International Conference on Applied Economics – ICOAE 2008
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Have met IASs Accounting Harmonization? The case of Greek Listed Companies
Athianos Stergios 1 Ekaterini C. Laskaridou 2
Abstract
The purpose of this study is to analyze whether Greece, by complying with International Financial Reporting Standards, has been reached the desirable
harmonization, in what degree and discusses the related subject problems that have been arisen. The surveyed data are selected from, Greek listed
companies in Athens stock exchange. The H index, a measure of the degree of concentration for the adoption of specific accounting practices, is
calculated over the 3- year period. The results show that across 3-year period H index were positive and statistical significant so the disclosure quality is
significant increased under IFRS/IAS adoption. It also puts forward the view that harmony should reflect properly the different circumstances under firms
operate toward maturity and normalization.
Key Words: IAS; Accounting Harmonization; Accounting Practices; Comparability: Harmonization
JEL codes: M41-Accounting
1. Introduction
Global Accounting Harmonization has been defined in various synecdoche’s, “harmonization is perceived as a process whereby all
countries adhere to uniform accounting standards for financial reporting purposes” (Nobes et.al 1981) and “harmonization it’s the
attempt to bring together different systems. It is the process of blending and combining various practices into an orderly structure, which
produces a synergistic result” (Samuels et.al. 1985). As the growing magnitude of financial globalization was increasing, the need for
establishing a single set of accounting standards that would be authoritative in the international arena was becoming essential.
International Financial Reporting Standards have recently been adopted in the context of compliance with the global accounting
harmonization. The global market forces dramatically change the financial scenery driving to a new multi-national reality. In that exactly
new one, the potential investor seeks for profitable solutions by: diversiform portfolio and scrutinizes the cross wide capital markets.
Recognizing the persuasive motivation of international bodies such IASB’ regulators and EU to improve financial reporting by higher
quality accounting standards, we are concerning that this argument based on mandatory rules should be measured on the basis of
providing relevant and reliable information to outside interested parties. From this standpoint it is examining whether Greece, by
complying with International Financial Reporting Standards, has been reached the desirable harmonization, in what degree and discusses
the related subject problems that have been arisen. The 2005 year is characterized as milestone since all listed firms must issue their
financial statement based on IFRS. Therefore it is regarded important a study by which data of previous years 2004 will be compared
with those of 2005 , in order to set out the degree of harmonization in national level.
The main assumption in a number of researching analyses is the use of same accounting choice by different firms can ameliorate
greatly financial statement comparability (Van der Tas 1988 1992; Emenyonu et.al 1992; Archer et.al. 1995; Hermann et.al. 1995).
Academics and researchers provide a more or less consensus broad meaning of that process via which comparability of financial reports,
across national boundaries becomes increasing (Perramon J. et.al 2005).
When firms adopt similar definitions and rules to communicate their financial accounting information, then they can increase the
effectiveness of this with lessening essentially the cost, this assumption results to pressure for harmonizing of accounting information
across all firms and making this a desirable device. However some authors have voiced cautiousness for achieving International
accounting harmonization. Trough formulating standards and setting limits to dissimilarity among financial reports it is generated a mean
not only of achieving the harmonization but it is also an object of harmonization themselves (Van der Tas 1988). Furthermore the
question can be set to what extend harmony should be get on.
As many international and national organizations are pledged to harmonization process it is necessary to consider the conceptuality
of harmonization, normalization and standardization and whether those are related to uniformity.
Tay et.al. (1990) assign normalization as ‘a movement towards uniformity’. But it may be possible that uniformity can only be feasible
through a period of standardization, not normalization; hence, normalization constitutes an endoplasm into harmonization and
standardization.
1
Lecturer, Department of Accounting, TEI of Serres Terma Magnisias, Serres – Greece Tel: +30 23210 49175, e-mail:as@teiser.gr, 2 Head of Public
Finance, TEI of Serres Terma Magnisias –Greece, e-mail:Laskaridou@teiser.gr
Standardization brings the uniformity and produces a more solid existence by implementing of a single accounting rule
with universal adoption. The concept of standardization seems to be associated with “reduction or exclusion of choice”
(Van der Tas 1992). It is defined as a process to uniformity or near uniformity. Standardization is more aspirant concept than harmonization or
normalization because of standardization presupposes the application of an unrivalled accounting regulation (Barbu E 2004).
Choi et.al. (1984 pp. 470; 1992 pp. 257), Samuel et.al (1985 pp. 56) and Cañibano et.al. (2000 pp. 351-352), assert that standardization is the priority
of the IAH process.
Tay and Parker (1992 pp.218) point out that in a period of standardization accounting options would not exist. We argue that the process of harmonization
is succeeded by a normalization period, which is in turn succeeded by a standardization stage.
