medium level	Lower level
Capital market development	48.027	3.539	SK	BG, EE, HU, LV, LT, PL, RO, SI	CZ
Attraction of foreign investments	71.052	3.961	HU, SK	BG, EE, LV, PL, RO, SI	CZ, LT
Increased competitiveness of the local environment	44.736	3.493	EE	BG, LV, LT, PL, RO, SK	CZ, HU, SI
Increased transparency of reported information	94.736	4.461	EE, PL	BG, CZ, HU, LT, RO, SK, SI	LV
Increased relevance of reported information	87.500	4.382	BG, HU, SK	CZ, EE, LT, PL, RO, SI	LV
Increased comparability of reported information	95.394	4.605	HU, SK	BG, CZ, EE, LV, PL, RO	LT, SI
No. observations	152	152

Note: Benefits are measured on a 5-point Likert scale (1 = less important, 5 = very important). Increased transparency of reported information, increased relevance of reported information and increased comparability of reported information are Financial Reporting Benefits. Capital market development, attraction of foreign investments and increased competitiveness of the local environment are Country-Level Benefits. We report the overall mean as well as the % of respondents that answered that the benefits materialised to a medium or high degree (4 or 5). Countries are classified as experiencing a medium level of benefits if the mean value is not significantly higher or lower than the mean value for the region (significant differences from the sample's mean at 10% were considered). Country codes are as defined in Table 1.

We conduct PCA¹³ with varimax rotation to narrow down the listed benefits to more meaningful sets of benefits (the Kaiser-Meyer-Olkin measure of sampling adequacy is 0.69; the analysis passed Bartlett's test of sphericity). All items have loadings above the conventional level of 0.30, confirming their contribution to the underlying construct (Nazari et al., 2006). Considering the loadings and the way benefits are discussed in the literature (Brown, 2011; 2013; Brüggemann et al., 2013), we label the components (1) Financial Reporting Benefits (comprising increased transparency, relevance and comparability of reported information) and (2) Country-Level Benefits (comprising capital market development, attraction of foreign investments and increased competitiveness of the local environment) (Table 4).¹⁴

Table 3 indicates that the Financial Reporting Benefits of IFRS application were perceived to have been realised to a higher extent than the Country-Level Benefits in the CEE countries (the mean values reported are higher than 4 for all items classified as Financial Reporting Benefits and lower than 4 for all items classified as Country-Level Benefits). Results suggest high levels of perceived benefits in the areas of increased comparability, transparency and relevance (in this order) of the reported information. All these benefits are mainly firm-related. We thus confirm from a different perspective (i.e. through a perception study) and for the entire CEE region the pervasive view that IFRS resulted in an increase in the comparability and transparency of accounting information in the EU countries (ICAEW, 2014).

The perceived importance of Country-Level Benefits is slightly higher than medium across the entire sample (overall mean values between 3.0 and 4.0) (Table 3). Attracting FDI ranks first in the group of Country-Level Benefits (mean 3.96, p < 0.01). IFRS adoption was advocated in the CEE countries as a means to attract FDI and to support economic development (King et al., 2001), and we observe and confirm to some extent the materialisation of these expectations. However, even if most objectives associated with IFRS adoption were situated at the country level (i.e. FDI, development of the capital markets), our results indicate that firm-level benefits, which are immediate in nature, are perceived to have materialised to a higher extent than Country-Level Benefits (all Financial Reporting Benefits are significantly higher than the Country-Level Benefits at p < 0.01).

Table 5 reports the cross-sectional analysis of perceived benefits. We split the sample based on the level of capital market development (Table 1) and characterise Poland, the Czech Republic and Hungary as having more developed capital markets than the other countries. This is in line with prior comparative studies (i.e. Isidro & Raonic, 2012) including only these CEE countries in their analysis. Table 5 shows that there is only one type of benefit with a significantly different materialisation extent. Respondents from less developed countries perceive that IFRS resulted in an increased competitiveness of their local environment to a higher extent than respondents from developed countries.

Table 4. Types of benefits.

Types of benefits	Benefits	Factor loadings
Country-Level Benefits Variance explained 29.938%	Capital market development	0.853
	Attraction of foreign investments	0.850
	Increased competitiveness of the local environment	0.521
Financial Reporting Benefits Variance explained 29.369%	Increased transparency of reported information	0.826
	Increased relevance of reported information	0.797
	Increased comparability of reported information	0.615

Note: Benefits are grouped as Country-Level Benefits and Financial Reporting Benefits using Principal Component Analysis. Factor loadings (varimax with Kaiser normalisation) are presented. All benefits have loadings higher than 0.5.

Table 5. Cross-sectional analysis of perceived benefits.

Benefits	Mean for the overall sample	Development of the capital market
		Less developed capital markets (1)	More developed capital markets (2)	Difference in means (1–2)
Capital market development	3.539	3.582	3.463	0.119
Attraction of foreign investments	3.961	4.041	3.815	0.226
Increased competitiveness of the local environment	3.493	3.663	3.185	0.478***
Increased transparency of reported information	4.461	4.388	4.593	−0.205
Increased relevance of reported information	4.382	4.367	4.407	−0.040
Increased comparability of reported information	4.605	4.592	4.630	−0.038
No. observations	152	98	54

Note: We report mean values for sub-groups of respondents. ***, **, * indicate statistical significance in means at 1, 5, and 10% levels, respectively.

