A - Story - True and Fair View

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A story about IAS/IFRS implementation in Romania

An institutional and structuration theory perspective
Nadia Albu, Catalin Nicolae Albu, Stefan Bunea, Daniela Artemisa Calu and Maria Madalina Girbina
Faculty of Accounting and Management Information Systems, Bucharest Academy of Economic Studies, Bucharest, Romania
Abstract
Purpose This study aims to investigate in-depth, and explain the issues related to, the implementation of IAS/IFRS in an emergent country that recently adhered to the European Union, i.e. Romania. Design/methodology/approach An institutional and structuration theory perspective is used to discuss two stages of IAS/IFRS implementation in Romania. Both primary (11 in-depth semi-structured interviews conducted with key actors involved in financial reporting) and secondary data (accounting regulations after the fall of communism, with respect to the implementation of IAS/ IFRS) were collected for the purpose of the paper. Findings It was found that the two stages of IAS/IFRS implementation had different outcomes, with a more profound and qualitative impact of the second phase. The first step was a result of coercive external forces, that is, the influence of the World Bank. Given the lack of other factors to favor the change process, it is argued that the actual implementation of IAS in that period was very limited. Even though the second step meant a reduction in scope to only listed companies in consolidated accounts and financial institutions, it is argued that it was accompanied by a change process more significant than in the previous period. Originality/value The paper investigates the inter-play between institutions, routines and politics in the Romanian context and highlights the complexity of accounting change in an emerging country. Keywords International accounting, Financial reporting, Emerging markets, Romania Paper type Research paper
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1. Introduction There is an enormous amount of literature concerning the process of international accounting harmonization and more recently, that of convergence. The most significant role in achieving (international) convergence is played by the International Accounting Standards Board (hereafter IASB), which advances the need to increase the international comparability of the financial information. Many countries intend to adopt International Financial Reporting Standards (hereafter IFRS) or make their national regulations converge with IFRS (Larson and Street, 2004, p. 91).
The authors wish to thank the two anonymous reviewers and the Editors of the Journal of Accounting in Emerging Economies, as well as to the conference reviewers and participants at the AFC congress in Nice in May 2010 for their useful suggestions and comments. The authors also appreciate the kind support and suggestions by David Alexander and Lavinia Olimid. Finally, the authors would like to acknowledge the financial support of CNCSIS UEFISCSU, project number PN II-RU TE_341/2010, Title Substantiation of a national strategy for the implementation of the IFRS for SMEs in Romania.
Journal of Accounting in Emerging Economies Vol. 1 No. 1, 2011 pp. 76-100 r Emerald Group Publishing Limited 2042-1168 DOI 10.1108/20421161111107868
IFRS implementation could affect a countrys reputation as modern, organized and well-regulated place to do business ( Jermakowicz and Gornik-Tomaszewski, 2006, p. 191), and it is seen as a means to gain legitimacy by developing countries. This is especially the case of ex-communist countries, which underwent several reforms during their road to modernization. Romania is an ex-communist Central and Eastern European (CEE) emerging country, which after the fall of communism was affected by several waves of accounting reforms with different foreign implants[1]. Between 1947 and 1989 Romania was a communist country, similarly to other CEE countries, being under the influence of the former Union of Soviet Socialist Republics. After the fall of communism in December 1989, Romania experienced a prolonged stage of reform, affecting all political, economical and social facets of its life. These changes have also affected Romanias financial reporting model. First, the 1990s have marked the orientation of the Romanian regulator towards the codified French accounting model, followed by an increased interest in International Accounting Standards (hereafter IAS). Finally, Romanias incessant interest in the adhesion to the European Union made the national regulator pursue at the same time harmonization of national regulations with European Directives (hereafter EDs). Consequently, after a period of orientation towards both the EDs and IAS, in 2005 the Order of the Minister of Public Finances (hereafter OMFP) 1752[2] was issued to have accounting regulations only harmonized with EDs, while full IFRS application got more restricted, only to consolidated financial statements of listed entities and financial institutions. Hence, Romania represents an interesting research case because of the different IFRS implementation strategies experienced (the inclusion of IAS[3] in the national regulations and application by an extended number of entities at the individual financial statements level, compulsory full IFRS application at the consolidated accounts level and voluntary use for the second set of individual financial statements for a more restricted number of entities), and their historical context marked by different economic, political and institutional characteristics. Some could argue that changes of accounting models are more easily achieved in transition countries because of the reduced impact of their accounting tradition. However, impediments to convergence are seen as more of a problem in the new European Union Member States (Larson and Street, 2004, p. 113). Nobes and Parker (2008, p. 245) note that the development of financial reporting in Eastern and Central Europe has inevitably been subject to more discontinuities [y] but no country has broken completely with the past, and influences remain both from the pre-communist period and from the communist period. In this context, our aim is to critically discuss the issues related to the implementation of IAS/IFRS in the Romanian context. We mobilize the institutional and structuration theory perspective to discuss two stages of IAS/IFRS implementation in our country, to provide first-hand empirical evidence on the difficulties that this process entails in our country, and to investigate the impact of IAS/IFRS on the Romanian accounting model. This study is of interest to academics involved in research on the process of accounting convergence, on complex phenomena of accounting change and adoption of IFRS, as well as to accountants and auditors, offering insights on the complex issues associated to the implementation of IFRS in an emergent economy. Finally, the Romanian and other national regulators and standard issuers in emerging economies might find the study interesting when considering the implementation of IFRS (in various forms) by entities in their respective jurisdictions.