It should be underlined that standardisation can be existent without harmonization in the case of no differences among countries when the available
accounting methods are outcome of international agreement with general adoption. It is also possible the opposite when there is removal of specific
accounting restrictions with simultaneous increase in the use of particular accounting method (McLeay S et.al 1999).
It is also important to point out the differentiation between harmonization at the level of regulation compared with the level of prevailed
circumstances. Presumably that the primary concern is to elevate the comparability of financial statements to interest parties and then any estimation of
success in the context of international harmonization or standardization would seem best concentrated on de facto accounting policies.
Finally all concepts are confining to “a spectrum of practice going to total flexibility and diversity to total uniformity” (Emenyonu, E.N. et al. 1996).
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Figure 1:
Source: Parker and Tay 1990
The aim of the international harmonisation is to reduce or overcome differences across world, in order to bring a better international
comparability of financial statements (Choi et al. 2002). Several authors assert that diversity in accounting information leads to
difficulties in operational productivity particularly in multinational firms. While for many investors, accounting diversity is barrier to
make decisions. In fact harmonisation can be characterised from two aspects: material and formal harmonisation.
Material Harmonisation: It describes the harmonisation of Accounting Practice applied by different firms. It is about the coherence
in actual implementation (Rahman et al. 1996).
Formal Harmonisation: It describes the harmonization of rules and regulations. It is viewed at theoretical point of view that means
the similarities and differentiations between rules and regulations of various countries, clusters or groups be refined and harmonized.
(Rahman et al.; Wolk et al. 2001). Many studies deal with harmonisation referring to formal harmonization as “de jure” and material
harmonization as “de facto” harmonization. Tay et.al. (1990); Van der Tas (1988) differentiated between de jure and de facto
harmonisation; the former encompasses rules and standards contained in the law or professional bodies, while the latter includes actual
practices, both of authors embraced the substance of international financial comparability and the related operational impediments, they
argue in favour of de facto harmonization as the most fit for measurement. Taower et.al. (1999) define the “de facto harmony as link to
firm’s practices while de jure harmony as accounting regulation.” Harmonisation is also regarded as the degree of disclosure named
disclosure harmonisation, while the adoption of accounting methods will be named measurement harmonisation.
Materially measurable harmonisation is an augment in the degree of comparability and refers to which companies under the same
circumstances are adopting the same accounting methods to an event or providing additional information in such manner that the
financial reports of more companies can be made comparable.
Figure 2: The Different Harmonisation and Harmony Concepts
De Jure Harmonisation Studies
De Jure Harmony Studies
-comparison of regulations in two or more countries at a -comparison of states of relative harmony of different
countries’ regulations at different points in time
point in time
De Facto Harmony Studies
-comparison of companies’ practices in two or more
countries at a point in time
De Facto Harmonisation Studies
-comparison of companies’ practices in two or more
countries at different points in time
Source: Astami E et.al (2004).
2. Prior empirical research on IAH
Earlier researchers have written extensively on International Harmonization, benefits, costs, shortcomings and problems impeding
harmony aim for harmonisation, and parameters encouraging the harmonisation drive (Chevalier 1977; Choi et.al. 1984; Gray 1984;
McComb 1979; Moulin 1988; Nair et.al. 1981; Turley 1983; Turner 1983). Thus, this review of prior research is concentrated: on studies
directly related to the measurement of international harmonisation (de facto or de jure) or to provide a large scale of applicable and
newly created index for measuring IAH. In any case our aim to highlight key issues in harmonisation process weightings and a crucial
spectrum of assumptions.
Van der Tas (1988), in an exploratory article, was differentiated between harmonization and compliance with or observance IAS he
also determined the quantification of harmony, by appointing when and to what degree harmonisation has realized and measured the
effect of the organisations involved in international harmonisation. Three indices were developed H-index, as square of the relative
frequencies of “each alternative measurement methods”. Variants of the H-index were also developed, the C-index as ratio (no
concentration index) was decomposed to express national and the I-index for expressing international harmonisation. The C-index “is
able to include effect on the degree of de facto measurement of multiple reporting” it is also “can be tested for their significance and can
be correlated with movements in explaining variables”.
Adopting these indices, van der Tas measured levels of harmonisation at point of Deferred Tax in the UK; accounting for the
Investment Tax Credit in the Netherlands and the US; the Investment Tax Credit Equalisation Account in the Netherlands. However one
significant drawback for H-index was the lack of significant tests of changes (Van der Tas, 1992).
