The role of Politics and Economics in the International Financial Reporting Standards (IFRS) Adoption

Abstract

IFRS adoption in EU since 2005 conveys benefits, but the evidence shows that they are unevenly distributed among different countries due to differences in institutions and incentives. The Contracting Theory offers a theoretical framework for the research on economic consequences and incentives of different stakeholders to lobby, but research on activity of politicians to interfer in accounting is scarce. The aim of this paper is to show the role of politicians and governments on accounting properties. With this purpose changes done in the EU endorsement process in the name of the “pubic interest” are analyzed. Research on how political interference has worked, especially in the financial industry is shown. We conclude that interested parties should compromise to get a balance between principle based standards and enforcement to improve the comparability process through IFRS.