We also asked our respondents to estimate the cost–benefit relationship so as to discuss the overall outcome of IFRS adoption. The majority (133 respondents, 87.5%) of our respondents were able to compare the costs to the benefits of IFRS adoption as apparent in the companies where they have experience. The majority of our respondents (82.706%, N = 133) perceive that, overall, the benefits exceed the costs of IFRS adoption, but more so in the long term (Table 6). Specifically, 79 respondents (59.398%) indicate that in the short-term costs exceed the benefits, but in the long-term the situation will be reversed, which extends to the CEE region the results of previous single country-based studies (such as Albu & Albu, 2012). This result also confirms the expectations of a difficult, costly process of IFRS application, given the economic difficulties and the state of the accounting profession in the CEE countries (Jermakowicz & Gornik-Tomaszewski, 2006; Larson & Street, 2004).

Table 6. Perceptions of the cost-benefit relationship.

	Costs exceed benefits	Benefits approximate costs	Costs higher on the short term, benefits higher on the long term	Benefits exceed costs	Net benefit (mean value)
Coding of the net benefit	−1	0	0.500	1	0.500
No. of respondents	4	19	79	31
% of respondents	3.008	14.286	59.398	23.308

Notes: Cost-Benefit Relationship is based on the respondents’ perception and is coded as follows: −1 if costs are higher than benefits, 0 if benefits approximate costs, 0.5 if benefits are higher on the long term, 1 if benefits are higher than costs. N = 133 (there are 19 missing answers for the cost-benefit relationship and observations are deleted for statistical tests for this variable).

To facilitate the comparison and further analyses, we compute a net benefit score, by assigning −1 when respondents indicated that overall the costs exceeded the benefits, 0 when the benefits were indicated to approximate the costs, 0.5 when the respondent indicated that on the short term the costs exceed the benefits but in the long term the benefits exceed the costs, and 1 when the respondent indicated, overall, higher benefits than costs (Table 6). The mean value is 0.500 for the overall sample (N = 133, 19 missing responses for this question). The cross-sectional analysis shows that respondents from countries with less developed markets perceive that benefits cover costs to a higher extent than the respondents from developed markets (Table 7). Respondents from Poland and the Czech Republic, the two CEE countries having the largest capital markets in terms of market capitalisation, perceive that benefits of IFRS application cover to a lower extent the costs involved (Table 8).

Table 7. Cross-sectional analysis for the cost-benefit relationship.

	Mean for the overall sample	Development of the capital market
		Less developed capital markets (1)	More developed capital markets (2)	Difference in means (1–2)
Net benefit	0.500	0.573	0.383	0.190**
No. observations	133	82	51

Note: We report mean for sub-groups of respondents. ***, **, * indicate statistical significance in means at 1, 5, and 10% levels, respectively.

Table 8. Variation across CEE countries for the cost-benefit relationship.

	Overall sample	Higher level		Medium level		Lower level
		HU, LV, RO, SK		BG, EE, LT, SI		CZ, PL
Net benefit	0.500
No. observations	133

Notes: Cost-Benefit Relationship is based on the respondents’ perception and is coded as follows: −1 if costs are higher than benefits, 0 if benefits approximate costs, 0.5 if benefits are higher on the long term, 1 if benefits are higher than costs. Countries are classified as experiencing a medium level of the Cost-Benefit Relationship if the mean value is not significantly higher or lower than the mean value for the region (significant differences from the sample's mean at 10% were considered). Country codes are as defined in Table 1.

5.2. Institutional factors

We next further explore the institutional context and its influence on IFRS adoption and implementation. Table 9 reports the perception of our respondents on 21 factors associated with IFRS adoption as resulted from literature,¹⁵ to reflect the enablers, impediments, the necessary improvements and level of difficulty of the adoption.

Table 9. Micro-level institutional variables – enablers, impediments, necessary improvements and level of difficulty in the adoption.

	% some and strong importance	Perception on the level of factors obtained by country
		Mean	Higher level	Medium level	Lower level
Enablers
Qualification of the finance/accounting staff	94.079	4.567	EE, HU, LV	BG, CZ, LT, RO, SK	PL, SI
Budget allocated to this project	73.685	3.928	PL, RO, SK	BG, CZ, EE, HU	LV, LT, SI
IT system used	55.921	3.638	PL, RO, SK	BG, EE, HU, SI	CZ, LV, LT
Quality of accounting regulations used before IFRS implementation	70.395	3.928	EE, RO	BG, HU, LV, LT, SK, SI	CZ, PL
External support (including advisory)	94.737	4.414	HU	BG, CZ, EE, LV, PL, RO, SK, SI	LT
Management's support	90.789	4.329	SI	CZ, EE, HU, LV, LT, PL, SK	BG, RO
In-house training	89.473	4.289	EE, HU, RO	BG, CZ, LV, LT, PL, SK, SI	–
No. observations	152	152
Impediments
Complicated nature of certain IFRS	80.263	4.158	BG	CZ, HU, PL, RO, SK, SI	EE, LV, LT
Tax-driven nature of the national accounting regime	73.027	3.889	HU, RO	BG, CZ, LV, LT, PL, SK	EE, SI
Large gap between treatments in local regulations and the IFRS treatments	59.869	3.610	HU	BG, CZ, LV, LT, PL, RO, SK	EE, SI
Insufficient guidance on the adoption of IFRS	46.053	3.461	BG, PL, RO, SI	LT, SK	CZ, EE, HU, LV
Insufficiently developed capital markets	39.474	3.316	BG, RO, SI	EE, LV, LT	CZ, HU, PL, SK
Satisfaction with national accounting standards among investors/users	48.026	3.530	BG, SK	CZ, HU, LT, PL, RO, SI	EE, LV
Translation difficulties	37.500	3.158	BG, RO	HU, LV, PL, SK, SI	CZ, EE, LT
Inexistence of transactions of a specific nature	34.869	3.263	BG	CZ, EE, HU, LV, LT, PL, RO, SK, SI	–
No. observations	152	152
Necessary improvements
Stronger enforcement	89.474	4.289	HU	BG, CZ, EE, LV, PL, RO, SK, SI	LT
Increasingly demanding users	93.421	4.461	EE, RO, SK	BG, CZ, HU, LV, LT, PL	SI
Better-trained accountants and auditors	98.027	4.493	EE, LV	BG, CZ, HU, LT, PL, RO, SK, SI	–
Improved corporate governance	90.132	4.309	–	BG, EE, HU, LV, LT, PL, RO, SK, SI	CZ
Separation of accounting regulations from taxation	82.895	4.184	BG, RO	CZ, EE, HU, LV, LT, PL, SK, SI	–
No. observations	152	152
Level of difficulty in the adoption	61.842	3.671	CZ, PL	BG, HU, LV, LT, RO, SI	EE, SK
No. observations	152	152