Tay et.al. (1990), also by reviewing van der Tas (1988); Nair et.al. (1981); Evans et.al. (1982); McKinnon et.al. (1984); Doupnik
et.al. (1985); Nobes (1987) research papers on international harmonisation (de facto harmonization), considers the following as
important insufficient researching points: data sources, statistical methods employed, and diversification in accounting practice due to
compliance with standards from other reasons, as concepts “involved in confusion and inconsistent results”. He also suggests an
incorporating measuring method blending two approaches fit for concentration indices (cardinal) and nonparametric tests (ordinal data).
Taplin R (2003) critically analyzed H and C indices (Van der Tas 1988) and proposed a formulae for the standard error of the H and C
indices which gives an estimation of the accuracy of any chosen sample in a population of companies and allows comparisons amongst
two or more different populations so readers are able to make more sophisticated comparisons among reported values such different
countries or different accounting practices.
Taplin (2004) suggested a new index, named T index, presenting a unified approach to the variations of indices explored previously.
This allows the selection of numerous options within the T index to arrive at a specific index with the desired properties. Its structure is
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mathematically so flexible and theoretically researchers will benefit from implementation of the T index concerning mainly the
appropriate selection of index from the many options available.
Nair et.al. (1981), lay out to verify the effects of the harmonisation efforts of the IASC. They examined the effect of IAS 1 to 10 on
the accounting practices of some 37 countries, using the Price Waterhouse surveys of 1973, 1975 1979 and found that the period of the
IASC's existence had hold with an increasing in the harmonisation of accounting standards between the countries examined. However,
the Price Waterhouse surveys used by Nair and Frank were limited in terms of reliability.
Evans et.al. (1982), with similar scope surveyed the effect of IAS 2, 3, 4, 6 and 7 on financial reporting practices in France, Japan,
UK, USA and West Germany. This survey based on the financial reports of selected firms from 1975-88 by examining their data, they
resulted in that IASC had very little impact on the accounting practices of the countries selected.
The Federation des Experts Comptables Europeans (FEE) has also set out some important surveys. The 1989 survey (FEE, 1989),
covered 1987 accounts and studied whether, the adoption of the EC Fourth Directive on Annual Accounts; there was harmonisation of
accounting practices within the member states. Data gathered from survey questionnaires and the annual reports of about 191 companies
from 9 EC nations, such: Belgium, Denmark, France, Germany, Greece, Ireland, Luxembourg, Netherlands and the United Kingdom.
The survey ended up that, for those areas covered comprehensively by the Fourth Directive, a high level of harmonisation can be noticed.
On the other hand, an obvious lack of harmonisation can be apparent in areas covered only partially by the Directive.
McLeay et.al (1999) by distinguishing harmonization and standardization described a method for measuring harmonization where
accounting alternatives are not mutually exclusive. Using data from 242 to 286 interlisted companies dated from 1987 to 1993 showed
that disharmony is present because of “systematic disharmony attributable to local regulations and practices”. Tower Greg et.al (1999),
examined the de facto harmony compliance/harmony in six countries of the Asia Pacific region listed to stock exchange, by analysing
512 data points in annuals reports using multivariate regression analysis, they found that the financial reporting rules heavily are
influenced by location factors.
Emenyonu E et.al (1992), examined, in a twofold research: the existence of significantly difference among using statistical tests of
asset and profit measurement practices and the extend of international harmonization, in the context of EC Fourth Directive, via I-index.
They selected data from the annual reports of 26 large companies come from France, Germany and the UK (26 from each country), for
1989 year. The results showed that there were significant differences in the measurement treatment, this seems to confirm the view that
measurement terms of the EC Fourth Directive, “are inherently flexible”. He in a latter study (1996) assessed the extent of IAH, the
major successes and the remaining problem areas. By analysing annual reports of 293 listed companies, being reported in 1971/72 and
1991/92 from five stock market countries, France, Germany, Japan, UK and the USA. He applied Chi-square test for aggregated
companies and I-index as variant of H-index as concentrating measure. Findings showed that the IASC’ efforts to reduce accounting
diversity over 20-year period have remain a leaky goal although there was a reduction in accounting diversity regarding issues as
consolidation, associates and exchanges differences, treatments, there was also an increasing in diversity in issues as goodwill,
depreciation, inventories treatment.
Herrmann et.al. (1995) scrutinized the level of accounting harmony by examining annual reports of companies from Germany,
Ireland, the Netherlands, Belgium, Denmark, France, Portugal and the U.K for 1992/93 fiscal year. They found that “the harmonization is
greater among fairness oriented countries than amongst legalistic countries”.
Archer S, et.al. (1996), by applying a hierarchy of nested log-linear models, enabled to distinguish between two sets of systematic
effects, those of international harmony and the related changes through time and those of international disharmony attributed to national
differences in respect with accounting policy choices. Deferred tax and consolidated goodwill treatments, analyzed from annual reports
of 89 inter-listed companies from 8 countries for accounting period over 1990/91, given the internationally traded shares of companies
international and national factors were present by strongly influencing the selection of accounting methods. Findings revealed a small
degree of harmonization implying that in two examined accounting areas little progress has been done since the EU Directives gave way
to flexibility.
