Professional Documents
Culture Documents
Vol. 4, 2007
ABSTRACT After the fall of communism, Romanian accounting has undergone several
waves of reform. The first began with the 1991 Accounting Law and its 1993
Regulations implementing a French-inspired accounting chart and guidelines. The
second wave of reform produced Regulations (in 1999 and 2001) for the harmonization
of large entities accounting with EU accounting directives and International
Accounting Standards/International Financial Reporting Standards (IAS/IFRS). An
interesting feature was the inclusion of IASBs conceptual framework into the text of
these Regulations. Our study seeks to identify and evaluate the costs of harmonizing
Romanian accounting with international regulations (EU Directives and IAS/IFRS). We
hypothesize that three types of costs are prevalent: personnel training costs, consultants
fees and costs to adjust existing information systems. We also hypothesize that
harmonization benefits are noticeable for those entities that make frequent use of
foreign finance and for those entities with majority foreign shareholders. To collect
data, we sent out questionnaires to the finance directors of listed Romanian companies.
As full application of IAS/IFRS by non-financial companies has recently been
postponed until 2007, we also comment on the benefits and costs of gradual reforms as
opposite to a one-step adoption of IAS/IFRS.
Correspondence Address: Mihaela Ionascu, Academia de studii Economice, facultatea de contabilitate si informatica de gestiune, Piata Romana nr. 6, Sector 1, Bucuresti, 010374, Romania. E-mail:
mihaela.ionascu@cig.ase.ro
1744-9480 Print/1744-9499 Online/07/02016938 # 2007 European Accounting Association
DOI: 10.1080/17449480701727965
Published by Routledge Journals, Taylor & Francis Ltd on behalf of the EAA
170
I. Ionascu et al.
Introduction
This paper intends to study the harmonization of Romanian accounting
with international regulations (EU Directives and International Accounting
Standards/International Financial Reporting Standards (IAS/IFRS)) from the
vantage point of a wider cost benefit analysis. Tang (1994) hypothesized that
international regulations will be assimilated only if benefits will exceed
implementation costs. Romanias transition to an IAS/IFRS-based system followed the political decision of the accounting regulator (The Ministry of
Finance) and represented a radical change of course as the accounting reform
undertaken soon after the fall of communism had implemented a Continental
accounting model, the French model.
The new approach was questionable on several grounds. First, the regulator
tried to harmonize Romanian accounting with the Fourth Council Directive
and IAS at a time when the European Union had not stated its position
toward IAS in individual company accounts (European Commission, 1995).
Second, the harmonization regulations targeted a large number of enterprises,
without taking into account their capacity to implement these regulations.
Third, such regulations, being an approximation of IAS, were of no use to
those enterprises that needed financial statements conforming to IAS; these
enterprises had to perform restatements and therefore incurred additional costs.
Last, the very attitude of regulators was ambiguous, as 2005 witnessed the
reorientation towards the European Directives and the postponement of the
application of IAS/IFRS until 2007.
Under these circumstances, several issues arise: is the new direction imposed
by the accounting regulator fitting a trend in the Romanian business environment? How extensive was the effort that Romanian enterprises had to make?
And particularly, is this effort justified from a cost benefit point of view?
Our paper aims at offering answers to such questions via an ex post facto analysis of the process of internationalization of Romanian accounting during 1999
2005. Accordingly, we have surveyed the companies listed on the Bucharest
Stock Exchange because they were primarily targeted by the Ministry of
Finance to implement the new regulations. Our research focused on identifying
and evaluating the costs entailed by the assimilation and implementation of international regulations. At the same time, we intended to capture the opinions of
finance directors of listed companies regarding the appropriateness of the
decisions made by the accounting regulator from a cost benefit standpoint.
Objectives
Comments
(Table continued )
Accounting Law no. 82 of 24 December To create an adequate accounting Ministry of Finance as the accounting
1991 98
regulator.
system for the market
1991, published in the Official
Regulations for
Internal and external users of accounting
economy allowing an efficient
Market Economy
Journal no. 265 of 27 December
information acknowledged.
fiscal control.
1991
Accounting is centred on the civil law
concept of patrimony, also present in
French accounting.
To implement Accounting Law Features significant imports from French
Government Decision no. 704 of 14
no. 82/1991.
company accounting.
December 1993 approving certain
Introduces new accounting principles,
measures of implementation of the
valuation rules, accounting chart, debiting
Accounting Law no. 82/1991,
and crediting rules for each account,
published in the Official Journal no.
standard formats for the financial
303 of 22 December 1993
statements.
The Order, applied only as a limited
To harmonize the individual
1999 Harmonization Regulation:
1999 2005
experiment, consists of four parts:
accounts of large enterprises
Order of the Minister of Finance no.
Harmonization
Volume I. The Harmonization Regulation;
with the Fourth Council
403 of 22 April 1999, published in the
Regulations
Volume II. IASC Conceptual Framework;
Directive and with
Official Journal no. 480 of 4 October
Volume III. IAS/IFRS;
International Accounting
1999
Volume IV. Professional Guides.
Standards.
The third and fourth volumes were
published separately later.a
Although the Harmonization Regulation
maintains the accounting chart, it provides
for more disclosure within the model format
for the financial statements.
