To Adopt Or Not To Adopt? The Transnational Adoption of International Financial Reporting Standards (IFRS) in Africa Inauguraldissertation zur Erlangung des Doktorgrades der Wirtschafts-und Sozialwissenschaftlichen Fakultät der Universität zu Köln 2015 vorgelegt von Master of Science Solomon George Zori aus Wa(Ghana) Referent: Prof. Dr. Sigrid Quack Korreferent: Prof. Dr. Mark Ebers th Tag der Promotion: 20 January 2015 i Acknowledgement I would like to thank everyone who contributed knowingly or unknowingly to the development, writing and completion of this dissertation. I would first like to thank the Max Planck Institute for the Study of Societies (MPIfG) in Cologne for accepting me into the International Max Planck Research School on the Social and Political Constitution of the Economy (IMPRS-SPCE). I thank the co-director of the Institute, Prof. Dr. Wolfgang Streeck and congratulate him on his retirement, and also to Prof. Dr. Jens Beckert for the generous funding opportunities provided for this project. I would like to particularly thank my supervisors, Prof. Dr. Sigrid Quack and Prof. Dr. Mark Ebers for the enormous support they have given me especially in encouraging me to work very hard on this project. I particularly recall our initial encounter at the interview and the joint decision to supervise my dissertation. I appreciate the guidance Sigrid provided me while I was in Africa collecting field data and the time she made to read even poorly written field report I wrote in order to provide me with constructive feedback. This dissertation could not have been completed without the unconditional support of the people at the Max Planck Institute who ensured that I never lacked any resource in the conduct of my research. From the lively and supportive people in the library who will comb through all libraries in Germany and beyond to obtain rather rare literature on my discipline to the smiling people at the IT department who would do everything to get my computers working. I cannot forget the enthusiastic staff at the publications unit to whom I owe gratitude in multiple magnitudes. I particularly thank Ruth Hanisch, Susanne Hilbring and Astrid Duenkelmann for all their support in coordinating various logistics towards the completion of the project. I cannot underestimate the contributions of my academic colleagues who at every step of the way helped shape my ideas through informal discussions at lunch and coffee times. Markus Lang, Philip Mader, Sebastian Botzem, Paul Lagneau-Ymonet, Annette Hübschle, Jan Christoph, Jiska Gojowczyk, Ana Alfinito, Irina Espana, Mark Lutter and Marcin Serafin who all at some point engaged me in thought provoking conversations on my ideas which greatly improved my way of thinking and developing ideas. I thank the members of the research group on institutional governance across borders who provided me the platform to present my work and who were so kind enough to provide valauable feedback on the dissertation. I cannot leave out the contributions of Christopher Pelger at the Chair of Financial Accounting and Auditing ii of the University of Cologne and participants of the the IMPR-SPCE doctoral colloquium, the IMPRS summer conference in Columbia Univeristy-New York, the Accounting and Convergence conference in Cluj-Napoca-Romania, the European Accounting Association conference in Istanbul, and the C2GC Workshop at ESSEC Business School in Paris. I acknowledge the assistance of the many institutions and organizations which contributed to the empirical chapters of this dissertation. Firstly, I thank the Institute of Chartered Accountants Ghana (ICAG) especially the Techincal Director Mr. Augustine Addo who gave me access to the archives of the institute and provided further interview contacts in Ghana. I thank both the Chief Executive Officer and the Head of Audit Monitoring Programme of the ICAG for their assistance. I extend my warm regards to the Head of Banking Supervision of the Central Bank of Ghana, the Ghana Stock Exchange and all the Big Four Audit Firms in Ghana without whose help this study would not have been possible. The contributions of the local offices of the World Bank in Ghana, Nigeria and Cote d’Ivoire is greatly acknowledged as they openly provided access to their officials for interviews. I thank the Institute of Chartered Accountants of Nigeria (ICAN), and the Liberian Institute of Certified Public Accountants (LICPA); particularly its president Mr. N’nem Mombo for his wonderful support while in Liberia. Great thanks to Mr. Christian Migan, the President of the OHADA Accounting Secretariat, who hosted me in Benin and provided materials for the case of French West Africa. Finally, my sincere appreaciation goes to my family to whom I dedicate this dissertation. This dissertaiton could never have been completed without the undying support of my wife and daughter (Gwen Delmwini Zori) who was born in the middle of writing the dissertation. I thank them very much and want to remind them that they are the reason behind my motivation to finish this dissertation. I thank my mother, my sister, my uncle friends and family who all had to bear with my continuous absence from family events to complete this dissertation. In particular, I acknowledge the overwhelming contributions of my uncle John Lawson, my sister Yvonne Chabah and my close friends at the University of Bonn and most of all my wife Irene Zori. iii List of Tables Table 1: Comparing Logics of Policy Adoption  ....................................................................................  29   Table 2: Logics of IFRS Adoption  .........................................................................................................  31   Table 3: Eco-Structure of International Accounting  ..............................................................................  34   Table 4: Phrases used to reference IFRS Adoption  ................................................................................  