Leonardo C, et.al (2000), critically analysed previous research for accounting de facto harmonization by summarizing the methods
used, they proposed a test of significance for C-index adhering its adequacy. On the other hand they calculated the C-index for the
periods 1991-2 and 1996-7 by examining annual reports of 85 inter-listed companies from thirteen European countries. Results
corroborated prior empirical studies that “global players” have engaged in a “spontaneous” de facto harmonization which takes place
independently from formal harmonization.
Aisbitt S (2001), based on Archer et.al.’s methodology (1995), and applying this to data collected from annual reports of the Nordic
Countries (Denmark, Finland, Sweden and Norway) revealed that “given the different regulations in each country the level of harmony
within countries was higher than the level of harmony between countries”. Exploring the reasons for the lack of harmonization between
countries he estimated that the causality of different level legislation between countries cannot fully explain the related changes in levels
of harmony, consequently the examined items should be scrutinised on the context other than legislation factors for instance industry
factors. Generally findings confirm that legislative regulations do not influence the level of harmonization in absolute terms.
One year earlier Murphy Ann (2000) brought out a similar study, where data collected from four countries Swiss, UK, Japan and US
through Worldscope database from 1988 to 1995 including four accounting practices: depreciation, inventory, financial statement cost
basis and consolidation practices. Findings based on concentrated I index, were aligned with what Van der Tas (1988) named as
spontaneous harmonization. Specifically the majority of the tests suggest the occurred harmonization was not be driven only by IAS
adoption. Spontaneous harmonization had been addressed in an earlier study by Zarzeski M (1996) where data from 256 annual reports
examined in respect with culture-disclosure at local and international level. Evidence indicated that when companies are global traded
then already are willing to adhere to statutory set of accounting disclosures. “Alignment can be influenced by capital market forces” this
assessment broadly takes place in study by Tarca A (2003) where the examined data from 150 inter-listed companies for 31 1999, March
31 2000 and June 30 2000 showed that some companies will voluntarily harmonise their accounting policies and stock exchange listing
is a significant attributor of this activity. Furthermore and irrespective of stock exchange listing, international firms can be driven by
consideration of national comparability. Garrido P et.al. (2002) by grouping IASC progress into three phases “high flexibility” (19731988), “comparability of financial reporting” (1989-1995), “IOSCO-IASC Agreement results” (1995 onwards), labelled as stage A,B,C
have valued the formal harmonization by applying a new measure based on the notion of Euclidean distance. Results indicated the
success of formal harmonization through important achievements in comparability of financial reporting, while more efficient
advancement has been attained in formal harmonization through standard setting, stage C. Through similar approach, Fontes A. et.al
(2005) by involving Jaccard’s and Spearman’s coefficients measured material position from the formal. They examined the level of
convergence of Portugal Accounting Standards with IAS and IFRS through 43 accounting issues, over the period 1977-2003. All
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explored data indicated the convergence of Portuguese standards with IFRS enforced mainly after 1991 and when Portuguese system has
less been affected by French influence.
The “convergence” term for actual accounting harmony in respect with choosing practices is also used by Astami W.E, (2004) where
T-index (Taplin 2004) has been applied to data gathered from annual report of 442 listed companies for the year of 2000/2001 including
five countries Australia, Hong Kong, Indonesia, Malaysia and Singapore. The empirical findings of accounting treatments showed “large
levels of disharmony” probably on account of inefficient market conditions or abnormal legalistic state which make these countries to
remain behind with international “expectations”.
The evolution of IAH research has been directed by an increasing level of globalization driving to demands for greater harmonization
of accounting policies on an international basis, and by a growing interest in IAH on the part of accounting researchers (Barbu E,2004).
There were significant impediments to making various accounting treatments more comparable due to differences in the cultural and
economic conditions of different countries. While in earlier harmonizing period (1960 to 1989) there was an interest for reducing the
variety of accounting practices and making them more comparable. In recent harmonizing period of normalization (1989-2004)
researchers are subjected to the need of IAS to serve comparisons between international and other national GAP exploring the relevant
reasons for specific accounting choices and measurements.
All above scholars are set themselves on the field of prompt adoption of measuring IAH , in essence through numerous empirical
studies we can only perceive inherent difficulties which frame feasible issues with assumptions and put forward exploring options. We
underpin that idealization of IAH is not the pursuance but only the opportunity for making the best in Global investors’ community and
Nations’ trading liberalization.
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Table 1: Harmonisation Indices Key figuration and conditions
Attributes
/ Index
H Index
I Index
Summary
Measures
probability that two
randomly selected
(with replacement)
companies from the
sample use the
same
accounting
method.