172
Table 1. Continued
2006 present
Conformity
Regulations
Objectives
Comments
To enact Consolidation
Regulations consistent with the Seventh
Consolidation Regulation:
Regulations.
Council Directive. Applied only as a limited
Order of the Minister of Finance no.
experiment.
772 of 2 June 2000, published in the
Official Journal no. 374 of 11 August
2000
Same objective as 1999
Maintains the previous structure in four
2001 Harmonization Regulation:
Harmonization Regulation.
volumes.
Order of the Minister of Public
Slightly changes the 1999 Regulation and
Finance no. 94 of 29 January 2001,
allows carve outs for inflation accounting
published in the Official Journal no.
and consolidation.b
85 of 20 February 2001
Consequence of the process of preparing for
To divide enterprises into two
Conformity Regulation:
accession to the European Union. Changes
categories: (1) those applying
Order of the Minister of Public
the direction of company accounting,
accounting regulations
Finance no. 907 of 27 June 2005,
repealing the Harmonization Regulation.
conforming to European
published in the Official Journal no.
All entities will apply the regulations
Directives and (2) those
579 of 11 July 2005
conforming to the European Directives
applying in addition
pending their issue (see European Directives
accounting regulations
Conformity Regulations below). For the
conforming to full IAS/IFRS.
year 2006 credit institutions also prepare
IFRS financial statements, while other
public interest entities prepare IFRS
financial statements only if they have
implementation capacity. Further
regulations governing IAS/IFRS
application as from 2007 were announced
(see IFRS Conformity Regulations below).
I. Ionascu et al.
Main regulations
International Accounting Standards Committee, Standardele Internationale de Contabilitate 2000 [IAS 2000], translated into Romanian by the IAS Working Party
headed by Aileen Beattie, Editura Economica, Bucuresti and respectively Ministerul Finantelor Publice (2001).
b
For a list of changes in the 2001 Harmonization Regulation, see Government of Romania (2001).
174
I. Ionascu et al.
regulation was a public one, deriving from a legislative process where the
Ministry of Finance is the main actor.
The first wave of reform came in the early 1990s with the Accounting Law
which aimed at introducing an accounting system adequate for a market
economy, a system that allowed an efficient control of the legality of commercial
transactions and of the fulfilling of the fiscal obligations (Ministerul Finantelor,
1991). Company law, also passed in 1991, required public companies and certain
private companies to have an odd number of censors elected by shareholders
from among themselves with the exception of the accountant censor.1
The regulations that implemented the Accounting Law, effectively applied on
1 January 1994, had their inspiration in the French accounting system and came
with the stated objective of creating an accounting system compatible with the
Fourth Council Directive2 and International Accounting Standards (Ministerul
Finantelor, 1994). The latter part of this objective was merely declarative:
there is no further mention in the text of these regulations of IAS or compatibility
with IAS.
The various reasons for choosing the French accounting system are discussed
elsewhere (Feleaga, 1992; Dutia, 1995; Richard, 1995; Roberts, 2000) and comprise cultural, political and economic factors.
A second wave of reform started in 1996, when the goals of the Romanian
Accountancy Development Programme3 sponsored by the UKs Department
for International Development (DFID, 2000; King et al., 2001) superposed
with the requirements of international financial institutions. The World Banks
PSAL I and PSAL II loan agreements had among their objectives improving
the business environment and required the Romanian government to modernize
the accounting standards and to implement internationally recognized accounting
standards (World Bank, 2001, 2003a). The rationale was that such an accounting
framework would create a favourable environment for direct investment and
privatization. Ionascu et al. (2006) consider that the Romanian government
based its decision to adopt IAS/IFRS on financial grounds, while pursuing in
parallel harmonization with the European Directives as part of the political
objective of joining the European Union. Consequently, in 1999, the Ministry
of Finance issued a Harmonization Regulation seeking to harmonize Romanian
large enterprise individual accounts with both the Fourth Council Directive
and International Accounting Standards.
We cannot but notice that the regulator tried to harmonize Romanian individual company accounting with the Fourth Council Directive and IAS at a time
when the European Union did not have any requirements concerning IAS/IFRS
for Member States. In addition, Romania went much further than the European
Unions strategy at that time, introducing IAS/IFRS for the individual accounts
of large companies, listed and not listed, when the EU had not stated its position
toward IAS in individual company accounts:
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I. Ionascu et al.
This mixture of accounting philosophies, that is, the superposing of an AngloSaxon accounting system on a legalistic one, with a national chart of accounts and
a strong fiscal connection, was evaluated as a cultural intrusion (Roberts, 2000).
The Ministry of Finance conceived the application of IAS/IFRS as a gradual
process to allow the audit market growth to keep pace with the demand from the
companies and for accountants in companies to be trained in the new standards
(King et al., 2001, p. 165). For the year ended 31 December 1999, the Harmonization Regulation and the existing, French-inspired, regulations were applied
simultaneously by 13 enterprises, forming a representative sample of listed companies on the stock exchange and certain enterprises of national interest (Order
403/1999, art. 2, para. 1). In fact, 12 pilot enterprises volunteered to produce
accounts under both the new system and the existing one, each being audited
by one of the Big Five (King et al., 2001). Another volunteering enterprise
was later added as it had received loans from international financial institutions
which required audited IAS financial statements.