42   Table 5: Conceptualizing IFRS Adoption as a process  ..........................................................................  44   Table 6: ROSC Reports from Africa as at 2014  .....................................................................................  48   Table 7: Spread of ACCA membership in Sub-Saharan Africa  .............................................................  58   Table 8: International Accounting Firms Funding to the IASB  .............................................................  59   Table 9: Continental Split on IFRS adoption  .........................................................................................  65   Table 10: Sample Research Design and main findings  ..........................................................................  72   Table 11: Ghana Historical lending Arrangement with IMF  ...............................................................  85   Table 12: Qualifying Rate of Accountants by ICAG  .............................................................................  99   Table 13: Top 6 Accounting Firms in Ghana  .......................................................................................  101   Table 14: Choosing from alternatives. Approaches to IFRS Adoption in Ghana  ................................  107   Table 15: Financial Incentive for Accounting Standardization  ............................................................  114   Table 16: Institutional effects on IFRS adoption decision in Ghana  ....................................................  125   Table 17: Institutional Drivers of IFRS Adoption in Ghana  ................................................................  128   Table 18: Debt and Credit Arrangements with the World Bank (1960-2012).  .........................................  135   Table 19: Size of the Nigerian Banking Sector  ....................................................................................  136   Table 20: Development of listed companies on the Nigerian Stock Exchange  ....................................  141   Table 21: Market Capitalization in US$ of the Nigerian Stock Exchange  ................................................  141   Table 22: Market Capitalization as a percentage of GDP,  .......................................................................  141   Table 23: Size of ICAN Community in Nigeria  ...................................................................................  150   Table 24: Top 5 Audit Firms in Nigeria by Country of Origin  ............................................................  152   Table 25: Institutional effects on IFRS adoption decision in Nigeria  ..................................................  173   Table 26: Institutional Drivers of IFRS Adoption in Nigeria  ...............................................................  174   Table 27: Composition of Listed Companies on the BRVM  ...............................................................  181   Table 28: Institutional effects on IFRS adoption decision in Cote d’Ivoire  .........................................  202   Table 29: Institutional Drivers of IFRS Adoption in Cote d’Ivoire  .....................................................  204   Table 30: Timeline of Political Regime Change in Liberia  ..................................................................  207   Table 31: Post-War Public Debt of Liberia  ..........................................................................................  216   Table 32: Institutional effects on IFRS adoption decision in Liberia  ...................................................  225   Table 33: Institutional Drivers of IFRS Adoption in Liberia  ...............................................................  226   Table 34: Adoption Motivation over Time. Classical Two-Stage Model  .................................................  236   Table 35: IFRS Adoption in Ghana and Nigeria: A case comparative Analysis  ..................................  238   Table 36: Comparing IFRS Non-Adopters  ..........................................................................................  242   Table 37: Institutional Pressures and the Diffusion of IFRS  ................................................................  247   Table 38: Funding IFRS adoption in developing countries by the World Bank.  .................................  248   Table 39: Comparative Deterministic Institutional Variables of IFRS Adoption in Africa.  ................  250   Table 40: IFRS Adoption Actors and Motivation  ................................................................................  260   Table 41: Key Standards for Global Financial Stability  ......................................................................  263   iv List of Figures Figure 1: Calculative interactive effects of deterministic variables in IFRS adoption, adaption and non- adoption in Africa.  .................................................................................................................................  12   Figure 2: EU IFRS Adoption Timeline  ....................................................................................................  45   Figure 3: Actors in the diffusion of IFRS  .................................................................................................  46   Figure 4: Completed and Published ROSC Reports.  ..............................................................................  48   Figure 5: Conceptualizing World Bank Poverty Reduction Strategy through Accounting Standardization.  .....................................................................................................................................  50   Figure 6: Cumulative IFRS Adoption in Africa  .....................................................................................  63   Figure 7 IFRS Adoption status in Africa ................................................................................................. 