Measures
probability that
two randomly
selected
companies
(one from each
country)
use
the
same
accounting
method.
Comment
Can be modified to Focus
on
account for multiple comparisons
reporting.
between
companies in
different
countries3.
Cannot correct
for proportions
close to zero.
Rarely
Widely used
Some usage.
Company weighted Country
Company
weighted
weighted
Usage
Weights
Intern. focus
Yes.
No
Multiple
accounting
policy
Non-disclosure Non-disclosure
companies removed
from analysis.
T Index
Allows
greater
flexibility than all
other
indices.
Measures harmony by
allowing
different
assumptions of unit
weighting,
international
focus,
multiple reporting and
non-disclosure.
Allows for multiple
reporting
Some usage.
Widely used
Company
Company
weighted within a weighted
country
comparison
across countries.
No.
Within Yes.
Between
country focus
country focus
New approach.
Any
combination
(such as country,
company, size etc)
Yes.
Yes.
No
Yes
Yes.
Yes.
Yes.
Non-disclosure
companies
removed from
analysis4.
Some variety in
practice
(see
Archer et al
1995).
Some variety in
practice
(see
Archer
et
al
1995).
Some variety in
practice
(see
Archer et al
1995).
Without
replacement
Does not matter
as
same
company cannot
be
selected
because
only
one
company
can be selected
within a country.
Allows
all
assumptions
(exclusion,
all
comparable,
non
comparable, partially
comparable).
With
replacement.
This means that the
same value for the T
Index will be obtained
no matter what the
sample size is.
Partially.
Different C Index
variants allow for
different
weighting
on
companies
and
countries.
Partially.
Yes,
allows
Different
C combination of desired
Index variants properties.
allow
for
different
weighting
on
companies and
countries.
Does
not Without
matter as same replacement
company
cannot
be
selected
because only
one company
can be selected
within
a
country.
Partially.
Combinations No for the original No.
Index but it can be
Different
C
allowed
modified.
Index variants
allow
for
different
weighting
on
companies and
countries.
Source: Adapted from Taplin (2004).
Sampling
With replacement
C Index (total) C Index (within) C
Index
(between)
Measures
Measures
Measures
probability that probability
that probability that
two companies two
companies two companies
selected
selected randomly selected
randomly
(without
randomly
(without
replacement) have (without
replacement)
accounts that are replacement)
from the sample comparable if the have accounts
have accounts two
companies that
are
that
are are from the same comparable
if
comparable.
country.
the
two
companies are
not from the
same country.
Allows
for Allows
for Allows
for
multiple
multiple reporting multiple
reporting
reporting
Overall,
within
country and between
country allowed.
3. Greek National Capacity and advancing for convergence on IAS.
Given: the statement of United Nation conference (2005) that “Effective implementation also calls for a mechanism for ongoing
interaction between the standard setter and national regulators……..and additional mechanisms are needed to cope with demand of such
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scope and diversity”. Furthermore the survey of National Accounting rules by: Deloitte Touch; Ernest &Young; Grant Thornton; KPMG;
PricewaterhouseCoopers, (2000) where Greek accounting requirements based on corporate Law 2190/1920 outline a tax-driven regime
with no-supporting a fair view context. So we easily approach the National attitudes and practices consistent in Greek accounting
statutory. More specifically Greek companies listed on the Athens Stock Exchange (ASE) have suffered from heavy consequences
related with decline fidelity and credibility. Particularly during 1999-2000 Greek companies were faced with onerous depression as local
accounting standards were partially responsible for this. Generally Greek companies were too far from a harmonizing accounting
context. Greece adopted accounting harmonization very recently with the enactment of Law 2992/2002 by which Greek listed companies
can apply the IAS starting calendar year 2003. However a key issue arising from doing so is the readiness of Greek companies and the
substantive qualitative harmonization.
Floropoulos, N (2003) carried out a survey for examining accounting harmonization in a sample of companies in North-Eastern
Greek and Thrace. The evidence revealed that “the use of IAS in Greece is far from the desired level” and a lack of professional
experience and knowledge of IAS among accountants.
In a recent survey carried forward by Athianos, S. et.al. (2006); (2007) it has examined the implementation of IASs on the
comparability of three accounting practices, inventory, depreciation and financial statement presentation for each fiscal period 2004 and
2005. Findings confirm that harmonization occurred passing from 2004 Greek accounting statutory to 2005 obligatory IAS adoption,
indicating the alignment with new accounting frame.
Generally speaking as long as Greek economy is lead by global market forces harmonization process will gain ground as result of
financial evolution to maturity.
4. Research methodology
The applied statistical method based on Herfindahl index (H). In accounting harmonization the relevant variables would be the
number of firms using each accounting method and those accounting methods which have been used.