The regulator included in the 1999 Harmonization Regulation the possibility to
require the application of the National Inflation Accounting Standard and indeed
the accompanying accounting chart had been adapted accordingly. Hyperinflation (as defined in IAS 29) marked the Romanian economic environment in
the first decade after 1990 (see Table 2) resulting in decapitalization and taxation
of inflationary profits. In 1995 and 1996, the Ministry of Finance allowed the calculation of taxable profits on the basis of an inflation adjusted tax balance sheet,
but this facility was withdrawn in 1997. About the same time, the accounting regulator within the Ministry, advised by British consultants, drafted a national
inflation accounting standard by adjusting the balance sheet only. By the end
of 1998, the standard was in the process of field testing (Olimid, 1998), but
was neither issued as a standalone regulation, nor included in the professional
guides (Volume IV, 1999 Harmonization Regulation). Some of the 13 enterprises
in the field test adjusted their financial statements to inflation on the basis of IAS
29 (Ministerul Finantelor Publice, 2001).
The 13 enterprises mentioned above were the only ones to ever apply the 1999
Harmonization Regulation and while it is not certain that it was meant to be an
Inflation rate
Year
Inflation rate
Year
Inflation rate
1990
1991
1992
1993
1994
1995
5.1
170.2
210.4
256.1
136.7
32.3
1996
1997
1998
1999
2000
2001
38.8
154.8
59.1
45.8
45.7
34.5
2002
2003
2004
2005
2006
22.5
15.3
11.9
9.0
6.56
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I. Ionascu et al.
Table 3. Number of non-financial enterprises having to apply the Harmonization Regulation for the first time
Financial statements for the year(s) ended on
31 December
31 December
31 December
31 December
2000
2001
2002
2003
No. of enterprises
197
767
410
367
Source: Ministry of Public Finance Orders nos. 94/2001, 990/2002, 705/2003 and
1827/2003.
of auditors and report the provisional arrangements that were put in place to
qualify as independent auditor.7
For all the other non-financial enterprises, considered small, the Ministry of
Public Finance issued Simplified Regulations, harmonized with the European
Directives only. The Simplified Regulations, applicable from 1 January 2003,
represented a simplified version of the Harmonized Regulations for large
enterprises. Harmonization Regulations were also issued for banking (2001),
insurance (2001) and brokerage (2002) industries.
According to the initial strategy of the accounting regulator, from the financial year 2006 onwards, company accounting should have functioned at two
speeds: an echelon of large companies applying the Harmonization Regulations and another echelon of small companies applying a simplified
version of these regulations. In practice, the attempt to ensure harmonization
with two accounting frameworks was not a success. Even if IAS/IFRS were
considered a part of the 1999 and 2001 Harmonization Regulations, the latter
featured two notable carve outs: IAS 27 and IAS 298 (2001 Harmonization
Regulation, para. 3.4). For example, companies could choose if they wanted
to apply IAS 29 or not: those that did opt for the application of IAS 29 had
to perform the relevant restatements outside the statutory accounts not to interfere with the calculation of the taxable income. Stating that the 2001 Harmonization Regulation supplemented by the yearly closing rules, differ significantly
from IAS, the ROSC 2003 country report cites inflation accounting,
consolidation, the presentation of own shares and the format of accounts
where masses of additional information, . . . can only confuse foreign shareholders and potential investors (World Bank, 2003b).
In practice conformity with IAS/IFRS was partial with respect to: IAS 1, IAS 2,
IAS 7, IAS 12, IAS 16, IAS 17, IAS 18, IAS 21 and IAS 39 (World Bank, 2003b).
Deloitte Audit S.R.L. (2006) also cites IAS 36 with respect to the determination of
recoverable value. Owing to the strong link between accounting and taxation, a tax
application of IAS/IFRS was often made, for instance, the provisions of international standards were applied if they did not contravene the tax regulations
(Ionascu et al., 2006). Likewise, companies did not appear to understand that
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I. Ionascu et al.
According to these regulations, starting with the financial year 2007, listed
groups and banking institutions (listed and not listed) will mandatorily apply
IFRS in their consolidated financial statements only, while the European Directives Conformity Regulations remain valid for all reporting to governmental
institutions. Out of all the options included in Regulation (EC) no. 1606/
2002, the Romanian regulator chose to enforce IAS/IFRS for the consolidated
financial statements of banking institutions only. Recent history must have
shown that the majority of Romanian enterprises did not have the capacity to
apply full IAS/IFRS.
Stock exchanges
Athens
Exchange
Bucharest Stock
Exchange
Budapest Stock
Exchange
Prague Stock
Exchange
Bulgarian Stock
Exchange
Sofia
Warsaw Stock
Exchange
Market
capitalization
December 2005
(euro millions)
Market
capitalization as
percentage of
GDP
123,033
181,087.5
67.94
15,310
79,313.5
19.30
27,586
87,894.6
31.39
31,059
98,417.5
31,56
4,279
21,448.1
19.95
79,353
243,398.2
32.60
182
I. Ionascu et al.
were carried out by audit and financial services firms, but their results should be
cautiously evaluated as detailed references are not always available and their
results are not validated according to rigorous scientific criteria.