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In the context of accounting convergence and the increasing implementation of IFRS, this study is a response to the paucity of studies exploring the country-specific factors, especially in developing countries. In the general field of studies insisting on advantages ( Jermakowicz, 2004; Veneziani and Teodori, 2008) or problems associated to the IFRS implementation (Larson and Street, 2004; Vellam, 2004; Schipper, 2005; Tokar, 2005; Hoogendoorn, 2006; Jermakowicz and Gornik-Tomaszewski, 2006; Alexander and Servalli, 2009), Romania is an interesting setting to study these issues, because of its particularities as a developing country and as a case study of how local specificities affect the intended accounting change. We respond to recent calls for studies on the social functioning of international standards in a development context (see, e.g. Annisette, 2004). This paper contributes to literature on IAS/IFRS implementation, by providing an in-depth exploration of the impact of these standards on the financial reporting model of an emergent country, drawing on a framework proposed by Dillard et al. (2004) as theoretical lens. We intend to provide a theoretically informed understanding (Ryan et al., 2003, p. 149) on the implementation of IAS/IFRS in a developing economy. The model allowed us to theorize the limited outcome of IAS implementation during the first step of reform of the Romanian accounting model, while we argue that the second step (although with a narrower scope) resulted in a more substantial and qualitative change. We also contribute to literature on financial reporting issues in emergent economies, by shedding light on the recursive institutionalization process described in Dillard et al. (2004), with a focus on the Romanian case. We make a case for inverting the cascade and elaborating the process as the actions taken by knowledgeable, reflexive agents within the organizations rise up through the three levels and changes occur in the established order at the various levels (Dillard et al., 2004, p. 513) with respect to IFRS application by the Romanian companies. Last, but not least, we provide first-hand evidence of the difficulties that the Romanian entities might face when considering/ being obliged to apply IFRS and the role of the World Bank in the Romanian accounting reforms. This paper is organized as follows. After reviewing the relevant literature motivating the study in Section 2, we continue by presenting the theoretical framework and the methodology employed in Section 3. Section 4 details the Romanian case, followed by the analysis of the IAS/IFRS implementation in Romania. Finally, we discuss and conclude regarding this process of accounting change in Section 5. 2. Literature review and motivation Over 100 countries[4] are requiring, permitting or adopting IFRS worldwide. Research associated with the implementation issues and effects is therefore needed. Some papers (Craner et al., 2000; Larson and Street, 2004; Peng and van der Laan Smith, 2010) analyze the degree of formal (de jure) convergence, as it is the basis for obtaining convergence of practices (Qu and Zhang, 2010). Other authors (Ball, 2006; Peng et al., 2008) consider that implementation issues and the de facto convergence (i.e. of practices) need to be analyzed more carefully. The studies on the effects of IFRS implementation document both the advantages and the difficulties of this process. For example, several studies show that the application of IFRS results in increased comparability, transparency and quality of financial reporting ( Jermakowicz, 2004; Veneziani and Teodori, 2008). Significant impact on companies reported equity, increasing volatility of results and a diminishing
conservativeness were also reported ( Jermakowicz, 2004; Jermakowicz and Gornik-Tomaszewski, 2006; Callao et al., 2007; Veneziani and Teodori, 2008). Simultaneously with the commitment to convergence, there is an evidence that suggests the difficulties or failures of this process: the lack of political will, rooted in local culture and a strong national outlook prevented a truly harmonized framework (Callao et al., 2007, p. 149); the magnitude of the differences that exist between countries and the high costs to eliminate them ( Jermakowicz and Gornik-Tomaszewski, 2006); local traditions exercise a strong influence over the implementation of new concepts (see Sucher and Jindrichovska (2004) on the issue of the true and fair view concept); tax and legally based orientation hinder the harmonization process (Larson and Street, 2004; Vellam, 2004); diversity will not disappear as it comes from different accounting cultures and their interpretation will be partly influenced by their history and previous practice (Tokar, 2005; Schipper, 2005; Hoogendoorn, 2006; Soderstrom and Sun, 2007; Alexander and Servalli, 2009). In this context, studying the implementation process and the impact of the national environment on this process is necessary. It is argued that international differences in the financial reporting practice occur as an endogenous function of local political and economic institutions (Ball, 2006). On the same note, Schipper (2005, p. 110) finds differences in IFRS implementation between European Union countries: all jurisdictions will adopt the same standards but the institutional arrangements giving rise to financial reporting incentives differ, in some cases dramatically, across jurisdictions. Factors such as the economic development, the history and the culture of the country, the legal and educational environment influence the process of IFRS implementation. As the implementation process is crucial and is affected by institutional factors, we intend to analyze how these factors affected IFRS implementation in Romania. Literature distinguishes between the so-called Continental European accounting model(s) (based on a code-law system) and the so-called Anglo-Saxon accounting model(s) (based on the common-law system) (Nobes and Parker, 2008). In this respect, IFRS are considered as being issued from the Anglo-Saxon culture, thus their implementation in Continental European countries might presumably encounter certain difficulties in the given differences between the two accounting cultures. Ball (2006) noted that there are doubts about the quality of IFRS implementation outside the common-law countries. Common-law countries are less conservative than code-law countries (Callao et al., 2007, p. 166), and are reported to have better accounting systems and better protection of investors (La Porta et al., 1998). The Continental European accounting model[5] is characterized by the emphasis on financial reporting conformity with tax regulations, conservatism and protection of creditors ( Jermakowicz and Gornik-Tomaszewski, 2006; Veneziani and Teodori, 2008). In respect with code-law countries, a French group can be identified (Navarro-Garcia and Batisda, 2010), which is characterized by a small degree of transparency and a weak demand for financial reporting. These details are relevant for the Romanian case, having been influenced by the French reporting model, and being a code-law country. We will analyze how the characteristics of a code-law country interfered with the IFRS implementation in the case of Romania. Romania is a developing country and there is a general consensus that developing economies face different issues where implementation of IFRS is concerned. Ding et al. (2007, p. 3) show that emerging economies treat IFRS as a reference point and as a way to upgrade their accounting system. In this context, several questions arise: Are
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transition countries, while their accounting systems have understandably less tradition, more at ease to implement IFRS? Are differences between local practices and IFRS more easily reduced? Literature on other developing economies already deals with these issues. First, the matter is: Why do developing countries adopt IFRS? For some, it is a desire to promote their development and attract financial resources, for others it is the result of pressures from multinational corporations or of the World Bank, or the effect of the lack of expertise of the national standard setter or regulator (Irvine and Lucas, 2006). In the same line, Cooke and Wallace (1990) show that the level of corporate financial disclosure regulation in many developed countries is more likely to be determined by internal factors (the stage of economic development, the implicit and explicit goals of society, the underlying legal rules), whereas in many developing countries it is more likely to be determined by external factors (the impact of transnational corporations, the effect of regional economic communities, the internationalization of world trade and stock markets, membership and participation in the meetings of bodies that set IAS, and international movements of accounting professionals and firms). The World Bank and the International Monetary Fund are already acknowledged as playing important roles in demanding developing countries to adopt IAS/IFR, being the major subscribers to the IASBs standards (Chamisa, 2000; Abd-Elsalam and Weetman, 2003; Annisette, 2004; Mir and Rahaman, 2005; Irvine and Lucas, 2006; Zeghal and Mhedhbi, 2006). While some authors agree that IFRS implementation in developing economies may help to increase the trust in the accounting information, to attract new investors and resources, others advance that developed accounting models (including IFRS) are not appropriate to the economic environment of developing economies (Abd-Elsalam and Weetman, 2003; Irvine and Lucas, 2006; Zeghal and Mhedhbi, 2006). Those questioning the positive effect of IFRS relate to the difficulties and obstacles usually associated with IFRS implementation in any emergent country: the lack of expertise and the underdeveloped accounting profession, the questionable practices of professionals, the lack of resources for regulation and enforcement and for companies, the need to educate the business environment about IFRS implications (including tax authorities, investors, analysts), the culture of secrecy and fraud; the link between financial reporting and tax laws, the lack of IFRS knowledge, the need to change the mindset of finance personnel (Chamisa, 2000; Larson and Street, 2004; Irvine and Lucas, 2006; Jermakowicz and Gornik-Tomaszewski, 2006; Peng et al., 2008; Boolaky, 2010). Zeghal and Mhedhbi (2006) choose the following factors as possible explanations of the IFRS adoption by developing countries: the economic growth, the education level, the degree of economic openness (including here the influence of the World Bank), the cultural aspects and the existence of a capital market. They conclude that those countries with highest literacy rate, with capital markets and with an Anglo-American culture are the most likely to adopt IFRS. The way in which IFRS were adopted in developing countries and their effects differ from one country to another. Several studies (Peng et al., 2008; Peng and van der Laan Smith, 2010; Qu and Zhang, 2010) deal with the case of China, which had a successful gradual convergence of Chinese generally accepted accounting principles (GAAP) towards IFRS (from 1992 to 2006). Peng and van der Laan Smith (2010) identify the factors that helped the increase in the convergence[6] with IFRS from 20 percent in 1992 to 77 percent in 2006: the first standards adopted were those containing issues more common with Chinese GAAP, while the others were introduced through progressive change. Also, IFRS implementation in Mauritius was successful and less