The Herfindahl and C indices provide measures of harmony of accounting practices by summarizing the extent to which companies
use the same accounting practice. The H index is applied at national level while I-index measures harmony at international level.
Van der Tas (1988) concerned with the issue of accounting harmonization proposed quantifying the degree of harmony of financial
reporting practices with H and C indices. I index makes a comparison between the related frequencies of accounting methods used within
different countries. For the reasons of integral comparability Van der Tas introduced and modified the C index in order to represent in a
reliable way the “reprocessing” of values appeared in accounts.
The Herfindahl index for a sample of n companies is given by:
(1)
N
H = ∑ pi
2
I =1
Where H= Herfindahl Index,
N= number of accounting methods
Pi= the relative frequency in the sample of accounting method i
The H index fluctuates between 0 (no harmony) and 1 all companies using the same accounting method.
The C index is a ratio, calculated comparability of accounts within different accounting methods, including multiple reports and is given
by:
(2)
C=
a1 • ( a1 − 1) + a 2( a 2 − 1) − a12 • ( a12 − 1)
m • (m − 1)
The I- index, as a variant of H index, provide a fair impression of the extent and level of accounting harmonization among countries and
is given by:
(3)
1
⎡n
I − Index = ⎢∑ ( f x
i
⎣ i =1
f
i
f
2
i
x.....x
f
⎤
)⎥ 1
i
⎦ m −1
m
= relative frequency of method I in country m
m= number of countries
n= number of alternative accounting methods
Hypothesis
In practice it is testing if the adoption of IASs by companies in Greece has positive results, leading to an increased harmonization.
The H index, a measure of the degree of concentration for the adoption of a specific accounting practice, will be calculated over the 3year period for our population data. Hypothesis 1 will examine whether or not the harmony level of comparability among the data group
of Greek companies has changed. This period includes two (2) year of using local standards and one(1) year of using IASs.
H: There is no association between the year and the level harmony, as measured by the H index, for the 3-year period 2003-2005.
Hypothesis will be tested using the Spearman correlation coefficient. This statistic may be applied to test for trend between a
bivariate sample of (Xi,Yi) pairs. For this study Xi is the fiscal year-end and Yi is the H index. In case of rejecting the Hypothesis 1, then
this will indicate that the harmony level among companies has changed. An increasing trend of the index will suggest that harmonization
has occurred and a decreasing trend of the index will suggest the disharmonization; shift in total diversity has taken place.
International Conference on Applied Economics – ICOAE 2008
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5. Data collection
Data collection was based on annual reports and was conducted by hand picking. The selected population included ASE all listed
companies Athens Stock Exchange (www.ase.gr/content/gr/Companies/ListedCo/Profiles/). When annual reports were not available on
this database data were retrieved from firm’s web sites. During data selection companies were classified by industry range and excluded
those that have idiosyncratic financial reporting, I table 1)e.g financial institutions. Firms not reporting at all their annual report either
web site of ASE or firm’s web site, had been excluded as well. The involved firms range from the largest ones with international
activities to medium-small capitalization operating primary in local market, so the final data represents a cross-section of commercial and
industrial firms influenced by country-specific factors as well as international factors. As a result final data set (population no a sample)
are consisting of 270 companies for 2004 year and 279 for 2005 year, the nine (9) more companies are newly listed in ASE in 2005 year.
We should notice that particularly for 2004 year, in some cases a specific item may not be reported sufficiently in a company’s financial
statements. Consequently we made assumptions on company’s belief for not disclosing the accounting method, either choosing to do so
or allowing reader to determine the used accounting method. However we examined thoroughly to find any indication of the company’s
accounting policy. In statistical context none default assumption is made and it is treat ed this as non-disclose. To assess if the adoption
of IAS has increased the level of harmony, two fiscal years, 2004 and 2005 were the examined period obtaining data for pre-change
period (2004) and post-change (2005) one.
Considering the domestic GAAP the inventory methods are LIFO, FIFO, Weighted Average, Successive Balance, Low Price and
others. The depreciation methods that are presented prior to 2005 for the most of the companies in the final population are Straight Line,
Reducing Balance, Stable, Historical Cost, Market Price and others. Finally, the adopted methods to form a financial statement are the
Cost Basis method, the Historical Cost and others.
The adoption of IASs prescribes the optional context of methods used by companies. To draft the firm’s financial reports, predetermining methods must be implemented. For the valuation of inventories, e.g the FIFO or Weighted Average method (IAS 2) should
be applied. While the depreciation methods used are the straight - line method, the declining method and finally the method of produced
units (IAS 16). Finally the Historical cost method is the primary accounting convention adopted by the companies (IAS 1).