Note: All variables are measured on a 5-point Likert scale (1 = very low importance, 5 = strong importance). We report the overall mean as well as the % of respondents that answered that the variables had some or strong importance (4 or 5). Country codes are as defined in Table 1.

Overall, our respondents perceive that most of the enablers listed were of strong or very strong importance (mean values between 3.638 and 4.567), and that impediments had a slightly lower importance (mean values between 3.158 and 4.158, with only one impediment, i.e. the complicated nature of certain IFRS, having a mean value higher than 4.000).¹⁶ Respondents from Estonia, Hungary and Slovakia generally attributed a higher value to the enablers listed (the countries being in the categories of higher and medium levels for enablers in Table 9). The perceived impediments in Estonia and Slovakia (with one exception) are also medium or lower compared to other countries, and the estimated level of difficulty with IFRS is the lowest in these countries. Some Estonian respondents explained in the open-ended question that the application was not very difficult as the Estonian accounting regulations were already based on IFRS, and the profession was familiarised with the standards. This confirms conjectures in the literature (Albu & Albu, 2014; Alver et al., 2014; Zeghal & Mhedhbi, 2006) that the national regulations in many CEE countries were already convergent to a good extent with IFRS and may explain why the general perceived level of difficulty was not higher (overall, 61.842% of our respondents perceive that IFRS adoption was a difficult process, with four countries out of ten having less than 50% of respondents perceiving the application as a difficult process).

A vast majority of respondents perceived a strong or very strong need for further development regarding IFRS enforcement and training, corporate governance improvements, more demanding users and separation of accounting regulations from taxation (between 82.895% and 98.027% for each item; mean values higher than 4.000). These needs are perceived to be higher by the respondents from the countries with less developed capital markets and having less developed institutions, such as Bulgaria, Latvia, Romania and Slovakia. The need for further developments may be interpreted as necessary reforms given the unsatisfactory or limited existing changes, an expectation which cannot be discarded given the pressures on these countries to engage in reforms without sufficient resources or enforcement mechanisms. However, the responses received provide interesting nuances. For example, Estonia is placed as having benefits materialised to a high or medium extent, perceived higher values for enablers and lower values for impediments and difficulty than most of other countries (Table 3); yet, Estonian respondents still perceive the need for further developments to a high and medium extent (Table 6). This might be an indication that further accounting, corporate governance and auditing reforms are perceived as necessary even when benefits have already materialised and costs were not deemed significant.

Table 10 reports the cross-sectional analysis of micro-level institutional variables. The quality of the local regulations was perceived to be a more important enabler, and the large gap between local regulations and IFRS was perceived as being a more important impediment, in countries with less developed capital markets. On the other hand, as expected, respondents from countries with less developed capital markets perceived that some of the impediments like insufficient guidance on the adoption of IFRS and the insufficiently developed capital markets are more important than in the developed CEE countries. Moreover, the necessary improvements (all but one) are significantly higher in the countries with less developed capital markets. This is in line with our initial conjectures, given the limited existent infrastructure in these countries. However, when assessing the difficulty of the adoption, contrary to our expectations, respondents from the countries with more developed capital markets estimate that the process was more difficult.

Table 10. Micro-level institutional variables – cross-sectional analysis.

	Mean for the overall sample	Development of the capital market
		Less developed capital markets (1)	More developed capital markets (2)	Difference in means (1–2)
Enablers
Qualification of the finance/accounting staff	4.567	4.582	4.537	0.045
Budget allocated to this project	3.928	3.867	4.037	−0.170
IT system used	3.638	3.612	3.685	−0.073
Quality of accounting regulations used before IFRS implementation	3.928	4.184	3.463	0.721***
External support (including advisory) adoption	4.414	4.357	4.519	−0.162
Management's support	4.329	4.296	4.389	−0.093
In-house training	4.289	4.327	4.222	0.105
Impediments
Complicated nature of certain IFRS	4.158	4.092	4.278	−0.186
Tax-driven nature of the national accounting regime	3.889	3.776	4.093	−0.317
Large gap between treatments in local regulations and the IFRS treatments	3.610	3.347	4.074	−0.727***
Insufficient guidance on the adoption of IFRS	3.461	3.602	3.204	0.398**
Insufficiently developed capital markets	3.316	3.612	2.778	0.834***
Satisfaction with national accounting standards among investors/users	3.530	3.551	3.500	0.051
Translation difficulties	3.158	3.153	3.167	−0.014
Inexistence of transactions of a specific nature	3.263	3.296	3.204	0.092
Necessary improvements
Stronger enforcement	4.289	4.265	4.333	−0.068
Increasingly demanding users	4.461	4.541	4.315	0.226**
Better-trained accountants and auditors	4.493	4.551	4.389	0.162**
Improved corporate governance improvements	4.309	4.429	4.093	0.336***
Separation of accounting regulations from taxation	4.184	4.245	4.074	0.171*
Level of difficulty in the adoption	3.671	3.490	4.000	−0.510***
No. observations	152	98	54

Note: We report mean for sub-groups of respondents. ***, **, * indicate statistical significance in means at 1, 5, and 10% levels, respectively.