difficult, as it was done by phases (Boolaky, 2010). In Zimbabwe, standards are reviewed before they are adopted the irrelevant ones for the national setting being neglected (Chamisa, 2000). IFRS are considered relevant to Zimbabwe because the private sector is dominant, a capital market exists, and the shareholder/fair-view presentation is paramount (Idem, p. 280). On the other hand, Kuwait and Pakistan adopted IFRS without modifications, and the result was a high level of non-compliance and the failure of the adoption process (Mir and Rahaman, 2005, p. 835). The group of developing countries is not homogeneous (Chamisa, 2000; Chand, 2005; Filip and Raffournier, 2010), because they have a different historical background, different stages in their economical development and different levels of development of the groups interested in accounting (accounting profession, stock exchange, auditors, users etc.). In that case, generalization is not possible (Chand, 2005), but the experience of other countries is useful in understanding the process of IFRS implementation and its implications. Chand (2005) distinguishes between four groups, one of them being the European communist bloc countries. Chamisa (2000, p. 276) shows that many former communist countries (such as China, Poland, Romania) are adopting or adapting International Accounting Standards Committee (IASC) standards and considers that orientation is not surprising, because capital markets are being established and developed. However, there are some differences between these countries. For example, Craner et al. (2000) analyze the case of Poland and the Czech Republic on consolidation issues. Even if they consider that IAS will lift the barrier to cross-border investment, they insist on the fact that the regulator needs to perform a comparison before making a reform, analyzing the models of developed countries and monitoring developments in other transition economies. Previous studies in ex-communist countries show that even if the changes towards substance over form and a focus on investors have been attempted, the emphasis on proper bookkeeping and on adhering to tax regulations has continued in the Czech Republic (Sucher and Jindrichovska, 2004). Considerable differences between Polish regulations and IFRS were also identified (Vellam, 2004). King et al. (2001, p. 153) show that even if tax law and accounting law have developed separately in countries such as Poland, Hungary, Czech Republic and Romania, de facto differences are less clear. Also, problems associated with lack of clarity in the fiscal law, a variable level of understanding of IFRS by the regulators and preparers, the persistence of the communist mentality among accountants who gained their knowledge and skills prior to the transition, the accountants preference for more prescriptive regulation and less choice of accounting treatments were also documented (Vellam, 2004). It was argued that the accounting histories of emerging markets of Central and Eastern Europe have been neglected in the area of international accounting (Craner et al., 2000). However, if the cases of Poland, of the Czech Republic or of Hungary are more present in the international literature, the case of Romania is rarely described. As such, Delesalle and Delesalle (2000) and Roberts (2000) discuss the general evolution of the Romanian accounting in the early stage of the reform, but as external researchers. King et al. (2001) present the choices of the Romanian regulator in the late 1990s, meaning the orientation towards IFRS. Ionascu et al. (2007) analyze the costs and benefits perceived of the harmonization with IFRS, while Filip and Raffournier (2010) discuss the value relevance of earnings on Bucharest Stock Exchange. This fragmented evidence about the Romanian accounting would benefit from a deeper understanding of the factors affecting the evolution of the national accounting
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model. A longitudinal analysis is useful in order to have a global picture of the process of accounting change within the regulatory model and in practice. The issue of IFRS implementation is a complex one, and various aspects must be considered when evaluating IFRS implementation: the features of the Romanian accounting model, its historical perspective, the characteristics and attitudes of the Romanian companies, the users of the financial statements and their expectations, and the features of the Romanian accounting profession. Romania is an interesting setting to study the evolution of IFRS application because of its several steps and foreign influences in the accounting reform. Considering all of these, and with the aim of critically evaluating the issues related to IAS/IFRS implementation in Romania, we intend to address inter alia the following research questions: To what extent the supposed application of IAS/IFRS has produced a change in the Romanian accounting environment, and what are the implications of this application? How is this process perceived by the main actors involved in accounting matters in Romania, and do they hold the same positions? What are some of the main possible causes of a limited effect? What are the implications for the future? Owing to the complexity of this process, we will use institutional and structuration theory as a theoretical framework to explain the inter-play between rules, practices, powers, politics and institutions. 3. Methodology and theoretical framework Given the complexity of the issues investigated, both primary and secondary data were collected for the purpose of the paper: (1) (2) secondary data in the form of accounting regulations after the fall of communism, with respect to the implementation of IAS/IFRS; primary data in the form of 11 in-depth semi-structured interviews we have conducted with auditors, preparers, representatives of professional bodies and users of financial information in Romania.
Interviews have been conducted over a period of ten months, to gather first-hand information regarding the various aspects of IFRS implementation in our country. The interviews lasted from a minimum of 45-m to a maximum of 75-m, with a mean of approximately 55-m. Table I details the list of interviewees, the exact date and duration of the interviews. Since the analysis of qualitative data is subject to a bias as it relies on interpretations (Smith, 2003), we permanently ensured that two authors participated at each interview and the analysis was made by all the authors, in order to increase the impartiality. The interviews revealed information about accounting practices under IFRS and under the national regulations, about the perceived change in regulations, and the context of accounting (users, relationship with taxation, education etc.). In order to supplement the information obtained through interviews with the current practice reflected in the financial statements, we consulted the World Banks reports and the annual report of an important Romanian company (statutory accounts of the parent company in accordance with OMFP 1752, and consolidated accounts of the group in accordance with IFRS). We selected this company (i.e. Petrom, www.petrom.ro) because it is the biggest national oil company in Central and Eastern Europe, it is listed on the Bucharest Stock Exchange since 2001, it was privatized in 2003, and is recognized as searching for and applying good practices (Ioan and Sandu, 2008).
Category 1. 2. 3. 4. 5. 6. 7. 8. 9. Preparer Preparer Preparer Auditor Auditor Regulator Regulator Representative of the Chamber of Financial Auditors of Romania (Camera Auditorilor din Romania) Representative of the Body of Expert and Licensed Accountants of Romania (Corpul Expertilor Contabili si Contabililor Autorizati din Romania) User User
Abbreviation P1 P2 P3 A1 A2 R1 R2 PB1 PB2
Duration (m) 50 70 45 60 60 60 45 75 50
Date 28 November 2008 1 December 2008 12 December 2008 3 December 2008 16 December 2008 26 November 2008 10 December 2008 26 November 2008 22 December 2008
10. 11.
U1 U2
50 60
10 August 2009 20 August 2009
Table I. List of interviews
We use the institutional and structuration theory as a theoretical lens to explore the process of IAS/IFRS adoption in Romania. In recent years, there has been an increased interest in institutional theory across the social sciences. Institutional theory has been adopted in the accounting literature to explain accounting choices, the change process or the inter-play between practices, routines, institutions, power and politics (Burns, 2000; Dillard et al., 2004; Mir and Rahaman, 2005). The institutional and structuration theory represents a valuable framework to explain the country-specific factors affecting IAS/IFRS implementation in Romania, as an inter-play between practices, routines and institutions. The institutional theory emphasizes on the primacy of culture and highlights how social structures of resources and meanings are created and have important consequences (Lounsbury, 2008, p. 349). Practices are fundamentally embedded in cultural systems because culture is a communications system that transfers, from one time period to the next, social knowledge about institutions, their formal and informal rules (Lichtenstein, 1996, p. 245). The institutional approach emphasizes the importance of institutions, as well as such related phenomena as rules, habits, routines, norms and culture. This theoretical framework is useful to understand accounting change because it pays attention to history, to the evolution of institutions and to the causal factors of social change (Lichtenstein, 1996, p. 258). We use the framework developed by Dillard et al. (2004), which is based on institutional theory, but also combines the notion of capitalistic institutions developed by Weber and the dynamics of structuration theory (as explained by Giddens). Their framework was chosen for the purpose of our paper, as it:
[y] outlines a dynamic social context within which the processes of institutionalization, transposition and deinstitutionalization take place and within which radical as well as incremental change can be addressed. As a result, changes in accounting practices and the influence of these practices on institutional and organizational change can be more clearly understood (Dillard et al., 2004, p. 507).