These surveys revealed that the effort to implement IAS/IFRS is significant.
JMH Financial Services11 survey of 1,000 British companies estimated an
average compliance cost of around 360,000. This figure is even higher for a
top 500 company (446,000), or for companies with a market capitalization
between 1 billion and 2 billion (625,000), and in excess of 1 million for
companies worth more than 2 billion.
A survey of listed companies in 12 European countries undertaken by the
French accounting firm Mazars SA (Mazars, 2005) in April 2005 revealed that
60% of the Polish companies surveyed consider that moving to IFRS is a
major cost, with only 30% of the respondents judging that benefits will outweigh
costs. The same opinion regarding the size of IFRS transition costs is shared by
companies in Belgium and Luxembourg, but with a more optimistic cost benefit
outlook (55%). Surprisingly, only 20% of Czech companies believe that IFRS
costs are sizeable (one of the lowest percentages in Europe), while 92% of
these companies have subcontracted the relevant accounting services (a percentage much larger than the average of 59%). Moreover, 64% of Czech companies
expect the benefits linked to the move to IFRS to exceed related costs.
A survey conducted in January February 2004 for Atos Consulting (Atos
Consulting, 2004) asked 200 top listed companies from the UK, France,
Germany and the Netherlands if their expected IAS/IFRS implementation
costs would exceed E1 million. It seems that this estimate is too pessimistic,
as 71% of the surveyed companies in the final implementation phase consider
that the final amount will be less than that and only 19% think that this value
will be exceeded. Only 4% of companies that have started the implementation
phase consider that their costs will rise beyond the E1 million threshold. The
authors nevertheless conclude that IAS/IFRS implementation costs are underestimated and the related projects are underfinanced. Only 40% of the surveyed
companies expect IFRS to increase shareholder value through greater transparency of reporting and ease of access to capital markets. However, 47% of the
surveyed companies anticipate share price fluctuations and 20% a decrease in
shareholder value. The results single out UK companies as failing to recognize
a potential positive impact, possibly because of more similarity between UK
accounting standards and IAS/IFRS.
The biggest issue reported by the companies on the Continent surveyed is
retraining staff to be conversant in IFRS (ranked second in the UK) followed
by technical accounting expertise (ranked top in the UK). All companies
mention modifying systems and re-engineering processes as the third and
fourth challenges, respectively.
A survey conducted in May 2005 for PricewaterhouseCoopers (Romir
Monitoring, 2004) on a sample of approximately 3,000 people,12 covering
Russian general businesses, audit firms, academics and students ended with
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I. Ionascu et al.
One cannot underestimate the implementation difficulties that eligible enterprises faced, making the recourse to professional accounting firms almost a
necessity.
Our contacts in the business milieu suggest that there is a perception that the
decision to introduce the 1999 Harmonization Regulation did not take into
account the enterprises capability of implementation, nor its effects on eligible
enterprises. Hereby is the remark of one finance director of a listed company:
[. . .] it would have been better to fill in this questionnaire 5 6 years ago.
[. . .] Our company was put at a disadvantage by the application of the
Order 94/2001 owing to [certain accounting treatments] that had led to
the taxation of inflationary gains during the first years (2001 2003), financial losses in 2004 and probably in 2005. The non-application of IAS 29
decided by the Ministry of Finance led to an increase in accounting
profit and therefore in income tax. The review of the financial statements
by the County Directorate for Fiscal Control gave us many troubles and
there were unending discussions because they were not sufficiently
trained to check the application of these regulations.
Given these circumstances, our study intends to identify and evaluate the costs of
harmonizing Romanian accounting with international regulations and capture the
perception of finance directors regarding the regulators decisions, all from a
cost benefit vantage point. We recognize that even before the issue of the Harmonization Regulations, Romanian accounting was already in line with the
Fourth Council Directive in most respects. Accordingly, the implementation
costs of these Regulations were mainly due to the IAS/IFRS component. We
shall keep in mind that Romanian Harmonization Regulations are only a rough
application of IAS/IFRS, and that restatement costs may be also incurred to
ensure full IAS/IFRS compliance.
Research Hypotheses
The three main objectives pursued by our study are: (i) to identify the extent to
which Romanian companies feel the need for IAS/IFRS; (ii) to identify and
evaluate the costs involved in the harmonization of Romanian accounting with
international regulations; and (iii) to capture the perception of finance directors
regarding the costs and benefits linked to the harmonization process. We have
built the research hypotheses upon these objectives.
A. Voluntary Adoption of IAS/IFRS
In order to evaluate the direction imposed by the accounting regulator, we tried to
identify if there existed an independent trend to use IAS/IFRS. As late as 2003,
the demand for transparent financial statements was described as low, owing to
186
I. Ionascu et al.
Label
Measure
Values
Harmonization regulations only;
restatement; full IAS/IFRS
Before Harmonization Regulations became
mandatory; after Harmonization
Regulations became mandatory
Multiple response: training of personnel;
adjustment of information systems;
consultants fees; double reporting
Open-ended question
Continuous
1.