5.3. The impact of institutional factors on the effects of IFRS

We next conduct PCA with varimax rotation to reduce these 21 items included in the survey to a smaller number of constructs (Table 11). We thus extract five factors (the Kaiser-Meyer-Olkin measure of sampling adequacy is 0.755; the analysis passed Bartlett's test of sphericity). All items have loadings above the conventional level of 0.30, confirming their contribution to the underlying construct (Nazari et al., 2006). The five factors together explain 56.961% of the variance in the data. Items with loadings higher than 0.45 are selected for each factor. Based on their composition, we labelled the five factors: Regulatory Impediments, Organisational Enablers, Stakeholders’ Role, Difficulties and Market Pressures (see Table 11).

Table 11. Micro-level institutional variables – groups of micro-level institutional variables.

Item ranked by factor loading	Factor loadings	Mean response	Initial classification
1. Regulatory Impediments
Insufficient guidance on the adoption of IFRS	0.686	3.461	impediment
Translation difficulties	0.625	3.158	impediment
Tax-driven nature of the national accounting regime	0.614	3.889	impediment
Inexistence of transactions of a specific nature	0.579	3.263	impediment
Improved corporate governance improvements	0.529	4.309	necessary improvements
Satisfaction with national accounting standards among investors/users	0.459	3.530	impediment
Variance explained 13.412%
2. Organisational Enablers
Budget allocated to this project	0.729	3.928	enabler
IT system used	0.729	3.638	enabler
Qualification of the finance/accounting staff	0.590	4.567	enabler
Management's support	0.543	4.329	enabler
Variance explained 11.227%
3. Stakeholders’ Role
Increasingly demanding users	0.737	4.461	necessary improvements
External support (including advisory)	0.679	4.414	enabler
Stronger enforcement	0.570	4.289	necessary improvements
Separation of accounting regulations from taxation	0.545	4.184	necessary improvements
In-house training	0.539	4.289	enabler
Better-trained accountants and auditors	0.525	4.493	necessary improvements
Variance explained 13.306%
4. Difficulties
Complicated nature of certain IFRS	0.677	4.158	impediment
Level of difficulty in the adoption	0.648	3.671	difficulty
Large gap between treatments in local regulations and the IFRS treatments	0.559	3.610	impediment
Variance explained 11.016%
5. Market Pressures
Insufficiently developed capital markets	0.762	3.316	impediment
Quality of accounting regulations used before IFRS implementation	0.670	3.928	enabler
Variance explained 8.001%

Note: All items reflect enablers and impediments of IFRS adoption and necessary improvements. They are measured on a 5-point Likert scale (1 = very low importance, 5 = strong importance). N = 152 (there are no missing answers). Items are grouped as Regulatory Impediments, Organisational Enablers, Stakeholders’ Role, Difficulties and Market Pressures using Principal Component Analysis. Factor loadings (varimax with Kaiser normalisation) are presented. For simplicity, only items with loadings higher than 0.45 are presented. The table reports the factor loading, mean response, and the initial classification in the survey questions. We dropped the legal pressures for compliance from the analyses following feedback received during conference presentations. Hence, the number of reported factors is 21.

We investigate the association between IFRS effects (benefits and the Cost–Benefit Relationship) and the factors capturing the institutional context. We test the five micro-institutional factors, as well as Enforcement, Quality of Institutions and Country Size as macro-level institutional factors. We control for the respondents’ experience with IFRS (Experience).

Tables 12–14 give the results of the regression of IFRS effects on the institutional factors, for the entire sample and the two sub-samples (countries with more and less developed capital markets, respectively). In our regression analysis we inspected variance inflation factors (VIF) to check for the possible influence of multicollinearity. All VIFs are low (only one factor has a VIF of 3 in all regression models). This analysis indicates that multicollinearity does not appear to be a problem in our data.¹⁷ We control for country fixed effects.

Table 12. The regression of IFRS effects on institutional variables – financial reporting benefits.

	Full sample		Less developed capital markets		More developed capital markets
	Coeff.	t-stat	Coeff.	t-stat	Coeff.	t-stat
Regulatory Impediments	0.195**	1.942	0.145*	1.358	0.188	1.238
Organisational Enablers	−0.044	−0.441	−0.042	−0.465	−0.103	−1.124
Stakeholders’ Role	0.291***	3.219	0.302***	3.232	0.062	0.462
Difficulties	0.163**	1.760	0.203**	1.846	0.389**	2.403
Market Pressures	0.002	0.019	0.002	0.020	−0.081	−0.553
Experience	−0.210***	−1.179	−0.162*	−1.734	−0.211*	−1.515
Country Size	0.252**	1.996	0.551***	2.579	0.180	1.041
Quality of Institutions	0.006	0.070	0.152	0.962	−0.463**	−2.817
Enforcement	0.242**	1.999	0.486***	2.435	0.192*	1.465
Adjusted R^2	0.199		0.198		0.259
Probability	0.000		0.001		0.005
F statistic	5.159		3.663		3.321
No. observations	152		98		54

Note: Financial Reporting Benefits are obtained from Principal Component Analysis on a list of benefits. Regulatory Impediments, Organisational Enablers, Stakeholders’ Role, Difficulties and Market Pressures are obtained from Principal Component Analysis on a list of 21 micro-level institutional variables associated with the IFRS adoption. Respondents’ perception is measured on a 5-point Likert scale. Experience reflects the respondents’ experience with IFRS (measured as number of companies) (results are the same if Experience is proxied by the number of years). Country Size is proxied by country's population (in mil. inhabitants) as taken from World Bank (2017) and based on 2015 data. The Quality of Institutions comes from WEF (2016); the score reflects on a scale from 1 to 7 (1 is the lowest, 7 is the best) the legal and administrative framework in which individuals, firms, and governments interact to generate wealth. Enforcement is proxied with the Regulatory quality from Kaufmann et al. (2009). ***, **, * indicate statistical significance at 1, 5, and 10% levels, respectively.