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An institution is a set of rules that governs human behavior and shapes social relations (Lichtenstein, 1996, p. 244), and is tacitly accepted as the way things are done, and, as such, are the unconscious assumptions which underpin organizational behavior (Siti-Nabiha and Scapens, 2005, p. 46). More than that, institutions are generative of interests, identities and appropriate practice models (Lounsbury, 2008, p. 349). Institutionalization is the process whereby practices are developed and learned (Dillard et al., 2004, p. 508). A significant element of institutionalization is an ongoing product of the political efforts of actors to accomplish their ends (Idem, p. 510). With respect to institutional practices, the process of change is usually evolutionary and path dependent (Siti-Nabiha and Scapens, 2005, p. 47), meaning it is shaped by the existing institutions. Given the strongly embedded institutions, y the new path will never be totally new; the new society will always contain many of the institutional elements that previously existed (Lichtenstein, 1996, p. 247). The process by which an organization adopts an institutional practice is called isomorphism. DiMaggio and Powell (1983) (as used by Dillard et al., 2004; Mir and Rahaman, 2005; Tsamenyi et al., 2006) identify three mechanisms through which institutional change occurs: coercive, mimetic and normative. Coercive isomorphism results from external pressure, and certain practices are adopted as a result of governments pressures, capital markets or the expectations of the larger society. Mimetic isomorphism is seen as adopting the best practices in order to be more legitimate or successful. Normative isomorphism is given by the professionalization, in that the members of a profession define methods of work. Dillard et al. (2004) argue that the process of institutionalization evolves in a recursively cascading manner through three levels of socio-historical relationships: the societal level (political, economic and social systems), the organizational field (socio-economic configurations) and individual organizations. This framework is based on the ideas that institutions (at the organizational level) are affected by individuals, groups or organizations. The actors that may influence organizational institutions are:
For example, governmental officials, regulators and legislators may be the primary agents at the economic and political level. Industry leaders, labor unions and external consultants may have significant influence at the organizational field level, and the managers and workers may be the primary actors at the organizational level (p. 513).
In the following section, we describe the evolution of IAS/IFRS implementation in Romania, and mobilize the institutional framework by Dillard et al. (2004) to theorize these evolutions. 4. The Romanian case: the story and discussions 4.1 The first step an extended application of IAS After the fall of communism in 1989, the first reform of the Romanian accounting model (1991-1998) was of French inspiration, therefore the accounting principles, the general chart of accounts, and the layouts of financial statements were inspired from the French accounting model (while a general orientation towards the EDs was intended by the Romanian regulator, i.e. the Ministry of Public Finances). Also, after 40 years of communism, the users of accounting information were again acknowledged. Since most companies were state-owned in that time, during this first stage of accounting reform of the financial accounting model in Romania, the
exercise of publishing and using financial statements[7] was rarely performed. Historical cost valuation, a very tight relationship between taxation and accounting[8] and a reduced transparency characterize this period. The French accounting model is classified as a Continental European one, characterized by conformity with tax regulations, conservatism, protection of creditors and reduced transparency ( Jermakowicz and Gornik-Tomaszewski, 2006; Veneziani and Teodori, 2008; Navarro-Garcia and Batista, 2010). The adoption of a French-based accounting model was in this context considered as being a natural decision, owing to close cultural and economic ties between Romania and France and having the advantage of topicality (since based on the Fourth European Directive). But of course, the secrecy, the orientation towards rules application and the State as the only effective user (as remnants from the communist period), affected the accounting reform, since the new society will always contain many of the institutional elements that previously existed (Lichtenstein, 1996, p. 247). In this context, A1 notes that:
Romania is an emergent country. Even when transition is over, weve come out of a time when the financial information did not really matter. Accordingly, we may find anomalies here that anywhere else [y] would not be found.
The second stage of the reform directed the Romanian accounting model towards IAS. According to R1, in 1997-1998 the World Bank imposed four conditions for granting its financial assistance to Romania: (1) (2) (3) (4) the use of IAS by some (generally large) companies; the auditing of these companies by auditors applying International Standards on Auditing; the issuance of a guide for IAS implementation by the Ministry of Public Finances; and the establishment of an institution for financial auditing (thus the Chamber of Financial Auditors of Romania was set up), that would endorse the International Standards on Auditing.
This second wave of reform (1999-2005) aimed in this context to implement IAS for large (listed and unlisted) companies. Ionascu et al. (2007, p. 177) advance that over 1,700 non-financial enterprises had to apply the new regulations (including IAS) by 31 December 2003. Regarding the development of the Romanian stock exchange, it is worth mentioning that it was established in 1995, and in 1998-1999 (when this reform started) the market capitalization was 1 percent of the GDP. In 2000, only 114 companies were listed on the Bucharest Stock Exchange. Since Chamisa (2000) argues that only 22 of the 33 IAS are potentially applicable to all types of private sector enterprises in developing countries, we may question the decision of IAS implementation by such a big number of companies, in contrast with the small number of companies listed on the Bucharest Stock Exchange at that time. The role of the World Bank and of the International Monetary Fund (hereafter IMF) as agents of IAS proliferation in emerging economies has already been discussed in the literature (see, e.g. King et al., 2001; Annisette, 2004; Mir and Rahaman, 2005). The influences of these institutions are based on the financial dependence and are a part of the coercive isomorphism (in the sense of DiMaggio and Powell). This choice was motivated by the need to create a favorable environment for investment (Ionascu et al.,
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2007), that is, to present the country as a well-regulated place to do business ( Jermakowicz and Gornik-Tomaszewski, 2006, p. 191). Annisette (2004) advances the question of how the pressurized State responded in this context. The Romanian regulator introduced IAS in the national legislation, which was even then intended to also achieve harmonization with the Fourth European Directive, of course, as a sign of legitimacy of the regulator for the World Bank and IMF. The resulting OMFP 94/2001[9] (a previous form was OMF 403/1999[10]) contained several volumes with the following elements: a chart of accounts (the French-based one with some modifications), principles of Anglo-Saxon origins such as substance over form and materiality, IASCs conceptual framework, definitions and accounting policies as taken from the IAS, the translation of IAS. R2 states about this regulation:
It [OMFP 94] did not mean we departed from the ED. If we take a look, the regulations in that time were harmonized with the ED and IASs. The 4th Directive was always a point of interest to us. It certainly was a condition, but it did not mean only IASs.