Type of reporting
Nominal
2.
Date of
implementationa
Nominal
3.
Type of cost
Nominal
4.
5.
Nominal
Scale
6.
7.
8.
Ordinal
9.
Participation in
IAS/IFRS
training
Use of consultants
Nominal
10.
11.
12.
13.
Recourse to foreign
financial markets
Type of capital
Company size
(market
capitalization)
Nominal
Nominal
Nominal
Ordinal
Nominal
Scale
a
We requested the year of application of IAS/IFRS and checked it against the appendices to the Harmonization Regulation to determine if these enterprises have applied IAS/IFRS before the Regulation
became mandatory for them.
The first 12 variables result from the questionnaire, while the last one,
Company Size, was operationalized as the market capitalization on 23 December
2005, the last transaction day on the BSE, translated in euros at the National
Banks exchange rate on the same day.
188
I. Ionascu et al.
Frequencies
25
10
3
38
Percentages
65.8%
26.3%
7.9%
100%
Frequencies
34
4
38
Percentages
89.5%
10.5%
100%
Frequencies
11
17
4
6
38
Percentages
28.9%
44.7%
10.5%
15.9%
100%
Values (euros)
Mean
Median
Standard deviation
Minimum
Maximum
Sum
Observations
197,345,013
27,330,039
452,175,996
1,382,319
2,626,441,529
7,499,110,501
38
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I. Ionascu et al.
B. Harmonization Costs
According to Table 10, we identified four main types of harmonization costs:
personnel training costs, adjustment of information systems, consultants fees
and double reporting. For that reason we accept hypothesis HB1.
We notice that almost all listed companies surveyed (94.7%) incurred personnel training costs. Personnel were trained via training courses (86.8% of companies variable 9 from Table 5, Participation in IAS/IFRS Training).
Consequently, we might believe that these companies intended to assimilate
and apply international regulations with their own staff, rather than externalize
the accounting function. Even though companies intended to implement IAS/
IFRS with their own staff, the actual procedures were supervised by a professional accounting firm, as 65.8% of companies indicated significant consultants fees.
The companies surveyed mentioned other IAS/IFRS implementation costs,
such as: audit costs (seven companies), documentation costs (one company)
and remuneration costs (one company). Since the financial statements prepared
in accordance to the Harmonization Regulation had to be audited, all companies
actually incurred audit costs.
Taking into account the lack of qualified personnel and the delays in the publishing of IAS/IFRS translations and implementation guides, we are inclined to
believe that, at least in the incipient phase, the international accounting firms
which were auditing the financial statements were also involved in their restatement in accordance with the Harmonization Regulation.14
It is widely recognized that auditors prepare financial statements on behalf
of their clients because clients lack financial reporting expertise and therefore expect the auditors to prepare them. However, clients emphasize that
audit firms gradually transfer knowledge to company staff, who then can
take over the drafting of financial statements.
(World Bank, 2003b, p. 6)
Table 10. Occurrence of IAS/IFRS adoption costs
Type of cost
Training of personnel
Adjustment of information systems
Consultants fees
Double reporting
Total
Frequencies
Percentages
36
27
25
9
n/a
94.7%
71.1%
65.8%
23.7%
n/a
Frequencies
Percentages
14
11
7
4
n/a
36.8%
28.9%
18.4%
10.5%
n/a
Apparently, a number of companies in our sample received, from the same professional accounting firm, auditing and consulting services that could have
included training courses or adjusting of information systems. It seems that wherever accounting firms gave their assistance in areas related to the implementation
of the Harmonization Regulation, companies had difficulties in distinguishing
between audit costs and other implementation costs. We therefore express reservations on the components of IAS/IFRS implementation costs as they were supplied by the respondents, because it is possible that some of them overlapped and
were reported in a less precise way.
A percentage of 36.8% of the finance directors indicated personnel training
costs as the most onerous type of cost (see Table 11).
Based on the answers received (only 23 of the 38 enterprises that returned the
questionnaires disclosed the amount of the costs), we have calculated an average
implementation cost of approximately 30,000 euros (see Table 12), 78.26% of
respondents indicating costs lower than 50,000 euros (see Table 13).
These costs are insignificant when weighed against the annual operating
expenses reported by listed companies: the average IAS/IFRS implementation
cost represents only 0.035% of the average operating expenses in 2004.15 Compared to the results of other similar studies done in the European Union (e.g. JMH
Financial Services16), the costs of Romanian enterprises that have implemented
IAS/IFRS are much lower. This is explained by the features of the local labour
Table 12. Implementation costs of IAS/IFRS
Descriptive statistics
Mean
Median
Mode
Standard deviation
Minimum
Maximum
Sum
Observations
a
Values (eurosa)
30,348.12
15,000
30,000
35,506.80
2,762.69
151,947.88
698,010.40
23
Translated into euros at an average exchange rate for the period November
2005February 2006.
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I. Ionascu et al.