Table 13. The regression of IFRS effects on institutional variables – country-level benefits.

	Full sample		Less developed capital markets		More developed capital markets
	Coeff.	t-stat	Coeff.	t-stat	Coeff.	t-stat
Regulatory Impediments	0.008	0.074	0.008	0.073	−0.158	−1.132
Organisational Enablers	0.274***	2.992	0.338***	3.048	0.215*	1.644
Stakeholders’ Role	0.158**	2.109	0.180**	1.830	0.083	0.676
Difficulties	−0.344***	−3.797	−0.154	−1.329	−0.468***	−3.146
Market Pressures	0.096	0.978	−0.009	−0.076	0.218*	1.612
Experience	−0.049	−0.540	−0.030	−0.304	0.084	0.659
Country Size	−0.074	−0.619	−0.104	−0.460	0.228	1.437
Quality of Institutions	−0.246***	2.313	−0.239*	−1.439	−0.286**	−1.896
Enforcement	−0.050	−0.397	0.050	0.237	−0.096	−0.465
Adjusted R^2	0.212		0.111		0.374
Probability	0.000		0.020		0.000
F statistic	5.526		2.352		4.965
No. observations	152		98		54

Note: Country-Level Benefits are obtained from Principal Component Analysis on a list of benefits. Regulatory Impediments, Organisational Enablers, Stakeholders’ Role, Difficulties and Market Pressures are obtained from Principal Component Analysis on a list of 21 micro-level institutional variables associated with the IFRS adoption. Respondents’ perception is measured on a 5-point Likert scale. Experience reflects the respondents’ experience with IFRS (measured as number of companies) (results are the same if Experience is proxied by the number of years). Country Size is proxied by country's population (in mil. inhabitants) as taken from World Bank (2017) and based on 2015 data. The Quality of Institutions comes from WEF (2016); the score reflects on a scale from 1 to 7 (1 is the lowest, 7 is the best) the legal and administrative framework in which individuals, firms, and governments interact to generate wealth. Enforcement is proxied with the Regulatory quality from Kaufmann et al. (2009). ***, **, * indicate statistical significance at 1, 5, and 10% levels, respectively.

Table 14. The regression of IFRS effects on institutional variables – cost-benefit relationship.

	Full sample		Less developed capital markets		More developed capital markets
	Coeff.	t-stat	Coeff.	t-stat	Coeff.	t-stat
Regulatory Impediments	−0.164*	−1.704	−0.176*	−1.532	−0.174*	−1.053
Organisational Enablers	−0.126	−1.253	−0.224*	−1.802	−0.061	−0.356
Stakeholders’ Role	−0.004	−0.045	−0.025	−0.239	0.059	0.390
Difficulties	−0.055	−0.499	−0.084	−0.658	0.055	0.270
Market Pressures	−0.125	−1.020	−0.192*	−1.700	−0.065	−0.379
Experience	0.154*	1.250	0.142	1.302	0.042	0.268
Financial Reporting Benefits	0.217**	1.194	0.060	0.560	0.430***	2.555
Country-Level Benefits	0.371***	3.413	0.524***	4.893	0.349**	2.018
Country Size	−0.311**	−2.053	0.137	0.519	−0.046	−0.233
Quality of Institutions	−0.240**	−2.124	−0.089	−0.499	−0.132	−0.632
Enforcement	−0.154	−1.398	−0.055	−0.021	0.464	0.630
Adjusted R^2	0.239		0.258		0.171
Probability	0.000		0.001		0.045
F statistic	4.764		3.563		2.032
No. observations	133		82		51

Note: Financial Reporting Benefits and Country-Level Benefits are obtained from Principal Component Analysis on a list of benefits. Regulatory Impediments, Organisational Enablers, Stakeholders’ Role, Difficulties and Market Pressures are obtained from Principal Component Analysis on a list of 21 micro-level institutional variables associated with the IFRS adoption. Respondents’ perception is measured on a 5-point Likert scale. Cost-Benefit Relationship is based on the respondents’ perception (−1 if costs are higher than benefits, 0 if benefits approximate costs, 0.5 if benefits are higher on the long term, 1 if benefits are higher than costs). Experience reflects the respondents’ experience with IFRS (measured as number of companies) (results are the same if Experience is proxied by the number of years). Country Size is proxied by country's population (in mil. inhabitants) as taken from World Bank (2017) and based on 2015 data. The Quality of Institutions comes from WEF (2016); the score reflects on a scale from 1 to 7 (1 is the lowest, 7 is the best) the legal and administrative framework in which individuals, firms, and governments interact to generate wealth. Enforcement is proxied with the Regulatory quality from Kaufmann et al. (2009). There are 19 missing answers for the Cost-Benefit Relationship (observations are deleted for statistical tests for this variable) (N = 133 for this analysis). ***, **, * indicate statistical significance at 1, 5, and 10% levels, respectively.