Another question raised by Annisette (2004) about the role of the World Bank concerns the degree of the local resistance to IAS implementation and the winners and losers of the change. A number of academics have expressed doubts regarding the outcome of this stage, arguing that there are many differences between IAS and the Fourth European Directive and it is not feasible to set an objective of having regulations harmonized with both of them. For example, Ionascu et al. (2007) find the inclusion of the conceptual framework into the text of a national regulation unusual. Nobes and Parker (2008, p. 251) cite Roberts (2000) who points out a range of conflicts and confusions caused by mixing a French-based accounting philosophy with IAS. The same opinion is shared by PB2: When I saw the title of OMFP 94/2001 I said it was strange. No one had solved this problem before; I mean to achieve harmonization between European Directives and IASs. IAS implementation was difficult and usually only partially accomplished, while requiring a major input from the auditors, especially Big 5 (at that time) firms[11]. These accountancy firms opened offices in Romania immediately after the fall of communism (1991-1994) and started exerting an influence on the reform of the accounting model. Delesalle and Delesalle (2000, p. 109) consider the then extant Big 5[12] as being a part of the driving force towards an Anglo-Saxon model starting 1994-1995. Annisette (2004, p. 318) remarks that the Big 5s expansion in developing countries can be attributed to the benevolence of the World Bank. Auditors often assisted companies by providing them consultancy services and/or training in IAS application. Regarding the project of IAS implementation in Romania, the implementing team acknowledged the need to be aware of the complexities of interaction between tax law and accounting law; to have regard for the need to develop the concept of auditing [y]; to consider the needs of an emerging capital market; to place strong emphasis on having adequate training available; to be aware of how external influences have shaped developments (King et al., 2001, p. 156). These remarks make us believe that the team handling this project was well aware of the impediments of a thorough IAS implementation. In our opinion, this step in the accounting reform had only a limited effect on financial information transparency, the use of professional judgment and the quality of accounting information, far away from the exigencies of Anglo-Saxon accounting
models. The historical cost valuation and the relationship between accounting and taxation remained in the existing accounting practices. In this respect, T ogoe (2003, cited in Ionascu, 2007, p. 118) noted that there is a local method, rather brief, of understanding and application of IASs. Also, Paunescu (2006) shows that in many cases fiscal rules prevailed over IAS requirements. Filip and Raffournier (2010) note that in that period a strong link with taxation manifested, and that the use of the professional judgment was low. The World Banks report of 2003 admits that in practice conformity with IAS was partial with respect to several standards, and that given the strong link between accounting and taxation, a tax application of IAS/IFRS was often made (Ionascu et al., 2007, p. 178). The provisions of international standards were only applied if they did not contravene the tax regulations. Under these circumstances, compliance with IAS was limited with respect to IAS 1, IAS 2, IAS 7, IAS 12, IAS 16, IAS 17, IAS 18, IAS 21 and IAS 39 (World Bank, 2003). Also the harmonized regulations explicitly carved out IAS 27 and IAS 29. A survey conducted at the same time when IAS were supposedly implemented through the OMFP 94/2001 shows that the complicated nature of the standards coupled with insufficient guidance, and the tax-driven nature of the national accounting model hinder accounting convergence in Romania (Larson and Street, 2004). These conclusions are supplemented by local research; for example, it seems that change was not also accurately perceived by accounting professionals. In this respect, Bunea (2006, p. 143) documents that accountants do not perceive any change[13] between OMFP 94/2001 (requiring IAS application) and OMFP 1752 (the following regulation, based primarily on the EDs). Istrate (2006) analyzes the way the Romanian companies applied IAS 16 Property, Plant and Equipment under OMFP 94/2001: more than half of the entities under analysis revalued fixed assets but in the manner and timing required by the fiscal authorities. The method used for computing depreciation was generally the straight line one and the accelerated one in some cases, both of them being considered as of a clear fiscal orientation. The same author analyzes how the Romanian companies applied IAS 37 Provisions, contingent liabilities and contingent assets under OMFP 94/2001: out of 12 entities, six do not have any provisions in their balance sheet; the author interprets this as follows: either the entities have an excellent risk management, or there are some lacks concerning the application of IAS 37. Also, the author notes that the other six entities mainly present provisions for court cases or other provisions generated by the law. With respect to the outcome of this phase of reform, Ionascu et al. (2007) provide evidence on the cost of harmonizing Romanian accounting with International Regulations (both the EDs and IAS/IFRS are taken in consideration in the study); they show that the benefits of the implementation of the Harmonization Regulations were perceived as not being significant by the majority of finance directors of listed companies, even though implementation costs were rather low (Ionascu et al., 2007, p. 194). Based on this evidence, we may assert that even though a de jure harmonization between national regulations and IAS existed, the de facto application of IAS was limited. Changes in accounting systems are justified by external events, often by law requirements (coercive pressure), but they hardly have an impact on routines (decoupling) especially if the change is not consistent with traditional shared values. This phenomenon is known as institutional misalignment. The only coercive factor was the World Banks demand, and this pressure was mainly exerted on the national regulator and to a lesser extent on companies supposed to apply IAS. Considering that
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the users did not demand supplementary information (no coercive pressures on companies[14] ), best practices of IAS application were not available (no mimetic factors), and the profession (perhaps except for the auditors from Big 4) (no normative influences) did not insist on a proper implementation, the process of change was of a reduced importance. The political factor was prominent in this stage. King et al. (2001, p. 168) show that:
In June 1999, the British Know-How Fund and the Ministry of Finance hosted a joint conference on Accounting in Romania in the third millennium. Leading representatives of the International Accounting Standards Committee, the International Federation of Accountants, the European Commission and the Federation des Experts Comptables Europe ens congratulated Romania on its chosen strategy for development in accounting and auditing.
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This is another case of political changes in DiMaggio and Powells (1983) terms; they note that if the change is more political in its orientation, the resistance to change will be more important (in Mir and Rahaman, 2005, p. 829), and is in line with literature on such countries as Bangladesh or Kuwait, where in many cases compliance of financial statements was minimal (Mir and Rahaman, 2005, pp. 830, 835). The intervention of the World Bank is another case of such isomorphism at the economic and political level described in the framework. Rules formally codified, such as accounting regulations, were changed more easily than informal rules, such as social customs, conventions and ways of doing things. Also strongly embedded informal institutions take a much longer time to change than formal institutions (Lichtenstein, 1996, p. 247). R2s following conjecture seems a case study of this:
There was a trend of application of the IASs in order to attract foreign investors and to develop the financial market, but we learned that IASs were very difficult to apply and to understand, and they involved large costs of application and fiscal risks for companies, as accounting and financial statements were also used to determine taxes.
Thus, we provide evidence from Romania that genuine accounting change is a slow process and the transferability of accounting constructs from one culture to another is controversial; also, that previous institutional elements remain in the new way of doing things. We doubt that a radical transformation (Lichtenstein, 1996) has actually occurred in Romanian businesses at that time. Such a change would have meant that individuals find it in their interest to undertake collective actions against the ruling coalition and against existing institutions (Idem, p. 247), which we argue was not the case then. Also, we know that organizational responses may vary widely based upon the multiplicity of institutional pressures both within and external to an organization, being either symbolic or substantive. Some organizations may resist the institutionalization process, while others may actively seek to shape their institutional environment (as noted by Carruthers, 1995) (Dillard et al., 2004, p. 515). Both internal and external factors might explain in this context a limited outcome of the application of IAS in Romania at that time, but we also need to be aware that this might also have an impact on the future evolutions of the Romanian accounting model. 4.2 The second step IFRS for listed companies and voluntary adopters The third wave of accounting reform originated in 2005. Starting 2007, IFRS became mandatory for consolidated financial statements of listed entities and banking institutions, along with an application of OMFP 1752/2005 in individual accounts for
all companies. Also, an option to choose between the Seventh European Directive and IAS is available for non-banking and non-financial unlisted entities for their consolidated accounts. While OMFP 1752/2005 retains some of the characteristics of the previous OMFP 94/2001, it also contains simplifications for small companies. In an interview, a top representative of the Ministry of Finance (R2) explained that where the Fourth Directive includes an option that is in line with IFRS, this option was chosen in OMFP 1752/2005. It is a 95-page document, supplemented by two Orders (one issued in 2006 and the other in 2007). It also prescribes the layout of financial statements (including the composition of the notes), the general chart of accounts, the accounting principles and measurement rules (basis) to be used[15]:
Therefore, along with Romanias adhesion to EU, we have secured the conformity with the Fourth European Directive: everything which is compulsory in the Directive is taken in the Romanian regulations, and also some optional provisions were taken. Where the Directive had basic provisions or such provisions were completely missing, we took the provision in the IASs, but only to the extent that these provisions would not be against the provisions of the Directive. Now we have many definitions, concepts, recognition criteria, measurement rules from the IFRSs (R2).