5.1 Data analysis and Results
The study has carried out the methods used by the enterprises of our population data, which has illustrated in following tables. We
developed all those tables that present which methods had been applied by the companies at the 2-year period 2004 to 2005 in the context
of compulsory accounting frame starting 1/1/2005.
Considering , the seven different applied methods for valuation the inventories adopting local standards, 2004 fiscal year, LIFO, FIFO,
weighted average, successive balance, low price and many others. The study reveals that the enterprises of the examining population
adopt different methods. The majority of the firms have adopted the weighted average method used (42.59%), while a percentage of
12.59, has used FIFO method. Low price method has only a 5.93 percentage while others method cover the 10.37 per cent. The important
point is the nearly high percentage of 27.41 of no disclosing method. Finally only one (1) company has adopted LIFO method and only
two (2) the Successive balance one
As regard the using depreciation methods the majority of firms adopted others method as the 58.89% shows, while the Market price
methods have adopted by 15.19% of examining firms. Not surprisingly firms with a high percentage of 18.89 preferred non-disclose any
method. The stable method and reducing balance present 3.33 and 2.59 respectively, while only one (1) company used Historical cost
and two (2) the Straight line method.
Financial Statement Presentation was ruled by a high percentage of using Historical cost (55.19%), while the subsequent prevailing
percentage of 28.52 reflects the companies did not disclose any method. Finally forty four (44) companies used Cost basis method.
It is important to point out that in perspective of compulsory IASs’ adoption only one company the OPAP adopted IAS and applied
the weighted average method for valuing the inventories, the stable method for calculating the depreciations and the historical cost basis
for the presentation of the financial statement reports.
The new requirements of IASs incorporated in national enactments 2992/2002 and 3229/2004 and subsequent emergent obligations
dramatically differentiated the Financial reporting status quo. This dramatic change is illustrated in tables 6 to 8 Appendix II where firms
have passed to adoption of IAS for 2005 fiscal year.
Inventories methods have restricted driving to high harmony level. Firms in majority has valued their inventories by weighted average
method at 72.76% while FIFO and Others method have similar percentages at about 9.50%. However the impressive indication is the
only 7.89% of no-disclosing method while one (1) company has applied Successive balance.
A similar scenery where the using Depreciation methods ruled by a mass dominance of Stable method at 97.85% while the firms
that did not disclose any method have restricted only at tree (3), (1.08%). While Financial Statement Presentation is driven by a high
percentage of Historical cost at 92.47 while only twenty one (21) companies had not disclose any method (7.53%).
Table 2: H index of harmonization trend
H index of harmonization trend
National
GAAP
IASs
only
only
Difference
Inventory
0.286722
0.55368
0.266958
Depreciation
0.40738
0.9577
0.55032
Fin.statement
0.412428
0.86079
0.448362
The difference for Inventory, table 2, indicates that there is a shift to harmonisation of applying methods at the percentage of 26.69.
This movement it is also traced more forcibly trough the difference for Depreciation and Financial statement presentation as the
percentages of 55% and 44.8% reveal. The trend of index of harmonisation bears a strong relationship what can we expect when firms
undertake to modulate their accounting practices into standard frame. As the aim of all those is to assess the progress of harmonization
the trend among examined items might provide valuable indication of where attention should be drawn.
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International Conference on Applied Economics – ICOAE 2008
In the case of using IASs only, then the H index becomes one (1) implying the use of the same method by all companies. This is the
primary aim of adopting IASs, the harmonization presents that the companies that adopted international accountant standards improved
in double their indicators.
Table 3: Comparison of H index and Spearman correlation results
Comparison of H indices Spearman correlation results
Correlation
Index 2003
Index 2005
2003 - 2005
p value
Depreciation
IASs
Greek domestic
1
0.48214
0.9577
0.40738
1.000
.775
0.000***
0.041**
Inventory
IASs
Greek domestic
1
0.28356
0.5536
0.2867
.156
.847
0.738
0.016**
Fin.statement
IASs
Greek domestic
1
0.57659
0.86079
0.412428
.885
.965
0.008***
0.000***
significance level: p< .10 (*), significance level: p< .05(**), significance level: p<.01(***)
Hypothesis 1 deals with the eventuality of Harmonization through the comparability within the population of firms adopting IASs.
The H index was calculated for each population of Greek listed companies. The numerical outcomes of the Spearman correlation tests
are displayed in table 10.
The results for Depreciation suggest that the IASs’ implementation has not improved the harmony level for the population of our
companies (1 to 95.7%) . The depreciation H index had a statistically significant positive correlation (1 at a significant level of 1%) over
the 3-year period. Also the control population concerning Greek domestic had a statistically significant positive correlation (0.775 at a
significant level of 5%) indicating less fall to harmonization index. This is because of magnitute (size) of examining population and the
order (number) of possible accounting treatments which effect on the harmonization indices.