Table 12 reports that Financial Reporting Benefits are positively associated, for the entire sample, with the Stakeholders’ Role, the Difficulties in the adoption process and the Regulatory Impediments. Of these factors, Stakeholders’ Role is the most important one, implying that benefits at the level of the company are associated with strong support from all those involved in financial reporting, including users, enforcers, regulators, professional bodies and companies. The role and involvement of these stakeholders need further developments and reforms, as Stakeholders’ Role mainly regroups necessary improvements. We interpret this as respondents from countries observing benefits flowing from a stronger stakeholder involvement and support for financial reporting emphasise the need for further developments. For example, respondents from Poland and Hungary perceive that Financial Reporting Benefits materialised to a high or medium extent (Table 3), but still request future developments to a high or medium extent (Table 9). This result provides empirical evidence on the importance of various stakeholders in the application of IFRS in the CEE countries, their role being emphasised so far in single-country/qualitative based studies (e.g. Albu et al., 2014; Mantzari et al., 2017).

The positive association between IFRS benefits, on the one hand, and Difficulties and Regulatory Impediments, on the other hand, is both surprising and somewhat counter-intuitive. Because concerns were raised about the proper adoption of IFRS in the region (Albu et al., 2014; Ionaşcu et al., 2007; World Bank ROSC), it seems plausible that the efforts (and therefore the Difficulties and Regulatory Impediments) perceived in the adoption process signal a more thorough adoption process, therefore yielding higher perceived Financial Reporting Benefits. This mirrors results obtained in other settings such as Australia (Morris et al., 2014) showing that the more seriously the IFRS adoption is approached, the more positive the outcome of this process is. For example, while respondents from Poland and the Czech Republic perceive the level of difficulty in the adoption as being high and most impediments as having a medium importance (Table 9), they still estimate that Financial Reporting Benefits materialised to a medium or high extent (Table 3).

The macro-level institutional variables of Enforcement and Country Size are positively associated with Financial Reporting Benefits. This finding confirms the results of prior studies stressing the importance of IFRS enforcement for the realisation of benefits (Li, 2010), here with a focus on the CEE countries. Moreover, respondents from larger countries perceive a higher level of Financial Reporting Benefits. This suggests that more resources and national initiatives were available and supported the realisation of IFRS adoption benefits in these countries, or that the visibility of the country and its market size triggered the need for more financial reporting improvements. The significant negative coefficient for the Experience control variable indicates that respondents with higher work experience perceive a lower level of benefits.

The cross-sectional analysis reported in Table 12 shows that the most important factors for the materialisation of Financial Reporting Benefits are Country Size and Enforcement, followed by Stakeholders’ Role, for the group of countries with less developed capital markets. These results emphasise the importance of the national infrastructure (in terms of enforcement, guidance, professional development) for the less developed countries. For the group of more developed countries, we find that Financial Reporting Benefits are associated with a lower Quality of Institutions, and higher Difficulties and Enforcement, confirming that more benefits are obtained in the case of a serious adoption (higher perceived difficulty) and in countries with a lower quality of institutions, but in the context of a higher enforcement.

Table 13 reports that the Country-Level Benefits are, as predicted, positively associated with Organisational Enablers and Stakeholders’ Role, and negatively associated with the Difficulties in the adoption process, for the full sample. The Difficulties construct has the biggest effect on the Country-Level Benefits (with a negative regression coefficient of −0.344) of all the factors, which suggests that the more “unfavorable” the environment for IFRS (Karampinis & Hevas, 2011) leading to difficulties in the adoption, the more problematic is the materialisation of benefits at the country level. The only significant coefficient of all macro-economic variables is for the Quality of Institutions (negative association; a coefficient of −0.246), suggesting that countries with a lower quality of institutions benefit more from the application of IFRS. This result is in line with Djatej et al. (2011), who find that the weaker institutional infrastructure in CEE is associated with higher benefits from the IFRS adoption. The cross-sectional analysis gives similar results, which indicates how the low-quality infrastructure is addressed in each group of countries. As such, we find that the important factors are Organisational Enablers and Stakeholders’ Role in the countries with less developed capital markets, and Market Pressures and a serious adoption process (negative association with Difficulties) for the countries with more developed capital markets.

Table 14 reports that, for the full sample, both the Country-Level Benefits and Financial Reporting Benefits are positively associated with the Cost–Benefit Relationship.¹⁸ The results hold for the group of countries with more developed capital markets. Specifically for the countries with less developed capital markets, the Country-Level Benefits are associated with the Cost–Benefit Relationship. The only micro-level institutional factor significantly associated with the Cost–Benefit Relationship is Regulatory Impediments (with a negative regression coefficient of −0.164), for the entire sample. We interpret this as regulatory impediments (such as insufficient guidance, translation difficulties) generating higher costs in the application of IFRS. This finding is particularly relevant in the context of the under-developed accounting profession in CEE countries, and one that requires more guidance in applying accounting principles. The highly legalistic environment of these countries, combined with a high prevalence of taxation over accounting rules and the importance of state controls, also impede even more the application of principles-based frameworks such as IFRS, requiring further needs for improvements in these areas. Moreover, for the group of countries with less developed capital markets, we find that Organisational Enablers and Market Pressures are negatively associated with the Cost–Benefit Relationship, indicating that these factors involve higher costs for companies.