OMFP 1752/2005 is considered by A2 and PB2 as a step back in IFRS implementation in Romania, while the opposite is expressed by P1 and R2. We explain these differences of opinions by the inclusion in the Order of some provisions from IFRS, leading to a de jure convergence to some extent (and some interviewees refer to it), but the de facto convergence is perceived as being low (and the others reflect this situation). PB2 underlines that these [OMFP 1752/2005 and IAS] are two parallel worlds. As of this point, we need to stress the same professionals continuous case from his high-level position in the major accounting professional body, for the establishment of a set of Romanian accounting standards based on IFRS, issued by the profession, and which would function alongside the national accounting regulations issued in a fiscal end by the Romanian regulator. Of course, the Romanian regulator was not in favor of this approach; this confirms the hierarchy of institutional influence advocated by Dillard et al. (2005, p. 513) as an extension of the structuration theory, in that the economic and political level provides the foundations for the organizational field level institutions y (p. 513), and that y governmental officials, regulators and legislators may be the primary agents at the economic and political level (Idem). R1 admits that OMFP 1752/2005 still has some unresolved issues such as the lack of details regarding impairment tests. In the same line, A1 argues that the Order is short of a so-called second set of details, explanations, which would really allow comparability of financial statements citing three such examples: impairment tests, deferred tax and financial instruments. The issue of deferred tax was addressed with most of the interviewed persons. The following interesting discussion could have occurred between some of our interviewees relating to deferred taxation issues, had all of them been in the same room at anytime:
Preparer (P1): Our company prepares financial statements for consolidation according to IASs and we strived to get the two sets of accounting rules as close as possible. Still, some differences exist, as for example deferred tax. Regulator (R2): In OMFP 1752, a provision for taxes exists to solve the problem of deferred tax. It is a concept which is easy to use as it is a provision with a specific destination, and it is in accordance with the provisions of the fiscal law.
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Auditor (A2): But what about the asset? We only recognize the liability y It is not fair. And what about deferred tax which should be recognized in owners equity? It is not covered by this provision. Regulator (R2): We only took the liability and not the asset, since the standard is also prudent in the recognition of the asset.
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Preparer (P1): We used deferred tax in the first year, but there were discussions with the Ministry of Finances and we gave it up. Regulator (R2): Companies do not want to account for such provisions, as it involves an expense and a liability, and it reduces profits. Preparer (P1): Even if such a provision exists in the legislation, details regarding the recognition are needed because we are accustomed to have laws as descriptive as possible. Regulator (R2): We will not implement under any circumstance IAS 12, it is very difficult in itself to understand, even by the ones already using IASs.
The case of Petrom is an illustration of this situation. In their statutory financial statements, no provisions for deferred taxes are recognized, but of course, in the consolidated financial statements under IFRS, the group discloses this information. We consider this picture as representative for the Romanian accounting context, in which the regulator tentatively gives some space to preparers, but given the accounting settings, preparers usually only obey the rules. The World Bank stresses in its Report on the observance of standards and codes (World Bank, 2008) that Romanias rule-based accounting tradition represents a challenge in ensuring that the principles contained in the European Union legislation are applied in a manner that leads to high quality financial reporting. Also, this picture is useful to understand the factors affecting IFRS implementation. The recursive nature of the institutionalization process advocated by Dillard et al. (2005, p. 513) finds here its confirmation:
The recursive nature of the institutionalization process indicates that institutions and actions are reciprocally related and that institutional features are motivated by the socio-historical context reflected in rules predicated on norms and values and in the prevailing symbolic and sense making structures. Resources are allocated based on these accepted rules, which in turn reinforce the extant structures. These structures then reinforce the present version of the rules and the current resource allocations and so on. As a result of this iterative process, generally, there is a significant degree of structural stability enabling and constraining action. This process is viewed as both value driven, in that the institutionalized, taken-for-granted shared values and beliefs infuse all actions and practices, and history dependent on the current actions are grounded in extant values, beliefs and practices.
The coercive, mimetic and normative mechanisms through which institutional change occurs are relevant to the discussion here. In this phase of the accounting reform, IFRS implementation is formally mandatory for listed companies (in their consolidated accounts) and financial institutions, while it is optional for the consolidated accounts of non-listed and non-financial institutions. Coercive pressures (of users and financial markets) act in favor of an adoption of IFRS by an increasing number of companies. P1 works for a large Romanian company whose parent company is listed on a major European Stock Exchange, and prepares financial statements as close as possible to
IFRS requirements. His companys individual and consolidated financial statements are audited by one of the Big 4[16]. Here, value adjustments for assets are recognized due to IFRS requirements even if they are not deductible for tax purposes. In this context, P1 notes:
Our company uses extensively IASs as auditors also insist on using them, even though reporting is in accordance with Romanian accounting regulations. Still, generally the fair presentation depends extensively on the preparer and the extent to which the preparer wishes to report fairly, because this relies heavily on the many assumptions a preparer uses.
The auditors interviewed underlined that they asked for impairment tests under OMFP 1752, but these tests are usually based on a market value, usually indicated by independent valuers and without the computation of the discounted cash flows. But they consider that it is better off to recognize a loss than to completely ignore the impairment test. Petrom recognized impairment losses in their statutory financial statements, even if the Order does not provide explanations regarding how to conduct an impairment test. However, several treatments having a fiscal remnant still appear in their financial statements, even though they are not mandatory or even mentioned under OMFP 1752/ 2005 (while they are mandatory under the fiscal regulations). For example, Petrom employs the Romanian phrasing used for long-term assets, which is mijloace fixe, while this term is only referred to and defined by the Fiscal Code, the Order using imobilizari corporale (the difference is given by the criteria used for recognition[17] ). Another fiscal influence is linked to the depreciation Petroms annual statutory financial statements mention that depreciation begins the first month following the putting in use (which is the fiscal prescription), while the Order mentions that depreciation should start on the date of putting in use. The interviewees (except for R1 and R2) underlined that the main user of the accounting information in Romania is (at least based on how the Romanian Orders are conceived) the State:
Basically, financial statements exist to offer information. Of course, the question is who is the primary user of this information in Romania? In the Ministrys (of Public Finances, N.A.) opinion, it is the Ministry. Honestly, as they are now conceived, financial statements prepared in Romania are primarily intended for the use of fiscal authorities. For the ones who actually need other information, they prepare a separate set of financial statements based on IFRSs and intended for the use of the other users. I do not believe that anyone is actually running analyses based on statutory financial statements. Companies parents also ask for IFRSs financial statements because they consolidate (A2).
The users of accounting information may also influence the way financial statements are dressed up. They may exert pressures, acting as a coercive force, as several interviewees underlined:
The users needs are important. If the users are diversified and ask for qualitative information, this quality becomes important (A1). The business environment should make a fuss, the shareholders, as they are mostly affected. (PB2). As for complex listed companies, with demanding users, they can prepare financial statements based on IFRSs (R2).