Table 13. Size of costs
Frequencies
Percentages
18
4
1
23
78.26%
17.39%
4.35%
100%
market, still characterized by low costs: for the year 2004 the National Institute
for Statistics calculated an average gross salary of approximately 200 euros
(around 270 euros in 2005).17 The majority of harmonization costs (personnel
training costs, consultants fees, audit, adjustment of software applications) are
composed of highly qualified professional services delivered at much lower
costs than in Western Europe. It has also been suggested that these comparatively
low costs might be due to a possible minimal application of the Harmonization
Regulation. As explained earlier, the regulator permitted the carve outs of IAS
27 and IAS 29; at their turn, the preparers, not accustomed to making judgments,
often went for a partial or tax application of a number of standards.
The amounts reported as IAS/IFRS costs must be regarded with caution, as
the respondents were asked to make a global evaluation which was not always
consistent in terms of its components (e.g. audit costs).
The second hypothesis, HB2: Large enterprises incurred bigger IAS/IFRS
implementation costs than the rest of the enterprises, was tested using the following regression model (Table 14):
Ci a0 a1 MCi 1i
where Ci implementation costs of company i and MCi market capitalization
of company i.
Table 14. Regression results
Statistics
R
R-square
a0
(t)
a1
(t)
F
Durbin Watson
Observations
Significant at 0.001.
Values
0.696
0.484
17,479.552
(4,206)
0.372
(4.331)
18.759
1.986
22
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I. Ionascu et al.
Table 15. Assessment of costs and benefits
Frequencies
9
12
14
35
Percentages
25.7%
34.3%
40%
100%
We have used ordinal regression models to test hypotheses HC2 and HC3 concerning associations between the ordinal variable Cost and Benefits and the variables Type of Capital or Recourse to Foreign Financial Markets, but also to test
potential associations between Cost and Benefits and Company Size. We have
also grouped the data in order to run logistic regression models. No correlation
resulted between the variable Cost and Benefits and the other variables considered. Consequently, we reject these two hypotheses (HC2 and HC3) out of
insufficient evidence to support the relationship between Cost and Benefits, on
the one hand, and Type of Capital and Recourse to Foreign Financing, on the
other hand.
A possible explanation why the cost benefit relationship was not evaluated
differently by companies wholly or majority-owned by foreign capital and companies making recourse to foreign finance could be that these businesses could
not equate the financial statements prepared under the Harmonization Regulation
with IAS/IFRS financial statements. Companies could not fully benefit from
IAS/IFRS financial statements (such as an easier access to foreign finance),
since additional restatements were necessary.
196
I. Ionascu et al.
reasonable at the time, and with careful preparations, could have smoothed the
transition to full IFRS, at least for listed companies.
Limitations and Further Research
Out of the 62 companies to whom we have sent questionnaires, 38 returned them
completed, that is, a response rate of 61%. In our opinion, the low rate of response
is due to the lack of transparency of Romanian companies, a relic from communist times when accounting information was secret. At least two finance directors
replied to our request writing that they cannot provide information since they
have not received managements permission.
Nevertheless, we may generalize the results of our research to all listed companies on the BSE, since respondents do not differ from non-respondents on at
least one important characteristic: company size, as operationalized by market
capitalization. The application of the t-test shows that respondents and nonrespondents do not differ on market capitalization (t-test: t 0.491, df 60,
sig. two-tailed, p 0.625). However, the variable Market Capitalization is
not distributed normally (skewness: statistic 6.536, standard error 0.304).
Accordingly, we have treated the data as non-parametric and applied the
Mann Whitney test. The results of the Mann Whitney test converge with
those of the t-test: the non-respondents do not differ from respondents on
market capitalization (Mann Whitney U 338,000, asymp. sig., two-tailed,
p 0.088).
Our study revealed a strong causal link between the size of costs and the
company size, that is, its market capitalization. As only 23 companies (out of
the 38) disclosed the amount of the IAS/IFRS implementation costs, the
average IAS/IFRS implementation costs can only be generalized to the rest of
the population if, again, there were no significant differences between the two
groups: companies that disclosed their costs and companies that did not (including those that have not returned the questionnaires). The results of the t-test
demonstrate that, in relationship with market capitalization, companies that disclosed cost information are not significantly different than those who did not
provide this information (t-test: t 0.932, df 60, sig. two-tailed, p 0.355).
For the same reasons given above, we have also applied the Mann Whitney
test to check the existence of differences between disclosing companies and
the rest of the companies. The test results show that the two groups do not
differ on market capitalization (Mann Whitney U 424,000, asymp. sig.,
two-tailed, p 0.721) and thus the average IAS/IFRS implementation cost
may be generalized to all listed companies.
Our study did not evaluate the benefits of adopting IAS/IFRS, but only the
opinions of finance directors concerning related costs and benefits. As finance
managers had to bear the effort of implementing the actual assimilation of the
Harmonization Regulations, we are aware of the fact that their perception may
be biased. The view of finance directors of listed companies is just one
The censor is not an auditor in the international acceptance of the word. He is empowered to
supervise the administration of the company, check the legality of the financial statements
and make sure that these are drawn up in agreement with supporting documents. He should
also verify if the company regularly records transactions in the journal and ledger and if the
inventory and valuation of the companys patrimony were done according to the relevant regulations. The rule was to choose an accountant member of CECCAR, the Institute of Public and
Licensed Accountants of Romania.