In the case of Inventory the effect suggest a similar harmony level for Greek domestic moved toward slightly higher, (28.35% to
28.67%) more specific , the H index had a statistical positive correlation for control population with year, (0.847 at a significant level of
5%) while the IASs’ adoption was from 1 to 0.553 with negative correlation (-0.156 with p value of 0.738 which is insignificant). The
changes in the index in IASs adoption created on account of only one (1) company has adopted IAS for 2003-2004 while more
companies have adopted IAS in 2005 at a range of five (5)not mutually exclusive methods.
The H index for Financial Statement indicates a slightly fall for IASs group from 1 to 0.860 with a positive correlation with year
(0.885 at a significant level of 1%) a similar decrease occurred for Greek domestic from 0.57 to 0.41 with a positive correlation equals to
0.965 at significant level of 1%. The changes of the index primary were yielded by the magnitude of size of companies that began to
disclose the methods of Financial Statement reporting.
Summarizing, tests for Hypothesis 1 imply that harmonization did occur among depreciation methods applied, but disharmonization
raised as more firms moved toward disclosing inventory policies. The implementation of IASs did not lead in significant changes to the
level of harmony for financial statement historical cost but the no disclosing treatment affect the overall harmony level by moving from
not disclosing to all firms disclosing.
6. Conclusions
This study examined the effect of adopting IASs on the comparability of three accounting policies. We can understand that the
yielded results were not encouraging that the adoption of IASs was the primary factor in increasing the level of harmony. While a
majority of the tests indicate that dis-harmonization has occurred, it could be supported that these changes were not in itself a resonant
demonstration of disharmony. The diversity of a range alternatives method (multiple reporting) as well as the magnitude of examining
population strongly affects the concentration of H index. Given there is no accepted level for determination what defines a necessary
harmony level for the comparability and compliance of financial reporting, the significance of H-Index scores remain judgemental. Firms
on the basis of compulsory IASs adoption have good incentive for preferring one accounting treatment to another among standardising
methods, this with the restriction of accounting manipulation significantly improves the comparability of financial statements. So we can
support as the Van der Tas (1992) had asserted that disclosure harmonization have occurred clarifying the importance of measurement
harmony and disclosure harmony moreover De facto (material) harmonization is intended to catch the comparability of financial
reporting. Prior to the harmonization project within country (H index), the comparability of financial reporting is directed at establishing
standards and disclosure policies so when there is a range of alternative methods there is less agreement in uniformity of using methods
however it could be supported that the comparability has been increased as more information is available. In examining population
companies are disclosing their accounting choices between alternative accounting methods which are confirmed by significant low
percentages of no-disclosing method in 2005 fiscal year, table 4. Beyond the scope of achieving harmonization findings indicates issues
of assessing whether changes has taken place with substantiality and if so to what extent. These changes are consecutive of facing new
regulations and problems of promoting internationally accounting credibility needed to global market conditions. The extent of these
changes is reflected from overall illustrated tables as well as the high level of disclosing (table 4). Moreover the substantiality of these
changes is of concern to national legislative bodies and also of interest investment community. In meantime it is put forward the view
that harmony should reflect properly the different circumstances in which firms operate toward maturity and normalization. This may be
the prospect of elusiveness harmonization as not be easy to accomplish.
International Conference on Applied Economics – ICOAE 2008
59
Table 4: Comparisons of no disclosing methods
Percentages of no disclosing method
National
No
GAAP
Disclosing
only
IAS only
No
27.41
Disclosing
7.89
Inventory
No
18.89
Disclosing
1.08
Depreciation
No
28.52
Disclosing
7.53
Fin.statement
No
Disclosing
No
Disclosing
No
Disclosing
No
Disclosing
7. Comments for further research
Greece is in the progress of cathartic changes to its institutional accounting issues. These developments are directed at reforming the
overall orientation from a tax-driven to market environment and undoubtedly more recommendations should be done by interpreting
market forces and refining statutory and auditing blocs. Harmony achievement becomes a position against obscurity and irrelevance in
the fairness of financial reporting. So far Greece’s experience was considered vague uncertain and difficult to adopt in practice a solid
and consistent with market forces accounting frame. The tax-return status failed to address very important issues as the credibility of
Greek companies and economy.
This situation brings to the fore questions related to adequacy and suitability of accounting guidelines as conflicts may arise between
national reporting pose and increasing integration of capital markets. In recognition of need for continual efforts to convergence the
present study may be helpful to further research areas on the basis of evaluation important factors needed to consider harmonization
issues. Sub-topics as legislative requirements retrospect of establishing institutional agencies or difficulties behind a specific
harmonization process are as well as basic researching core.
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