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The role of these coercive forces was underlined by another preparer, in a discussion about fair value, as OMFP 1752/2005 allows some treatments based on it. P3 declared that in his companys case no one ever thought of recording a revaluation of assets, everything is kept at its cost. Of course, regarding the impairment of non-current assets, it is allowed in the Order, but we do not compute it y it is very difficult, especially when no one makes you do it (P3). On the same note, using a sample of 23 sets of financial statements prepared under the Romanian regulations, the World Banks ROSC (2008) report identifies significant instances of non-compliance reflected in qualified audit opinions related to the absence of recognition of some provisions, inappropriate impairment of non-current assets or investments, missing disclosures on commitments, related-party transactions, and directors remuneration and the lack of prior year comparatives. Mimetic isomorphism is seen as adopting the best practices in order to be more legitimate or successful. The auditors (especially Big 4) and multinational companies are considered important by R1 in this change process, because apparently they are the keepers of best practices. R1 gives the example of the banking sector where there is a strong competition, the auditors are Big 4, and the outcome is that financial statements are more relevant. Of course, one would expect that mimetic isomorphism occurs at the organizational field level (in our theoretical framework), at least in the case of professional bodies. For example, following the example of other countries in the area, the local most important professional body (i.e. the Body of Expert and Licensed Accountants of Romania Corpul Expertilor Contabili si Contabililor Autorizati din Romania CECCAR) might try to legitimize itself in the Romanian society by insisting on a more accurate application of IFRS, or at least of those aspects in IFRS included in the Romanian accounting legislation. Yet, the coercive force of the upper level (i.e. the regulator, acting from up above, in the economic and political level) through an unfavorable distribution of power may very well prevent the manifestation of this mimetic isomorphism at the organizational field level. Constraining accounting regulations may hinder a more thorough application of professional judgment and provisions of IFRS inspiration, by the application of by-the-book and tax-driven rules. Thus, the process is y contextualized by the most general and widely taken-for-granted norms and practices accepted at the societal level where political and economic systems use symbolic sense-making criteria in articulating and instituting legitimate norms and practices (Dillard et al., 2004, p. 513). This leads us to the third type of isomorphism, i.e. the normative one. It is given by the professionalization, i.e. the members of a profession define methods of work. However, in an emerging economy such as Romania we expect to find lower-skilled accounting professionals[18]. The Romanian accounting profession has been recreated after December 1989 via the recreation of the CECCAR, a professional body which was originally set up in 1921, and was dismantled by the communist regime in 1951. As such, the young Romanian accounting profession suffers from a lack of experience in the application of professional judgment and reduced access to advanced financial reporting practices. The current Big 4 accounting firms play a profound role in the globalization of accounting and represent the normative pressures that affect organizations and the choices they make in accordance to their reporting and practices implemented. Having both the knowledge and the power to demand adequate accounting treatments, the auditors, especially those in the Big 4, are presumed to contribute to their thorough
application and thus to an increased professionalization. Yet, regarding preparers, factors which might be discussed could be the level of education and the extent to which they wish (or are allowed) to exert their professional judgment. Ding et al. (2007, p. 15) document that in countries with a weak accounting profession, the comprehensiveness of accounting standards would be lower and such a profession would be associated with less sophisticated accounting standards. In Romania, A2 considers, e.g., that substance over form is an important issue, as depending heavily on professional judgment. But unfortunately, instead of leaving people to use principles and apply professional judgment, we continue to give rules (A2)[19]. This means that preparers do not use or are not allowed to apply professional judgment. In this context, the same auditor noted that: Romania has to apply IFRSs, but they are applied in our country in a unique approach very close to the American way, that is we make a set of rules. One of the factors that could favor the change is education, as PB2 notices: education is very important, starting with higher education and then continuous education. Romanian accountants have biases from school, they should expand their capacities to think, to judge, to estimate y A1 believes that it is a continuous learning process which needs both theory and practice, and it involves shareholders, administrators, auditors and regulators. Of course, this declaration shows that he is aware of the fact that the change process is a slow one and several institutions are involved in it. The role of the profession in this process is very important, since U1 asserts:
I would probably prefer to use financial statements prepared in accordance with IASs, but this is not essential for me y What I would really prefer is a change in the mentality of Romanian accountants y I am not thrilled when seeing financial statements prepared in accordance with IFRSs but I know nothing is changed behind y They can say they observe IFRSs, but in fact their judgment is the same y for my needs I want a different mentality, not just mere application of the provisions of the law y
Even if these steps in the accounting reform were not perceived as having immediate significant benefits, some authors (e.g. Ionascu et al., 2007, p. 195) consider that the accounting profession benefited from the use of a conceptual framework, improving the professional judgment. But this process of change is a gradual one and it is linked to the needs of the social environment (Alexander and Servalli, 2009). 5. Conclusions Given the influence already acknowledged in literature of local traditions over the implementations of new concepts (as previously noted on true and fair view) (Sucher and Jindrichovska, 2004), or the tax and legally based orientation hindering the harmonization process (Larson and Street, 2004; Vellam, 2004), we discuss the process of IAS/IFRS implementation in Romania using an institutional and structuration theory perspective. The story is told with respect to the chronological events and using the opinions of different actors involved in the IAS/IFRS implementation process. This story responds to the call for case studies on different national contexts in order to advance the knowledge on the harmonization process and IFRS implementation and the factors that affect them. After a first stage of reform based on the French accounting system (of mimetic nature), the Romanian regulator considered IAS/IFRS implementation in two different
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steps. The first step was a result of coercive external forces, that is, the influence of the World Bank. Given the lack of other factors to favor the change process (users needs, professional skills, enforcement bodies), we argue that the actual implementation of IAS in that period was very limited. Ionascu et al. (2007) acknowledge that only a few companies (of over 1,700 concerned by the regulations) were interested in IAS. The political implementation of IAS was therefore resisted. Mir and Rahaman (2005, p. 830) show that a cultural revolution is required to obtain a radical change[20], a cultural revolution which is far from being achieved in Romania until now. The existing institutions were maintained because individuals do not find in their interest to undertake collective actions against existing institutions (Lichtenstein, 1996). The second step of IFRS implementation concerned (as an obligation) only listed companies (in consolidated accounts) and financial institutions. We posit that this reduction in scope was accompanied by a change process more significant than in the previous period. We argue that other factors supported a more effective IFRS implementation: users begin to require better accounting information, auditors are more demanding, and preparers become better qualified. These evolutions are explained by the economic development in the last five years, also linked to the European Union accession and the reforms in different domains in order to support it. All of these resulted in an increase of foreign investment and of the Bucharest Stock Exchange[21]. However, one cannot say that IFRS are fully understood and implemented by the Romanian companies even today, since merely imposing some standards is not enough to have them applied. This is explained by the institutional framework, as new institutional formations will thus gradually emerge while old ones will disappear. The survival over time of a cultures constituent institutional elements will ultimately depend on whether these elements meet the demands of a changing social environment (Lichtenstein, 1996, p. 246). Our results are consistent with previous literature concerning the difficulties of implementing IFRS in emerging economies (Mir and Rahaman, 2005; Jermakowicz and Gornik-Tomaszewski, 2006; Ding et al., 2007). We consider that Romania cannot be regarded as a country displaying a successful IFRS implementation, but as one with low conformity and manifesting resistance to change. The obstacles we find are the importance of taxation, the lack of educational training and that of resources, as well as the reduced power of internal coercive factors (such as users other than the State, and auditors other than Big 4). As the Romanian case proves, preparers, auditors, regulators, professional bodies those shaping the context of IFRS implementation have incentives that remain primarily local (Ball, 2006). Thus, the process of IFRS implementation across the world is highly contextualized, and every case is relevant and contributes to the understanding of the harmonization process and its challenges. In this context, we advance that a learning process linked to the slow development of the accounting profession and business environment will continue to increase the area of IFRS implementation. The future increase in scope will be the result of a gradual process and will lead to a more accurate application. However, differences in the way IFRS will be applied in Romania and in other countries will remain, because of the environmental factors affecting the accounting system such as the characteristics of a code-law country, a dominant position of the State and a reduced importance of the accounting profession.