2
Two years after the adoption of the Accounting Law, the Romanian government signed the
Association Agreement with the European Community on 1 February 1993.
3
The Institute of Chartered Accountants of Scotland provided the technical assistance (ICAS,
1999; King et al., 2001).
4
On 10 January 2001 the Ministry of Finance was reorganized and its name was changed into the
Ministry of Public Finance.
5
Romanian Association of Securities Dealers Automated Quotation (system).
198
I. Ionascu et al.
6
Fourth Directive criteria after their third five-yearly revision in 1994. The Ministry of Public
Finance changed these criteria in 2003. At 31 December 2004, the final criteria were: total turnover more than E7.3 million, total assets over E3.65 million and average personnel number
more than 50.
7
The normal procedure comprised three-year training in an auditors practice, followed by a
series of examinations. The provisional procedure allowed to some 1,420 individuals who fulfilled the criteria relating to experience and reputation to become provisional members of the
Chamber of Auditors (World Bank, 2003b). The setting of the Chamber of Auditors generated
tensions between it and the professional body CECCAR whose members were previously
censors of companies eligible to apply the Harmonization Regulation.
8
SIC 19 was also carved out by secondary legislation regulating the financial statements of the
year 2002.
9
Estimated in March 2007 at RON 342,418 million by the National Statistical Institute
[www.insse.ro/cms/rw/pages/comunicate/pib.ro.do] and translated into euros at the
average exchange rate of 3.5258 RON/euro.
10
These listing rules were valid until September 2006 when the new Rulebook of the Bucharest
Stock Exchange was approved by the National Securities Commission.
11
http://www.accountancyage.com/News/1135861
12
Accountants in accounting firms 16.66%, accountants in general business companies 50.02%,
students 16.66% and teachers 16.66%.
13
We have already cited the case of the thirteenth enterprise in the 1999 pilot test.
14
It is also relevant that the few companies which restated their financial statements to account for
hyperinflation appeared to comply with IAS 29 and these companies clearly enjoyed the
support of local member firms of international audit firm networks (World Bank, 2003b, p. 12).
15
This average was calculated based on the operating expenses reported by the same companies
that have provided us with information regarding their implementation costs. For translation
into euros, we have used the average exchange rate published by the National Bank of
Romania for the year 2004.
16
http://www.accountancyage.com/News/1135861
17
http://www.insse.ro, translated into euros at the average exchange rate published by the
National Bank of Romania for the years 2004 and 2005, respectively.
References
Atos Consulting (2004) IFRS Achieving 2005. Available at: http://www.atosorigin.com/
NR/rdonlyres/39AE41A4-DEC1-46BF-A9F9-0256C4D7408F/0/wp_ACIFRS.pdf
Bucharest Stock Exchange (2005) Monthly Bulletin, December. Available at: www.bvb.ro
Colwyn Jones, T. and Luther, R. (2005) Anticipating the impact of IFRS on the management of
German manufacturing companies, Accounting in Europe, 2, pp. 165193.
Day, J. and Taylor, P. (2005) Accession to the European Union and the process of accounting and
auditing reform, Accounting in Europe, 2, pp. 3 21.
Deloitte Audit S.R.L. (2006) Raportul auditorului independent [Audit Report]. Available at: http://
www.vrancart.ro/rapoarte/2005/Auditor2005.pdf
DFID (Department for International Development) (2000) ROMANIA Country Strategy Paper,
29 March. Available at: www2.dfid.gov.uk/pubs/files/cspromania.pdf
European Commission (1995) Communication of 14 November 1995 from the Commission Accounting Harmonisation: A New Strategy vis-a`-vis International Harmonisation Com 95 (508)
11.1995.
European Commission (2000) Communication of 13 June 2000 from the Commission to the Council
and the European Parliament EU Financial Reporting Strategy: The Way Forward Com (2000)
359 final.
200
I. Ionascu et al.
Appendix A
ACADEMY OF ECONOMIC STUDIES BUCHAREST CENTRE FOR
ACCOUNTING AND MANAGEMENT INFORMATION SYSTEMS
QUESTIONNAIRE
Regarding the evaluation of the costs entailed by the harmonization of
Romanian accounting with international regulations
DIRECTIONS FOR FILLING IN THE QUESTIONNAIRE:
Excluding the case where several answers may be chosen, please fill in the
column on the right with the one option that you consider appropriate for your
enterprise.
Question
number:
1)
2)
3)
4)
Your
answer:
Your enterprise prepares its financial statements
according to:
a) the Order of the Minister of Public Finance no. 94/
2001;a
b) by restating the financial statements prepared in
accordance with the OMFP no. 94/2001b to the
requirements of IAS/IFRS;
c) applies only IAS/IFRS during the entire financial
year.
Since when does your enterprise apply the international
accounting standards (IAS/IFRS)?
The application of IAS/IFRS in your enterprise is due to:
a) the mandatory accounting regulations (OMFP no.
403/1999, OMFP no. 94/2001);
b) managements initiative
c) the request of the shareholders
d) the need for foreign financing?
