The role of accounting harmonization in producing quality financial reporting practices in the UK

Purpose This study aims to examine the effects of accounting harmonization, through the adoption of IFRS, for the financial reporting quality of small and growing UK companies listed on the Alternative Investment Market of the London Stock Exchange. The authors do not question the quality of the accounting standards themselves but, rather, the consequences of implementation of the standards for small companies. Design/methodology/approach This study takes a cost-benefit approach, considering the principal qualitative characteristics of financial reporting as symbols of quality, and evaluates user perceptions about the costs and benefits of accounting harmonization through the application of a multi-method research approach. The authors also investigate the application of fair value accounting and the true and fair view concept under IFRS and financial reporting quality. The survey instrument focuses on the informed views of senior financial executives of the sample companies. Findings The results of the quantitative analyses did not find any support for a positive relationship between IFRS and financial reporting quality. The findings also fail to find any significant effects on accounting quality from the application of fair value accounting and the true and fair view concept under IFRS. The survey results were supported by the findings of the semi-structured interviews where most of the respondents regard the change to IFRS as a policy matter that has not achieved the IASB’s intended objectives. The findings of this study, therefore, question the mandatory implementation of IFRS and raise the wider policy issue of questioning the benefits of applying complex international accounting standards to small companies. Research limitations/implications A cross-country approach would provide a wider perspective on the implications of IFRS for the market as it would make the sample bigger and would give enduring tests for the hypothesis of this research. Originality/value This study provides key insights on a major change in accounting regulations, which may inform future regulatory changes, including the Promulgation IFRS for private companies or in reporting. It is an attempt to contribute to the ongoing academic discourse on IFRS adoption and financial reporting quality. Unlike much of the prior literature that focuses on measurement differences in reporting, this research examines the adoption of IFRS in terms of compliance costs and improved disclosure practices, particularly for Alternative Investment Market-quoted companies.