Our findings are consistent with Ball (2001 cited in Ding et al., 2007, p. 3) who argues that merely changing accounting standards without implementing profound changes in capital market regulations, economic development policy or corporate governance may not yield desired results in financial reporting quality. Since these changes are gradually made, the quality of IFRS application will depend upon the evolution of the economic, political and social environment. This discussion about the inter-play between institutions, routines and politics in the Romanian context is just another story about the complexity of accounting change and a call for more in-depth studies. Further investigation is required to explore the extent to which Romanian organizations respond to the institutional pressures, the (possible) degree of decoupling extant in Romanian entities already applying IFRS, or the extent to which the change varies across institutional sectors in Romania.
Notes 1. The wording is used by Nobes and Parker (2008, p. 245) when discussing capitalist accounting (Anglo-Saxon or continental European) as implemented in emerging countries. 2. Ordinul Ministrului Finantelor Publice (OMFP) nr. 1752/2005 pentru aprobarea Reglementarilor contabile conforme cu Directivele Europene, Monitorul Oficial nr. 1080 bis/30.11.2005 [Order of the Minister of Public Finances no. 1752/2005 for the approval of accounting regulations in accordance with the European Directives, Official Journal of Romania no. 1080 bis/30.11.2005]. 3. We will use alternatively the terms IAS, IFRS and IAS/IFRS, according to the various stages referred to in this paper. During the first step of implementing international standards in Romania, they were known as IAS, while nowadays, given the IASC/IASB changes, they are named IFRS (as a term which includes previous IAS). 4. One hundred twenty-three jurisdictions permit or require IFRS for listed companies, and 95 jurisdictions permit or require IFRS application for unlisted companies (www.iasplus.com/ country/useias.htm, accessed 23 October 2010). 5. Countries previously studied in this context were: France and Germany (Soderstrom and Sun, 2007), Spain (Callao et al., 2007; Navarro-Garcia and Batisda, 2010), Belgium ( Jermakowicz, 2004) and Italy (Veneziani and Teodori, 2008). 6. The convergence is measured based on key items included in the national GAAP compared to IFRS; that is a measure of de jure convergence. 7. According to the Governments Decision no. 704/1993 for the implementation of the accounting law, all companies were allowed to publish only a simplified form of their financial statements. 8. For example, many companies did not record depreciation and impairment unless they were deductible in computing the income tax. This is also acknowledged by Filip and Raffournier (2010). 9. Ordinul Ministrului Finante lor Publice (OMFP) nr. 94/2001 pentru aprobarea Reglementarilor contabile armonizate cu Directiva a IV-a a CEE si cu Standardele de Contabilitate Internationale, Monitorul Oficial, nr. 85/20.02.2001 [Order of the Minister of Public Finances no. 94/2001 for the approval of the accounting regulations harmonized with the Fourth European Directive and International Accounting Standards, Official Journal of Romania no. 85/20.02.2001].
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10. Ordinul Ministrului Finantelor (OMF) nr. 403/1999 privind aprobarea reglementarilor contabile armonizate cu Directiva a IV-a a Comunitatilor Economice Europene (CEE) si cu Standardele de Contabilitate Internationale, Monitorul Oficial al Romaniei, nr. 480/4.10.1999 [Order of the Minister of Finances no. 403/1999 for the approval of the accounting regulations harmonized with the Fourth European Directive and International Accounting Standards, Official Journal of Romania no. 480/4.10.1999]. 11. Informal discussions with academics and accounting professionals involved in financial reporting at that stage revealed that this alleged application of IAS meant sometimes the application of mainly tax-driven accounting, and the conversion of these financial statements at year end, by auditors, into IAS-compatible financial statements, by applying, e.g., deferred taxation principles. Yet, the accounting rules in use throughout the financial year remained unchanged. 12. In time, the number of the large accounting firms has continuously decreased due to restructuration and evolutions, from Big 8 to what is currently known as Big 4. While we refer currently to Big 4, references may also be made to the term Big 5, where previous literature is cited. 13. The study was conducted on 100 professionals; 72 percent consider that the changes are insignificant, and 23 percent do not see any difference. 14. The IAS application was imposed to many companies of which only a small number were listed. At that time, the Bucharest Stock Exchange had a small number of listed companies and low trading volumes, while the general financial system remained bank oriented, banks having access to other information (as also noted by Filip and Raffournier, 2010). 15. In November 2009, OMFP 3055 (Ordinul Ministrului Finantelor Publice (OMFP) nr. 3055/ 2009 pentru aprobarea Reglementarilor contabile conforme cu Directivele Europene, Monitorul Oficial al Romaniei nr. 766 bis/10.XI.2009 [Order of the Minister of Public Finances no. 3055/2009 for the approval of accounting regulations in accordance with the European Directives, Official Journal of Romania no. 766 bis/10.XI.2009]) was issued to replace OMFP 1752/2005, but continuing the same line. It is still in the context of the OMFP 1752/2005 that we conduct this research, even though OMFP 1752/2005 has been replaced by the OMFP 3055/2009, as there always is a lag between the issuance of a legislation act and the timing when its effects are observable in practice, and no set of financial statements has been yet issued according to OMFP 3055/ 2009. 16. It is probably worth noticing that in the case of this company, both internal and external auditors are appointed by the parent company. We do not negotiate the fee, or anything else. They are therefore in a privileged position because we cannot influence the contract whatsoever (P1). 17. For imobilizari corporale the Order takes the definition from IAS 16 Property, plant and equipment, and for mijloc fix the Fiscal Code imposes two conditions: the asset needs to be used for more than a year, and to have been valued at more than a certain amount (which currently has been set at 1.800 RON, approximately 400 EUR). 18. This is also noted by Nobes and Parker (2008, p. 247): in the transition, there has been a serious shortage of skilled accountants and auditors. The profession has had difficulty in acting as a source of improved practices and regulations. 19. Of course, one might argue that this is against the view previously expressed by A1 (also from one of Big 4), when arguing for a lack of a so-called second set of details, explanations, which would really allow comparability of financial statements in order to increase the understandability and hence, application, of certain more complex accounting treatments.
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Which in turn shows that even auditors of presumably similar origins (Big 4) might hold different positions. 20. This seems to be in line with the Marxist theory of a change being needed to come from inside the system in order to be a qualitative one (www.bvb.ro). 21. In 2004, the market capitalization of BSE was 8,819 millions EUR, representing 17 percent of the national gross domestic product. The increasing trend resulted in the market capitalization amounting at 27 percent of the national GDP in 2007 (the same year when Romania joined the European Union). However, the current economic and financial crisis resulted in the drastic decrease of the market capitalization to only 10 percent of the GDP in 2008 and 2009.
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A story about IAS/IFRS implementation in Romania

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Abbreviation P1 P2 P3 A1 A2 R1 R2 PB1 PB2

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10 August 2009 20 August 2009

Table I. List of interviews

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