In your enterprise the switch to IAS/IFRS has generated
costs related to: (several answers may be chosen):
a) training of personnel;
b) double reporting;
c) consulting services;
d) adjustment of computer information systems;
202
I. Ionascu et al.
Question
number:
5)
6)
7)
8)
9)
10)
11)
Your
answer:
e) other costs, please specify:
Please state which is the most important component of
the costs related to the implementation of IAS/IFRS
for your enterprise?
Please, evaluate the costs entailed by the switch to IAS/
IFRS for your enterprise.
Have the costs of implementing IAS/IFRS been
budgeted?
a) yes (continue with question no. 9);
b) no.
The costs of implementing IAS/IFRS have not been
budgeted because:
a) the change of relevant legislation was made rapidly;
b) the enterprise does not run a budget system;
c) other reasons, please specify:
In your opinion, the implementation of IAS/IFRS
reporting offers the following advantages: (several
answers may be chosen)
a) it is an appropriate accounting system for listed
companies as it offers relevant information to
investors;
b) permits the access to the foreign financing market;
c) offers solutions for transactions not yet regulated;
d) offers managers a good information resource for
decision making;
e) it is a straightforward accounting system;
f) other advantages, please specify:
How do you evaluate the relationship between the costs
and benefits related to the implementation of the new
reporting system in your enterprise?
a) the benefits of implementing IAS/IFRS do not cover
related costs;
b) the benefits of implementing IAS/IFRS do not cover
related costs at present, but these will be recovered in
the future;
c) the benefits of implementing IAS/IFRS exceed the
related costs.
The finance and accounting personnel has been trained to
apply IAS/IFRS:
a) by way of courses given by Romanian accountants;
12)
13)
14)
15)
Your
answer:
b) by way of courses given by foreign accountants;
c) has not been trained.
Your enterprise has received/receives consulting
services provided by:
a) a foreign consultant/consultancy;
b) a domestic consultant/consultancy;
c) has not received/does not receive consulting
services.
What is your enterprises relationship with the foreign
financial market?
a) it frequently resorts to this type of financing;
b) it occasionally resorts to this type of financing;
c) does not resort to foreign financing market at
present, but envisages this type of financing;
d) it is not interested in this type of financing.
In the official classification, your enterprise is classified
as:
a) a small enterprise;
b) a medium-size enterprise;
c) a large enterprise.
The share capital of your enterprise is:
a) wholly or majority owned by Romanian
shareholders;
b) wholly or majority owned by foreign shareholders.
For collective investment undertaking, the Order of the Minister of Public Finance and of the President of Romanian National Securities Commission no. 1742/106/2002; for banking institutions, the
Order of the Minister of Public Finance and of the Governor of the National Bank of Romania no.
1982/5/2001.
b
Idem.
Date of
implementation
After the
Harmonization
Regulations
Before the
Harmonization
Regulations
Total
Envisaged or
Inexistent
Occasional or
frequent
Total
Count
% within Date of
implementation
% within Recourse to
foreign financial
markets
% of Total
Count
% within Date of
implementation
% within Recourse to
foreign financial
markets
% of Total
27
79,4%
7
20,6%
34
100,0%
96,4%
70,0%
89,5%
71,1%
1
25,0%
18,4%
3
75,0%
89,5%
4
100,0%
3,6%
30,0%
10,5%
2,6%
7,9%
10,5%
Count
% within Date of
implementation
% within Recourse to
foreign financial
markets
% of Total
28
73,7%
10
26,3%
38
100,0%
100,0%
100,0%
100,0%
73,7%
26,3%
100,0%
I. Ionascu et al.
204
Appendix B
Type of
reporting
Harmonization
Regulations only
Restatement or full
IAS/IFRS
Total
Inexistent envisaged, or
occasional
Frequent
Total
Count
% within Type of reporting
% within Resource to foreign
financial markets
% of Total
24
96,0%
75,0%
1
4,0%
16,7%
25
100,0%
65,8%
63,2%
2,6%
65,8%
Count
% within Type of reporting
% within Resource to foreign
financial markets
% of Total
8
61,5%
25,0%
5
38,5%
83,3%
13
100,0%
34,2%
21,1%
13,2%
34,2%
Count
% within Type of reporting
% within Resource to foreign
financial markets
% of Total
32
84,2%
100,0%
6
15,8%
100,0%
38
100,0%
100,0%
84,2%
15,8%
100,0%
206
I. Ionascu et al.
Type of
reporting
Harmonization
Regulations only
Restatement or
full IAS/IFRS
Total
After the
Harmonization
Regulations
Before the
Harmonization
Regulations
Count
% within Type of reporting
% within Date of implementation
% of Total
25
100,0%
73,5%
65,8%
0
,0%
,0%
,0%
25
100,0%
65,8%
65,8%
Count
% within Type of reporting
%within Date of implementation
% of Total
9
69,2%
26,5%
23,7%
4
30,8%
100,0%
10,5%
13
100,0%
34,2%
34,2%
Count
% within Type of reporting
% within Date of implementation
% of Total
34
89,5%
100,0%
89,5%
4
10,5%
100,0%
10,5%
38
100,0%
100,0%
100,0%
Total
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