For the full sample, respondents’ Experience with IFRS is positively (and significantly, at the 10% level) associated with the Cost–Benefit Relationship (regression coefficient of 0.154), suggesting that more experienced respondents perceive that benefits exceed costs to a higher extent. Two macroeconomic variables, i.e. Country Size and Quality of Institutions, are, for the entire sample, significantly and negatively correlated with the Cost–Benefit Relationship. This suggests that benefits are perceived to exceed costs to a lesser extent in larger countries and in those with stronger institutions. This perception might be driven by the higher expectations from IFRS in countries allocating more resources to IFRS and already having a more developed infrastructure. For example, respondents from Poland, which is the largest and one of the countries with a higher quality of institutions, perceive that benefits cover to a lower extent the costs (Table 8), even if they also estimate that benefits materialised to a medium or high extent (Table 3).

6. Conclusions

This study examined the effects of IFRS post-adoption, and the role of institutional factors in this process, in the emergingly important context of the CEE member countries of the EU. For this purpose, we investigated Big 4 firm professionals’ perceptions of the effects of IFRS adoption in the CEE region. Overall, our respondents have a moderately optimistic opinion about the effects of IFRS application in the CEE countries: while a medium to high level of difficulty was estimated, benefits are perceived to overcome the costs in the long term. Financial Reporting Benefits, which are mainly firm-related, are perceived to have been realised to a higher extent than Country-Level Benefits. The most important benefits are perceived to be improvements in the areas of accounting information comparability, transparency and relevance of financial reporting (firm-level), followed by attracting FDI (country-level).

By exploring the cross-sectional variation of the effects of IFRS adoption, we further investigated the institutional factors placed at the macro (country-level) and micro (organisational field) level of analysis. First, we investigated the enablers, impediments, level of difficulty and necessary improvements as part of the micro-level institutional factors. Of the 21 items analysed in these categories, we find that accounting profession-related items are perceived to be the most important ones. As such, the enabler perceived to be the most important is the qualification of the finance and accounting staff, while the most important impediment is the complicated nature of certain IFRS, and the most pressing need for development is associated with better-trained accountants and auditors. Besides the necessary improvements in enforcement and regulation, emphasised in prior studies, our results underline the importance of further developing the accounting and auditing profession in these countries, with education and IFRS expertise¹⁹ being the most valuable resource in IFRS adoption.

Second, the analysis of micro- and macro-level institutional variables and of the effects of IFRS generally suggests that the overall accounting and regulatory infrastructure matters. This overall result is not a surprise given the IFRS literature emphasising the role of institutional factors (e.g. Ball, 2006, 2016; Brown, 2013), but our detailed analysis provides an insightful perspective on the CEE countries. Our methodological approach allowed us to investigate more benefits and more institutional factors, which uncovered a variety of relationships, sometimes at odds, between variables. We find positive associations between both Stakeholders’ Role and Organisational Enablers, and IFRS effects. These micro-level factors, alongside Enforcement and Country Size (both macro-economic variables positively associated with Financial Reporting Benefits) and the Quality of Institutions (negatively associated with Country-Level Benefits), reflect the quality of the organisational- and country-level infrastructure. The most striking observation is that, in spite of the long reforms undertaken in these countries, respondents still perceive the need for further improvements in all areas (all the items listed as necessary improvements have mean values higher than 4). These necessary improvements are in areas such as enforcement, users’ pressures, and the separation of accounting regulations from taxation, and therefore reflect stakeholders’ role in financial reporting. These improvements are perceived to be critical in countries already having good quality institutions (e.g. Estonia) and more developed capital markets (e.g. Poland), as well as those having lower quality institutions (e.g. Bulgaria or Romania).

The Difficulties and Regulatory Impediments constructs could have expectedly had negative associations with the effects of IFRS. However, we only find this for Difficulties and Country-Level Benefits, and for Regulatory Impediments and the Cost–Benefit Relationship. Both Difficulties and Regulatory Impediments have positive associations with Financial Reporting Benefits, indicating that a higher level of effort in the application process leads to higher benefits. The perceived Difficulties in IFRS adoption are positively associated with Financial Reporting Benefits, but negatively associated with Country-Level Benefits. We interpret this to mean that a high level of difficulty is associated with a serious adoption process at the micro-level, which results in improved relevance or transparency of the reported information (company-level benefits). Moreover, this leads to expectations to see benefits at the macro-level, which do not materialise to the same extent because not all companies are serious adopters (Albu et al., 2014), or because it takes more time to see country-level benefits (Brüggemann et al., 2013).

The cross-sectional analysis shows that for the countries with less developed capital markets, macro-level institutional factors (Country Size and Enforcement) are more important for the materialisation of the Financial Reporting Benefits than the micro-level institutional factors. On the other hand, for the same countries, micro-level institutional factors (Organisational Enablers and Stakeholders’ Role) are more important than the macro-level institutional factors for the materialisation of the Country-Level Benefits. These results, corroborated with the overall cross-sectional analysis, indicate a strong relationship between the organisational and the country levels, in respect to enablers, impediments and overall consequences of IFRS. We interpret these results to mean that benefits at the company level are strongly influenced by the country's overall infrastructure, while serious adoption at the organisational level, supported by organisational enablers, leads to benefits at the country level.

Our findings have important implications for capital-market participants, indicating that the impact of IFRS in the CEE region is very diverse, in terms of types of effects and association with institutional variables. First, investors, analysts and other users of financial information need to be aware of possible variations in financial reporting improvements resulting from IFRS adoption in the CEE region. Second, our results should be of interest to local and regional regulatory and enforcement authorities, as they confirm the important role of stakeholders in general and the beneficial role of stronger enforcement in particular in the adoption of IFRS. A good level of convergence of national regulation with IFRS before the mandatory adoption of the new standards represents an important enabler, with positive consequences for perceived benefits. Finally, preparers, professionals and professional bodies should be made aware of the importance of training and the quality of finance and accounting staff in the IFRS adoption process, and that significant improvements can be made in this area.

As our findings are limited to the perceptions of Big 4 firm professionals, future research in this area could usefully focus on other types of respondents (preparers, users) to complement our findings. Further, additional institutional variables and market- and company-related data could also be employed in order to provide more insights about this under-researched and distinctive group of countries within the EU.

Acknowledgements

We thank the participants at the 2014 IAAER ACCA Paper Development Workshop organised in conjunction with the 12th IAAER World Congress of Accounting Educators and Researchers in Florence, Italy, the 2015 IAAER Paper Development Workshop organised in conjunction with the SAAA Biennial conference, East London, South Africa, the 11th workshop on European Financial Reporting (EUFIN 2015) in Paris, France, the 2015 Accounting and Auditing Convention in Cluj-Napoca, Romania, the 39th European Accounting Association Congress, Maastricht, the Netherlands, and the 11th Accounting and Management Information Systems (AMIS 2016) International Conference, Bucharest, Romania, for their constructive comments and feedback. A particular thank you goes to our fellow academics and contacts in the local offices of Big 4 firms in Central and Eastern Europe for supporting us in disseminating the survey instrument, and to respondents for taking the time to answer the survey. We also thank the Editor (Charles Cho) and the two anonymous reviewers of the Journal for their very insightful and constructive reviews and suggestions.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1 Some studies conducted at the EU level (e.g. Chen, Tang, Jiang, & Lin, 2010) do not cover any CEE countries, while others (e.g. Li, 2010) include only some of them. One of the reasons for excluding CEE countries from comparative studies, especially based on company-level data, is the lack of data related to companies in such countries available from international databases (Brüggemann et al., 2013; Chen et al., 2010).

2 The website iasplus.com offers information about the progress toward IFRS acceptance in all the countries around the world, useful for archival studies.

3 World Bank's ROSCs periodically address the context of each of the investigated countries, and include specific comments about the level of convergence (of national regulations) with IFRS, and the compliance of financial statements with IFRS (World Bank, 2001, 2004a, 2004b, 2005a, 2005b, 2007, 2008a, 2008b, 2013, 2014).

4 For example, Zeghal and Mhedhbi (2006) report that Estonia has been an IAS adopter since 1995, Poland since 1997, and Romania since 1999.

5 The accession year has an impact on institutional factors and accounting developments. The remaining countries in the sample had relatively close accession dates. Moreover, we investigate the effects of IFRS a significant amount of time after the accession dates.

6 The questions do not refer to any time frame.

7 This question was dropped from the analysis given the small number of responses received.

8 Moreover, during the pre-testing it emerged that asking for specific positions would limit the dissemination of the instrument.

9 The missing answers concerned two questions. 116 respondents (76.316%) did not answer the question regarding the estimation of the budget (costs) utilized in the IFRS adoption, or answered that they cannot estimate it. Consequently, the question was dropped from the analysis. The question regarding the cost-benefit relationship was answered by 133 respondents (the rest of the respondents did not answer or answered that they cannot estimate it). The analysis was thus performed on a sample of 133 responses.

10 For example, Jermakowicz and Gornik-Tomaszewski (2006) investigate IFRS adoption in the EU based on 112 responses from eight countries, with responses ranging from one or two responses per country (in the case of four countries) to more than 20 responses (for two countries).

11 This experience length is relevant for the purpose of our study, even if on average it is shorter than the time passed after the mandatory adoption of IFRS. Various CEE preparers started at different dates the IFRS application. First, the number of companies under the mandatory requirement changed over time, for various reasons (e.g. in some countries (such as Romania) listed companies were required to apply IFRS in the individual financial statements much more recently; companies deciding to become listed recently started the application of IFRS later than the 2005 or 2007 EU requirement). Second, we required our respondents to consider their experience with both voluntary and mandatory adoption, and the voluntary adoption may occur at various moments in time. Moreover, the purpose of the survey is to capture the overall acceptance and perception of the standards (Fontes et al., 2016), which may be formed by Big 4 professionals around their interaction with the clients irrespective of their own witnessing of the change. This perception formed by professionals about the process of change is critical for understanding the consequences of the change efforts (Fontes et al., 2016), irrespective of when the actual change took place.

12 The type and length of experience impact the perceived level of some benefits. Respondents with a longer experience than the mean of the sample perceive that four benefits have materialized to a lesser extent than the less experienced ones. Respondents with experience in both audit and consultancy perceive that two Financial Reporting Benefits, namely, increased transparency of reported information, and increased relevance of reported information (a Country-Level Benefit, namely, increased competitiveness of the local environment) materialized to a higher (lesser) extent relative to respondents only having audit experience.

13 PCA or factor analysis are recommended approaches to deal with survey data when more than one constructs are assessed by respondents (Nazari et al., 2006).

14 Our labels correspond to the “financial reporting” benefits and the “capital market and macro-economic” benefits terms used in Brüggemann et al. (2013), respectively.

15 Our questionnaire included 22 such factors. We dropped the legal pressures for compliance from the analyses following feedback received during conference presentations. Hence, the number of reported factors is 21.

16 Respondents with a longer experience perceive some impediments as being less important, while overall considering the level of difficulty in the adoption higher than the respondents with a shorter experience.

17 Following Long and Ervin (2000), we employ the HC3 form of the heteroscedasticity consistent covariance matrix test to deal with heteroscedasticity.

18 We also ran the regression with the missing values re-estimated on the original data, as a robustness test. Our earlier regression results are unchanged, except for the association between Financial Reporting Benefits and Cost-Benefit Relationship, which loses its significance.

19 The second most important perceived enabler (in terms of mean value) is external support (including advisory).