64   Figure 8: Conceptual Framework in Analysing Research Question  ..........................................................  75   Figure 9: FDI Inflows in US dollars  .........................................................................................................  77   Figure 10: GDP Growth Rates  ................................................................................................................  77   Figure 11: Historical Development of Inflation in Ghana  ......................................................................  82   Figure 12: Stock Traded on the GSE, Total Value  .................................................................................  90   Figure 13: Historical Development of Companies Listed on the Ghana stock Exchange  ......................  91   Figure 14: Number of Qualifying Accountants Per annum  ..................................................................  103   Figure 15: Structure of Accounting Standard Setting in Ghana  ..............................................................  105   Figure 16: Timeline of critical events leading to IFRS Adoption in Ghana.  ........................................  108   Figure 17: Actor network, funding arrangements of the World Bank and Government of Ghana in the adoption of IFRS  ..................................................................................................................................  116   Figure 18: Invitation Letters to Big Four Accounting Firms  ...................................................................  121   Figure 19: Responses to Invitation  .......................................................................................................  122   Figure 20: Nigeria Oil Rent as a percentage of GDP  ...........................................................................  131   Figure 21: Nigeria Trade Matrices as percentage of GDP.  ......................................................................  133   Figure 22: Nigeria GDP per capita.  ........................................................................................................  133   Figure 23:Nigeria Inflation Development.  .............................................................................................  133   Figure 24: Nigeria External Balance on Trade as percentage  ..................................................................  133   Figure 25: Evolution of Banking Regulation in Nigeria  ......................................................................  136   Figure 26: Development of the Nigerian Stock Exchange  ...................................................................  140   Figure 27: Mr. Akintola Williams. First Chartered Accountant in Nigeria.  .........................................  147   Figure 28: Number of Qualified Accountants at Independence in Nigeria  ..........................................  148   Figure 29: Specimen of the Nigerian Accounting Standards.  ..............................................................  154   Figure 30: Timeline of Critical Events leading to IFRS Adoption in Nigeria.  ..........................................  155   Figure 31: Framework for IFRS Adoption Transition in Nigeria  ........................................................  160   Figure 32: Structure of Accounting Standard Setting in Nigeria  .........................................................  161   Figure 33: Official Announcement of IFRS Adoption in Nigeria  ........................................................  163   Figure 34: Funding Arrangement from the World Bank for IFRS Adoption in Nigeria.  .........................  167   Figure 35: External Debt Stock of Cote d'Ivoire.  ...................................................................................  179   Figure 37: Cote d'Ivoire GDP per capital.  ..............................................................................................  180   Figure 37: Cote d'Ivoire financing arrangement with IMF, World Bank  .................................................  180   Figure 38: Development of the BRVM since 1988 Data  ........................................................................  181   Figure 39: Economic integration as a driver of diffusing accounting standards.  ......................................  188   Figure 40: Inter-Regional Arrangements on Accounting Standards Setting in SYSCOA-OHADA  .........  189   Figure 41: Timeline of Accounting Reforms in Cote d'Ivoire  .................................................................  190   v Figure 42: Accounting Standard Setting Structure in OHADA  ...............................................................  194   Figure 43: Cumulative Growth in Expert Comptable and Accountancy firms in Cote d'Ivoire  ...............  201   Figure 44: Liberia GDP per capita  .........................................................................................................  208   Figure 46: Liberia External Balance on  ..................................................................................................  209   Figure 46: Liberia Trade metrics as a percentage of GDP.  .....................................................................  209   Figure 47: Liberia. Borrowing Relationship with IMF and World Bank.  ............................................  210   Figure 48: United States Aid to Liberia during civil war from (1990-2001)  .......................................  213   Figure 49: Timeline of Accounting Reforms in Liberia.  ..........................................................................  218   Figure 50: Structure of Accounting Standard Setting in Liberia.  .............................................................  220   Figure 51: Case Study Countries  ..........................................................................................................  264   vi Abbreviations Acronym Definition A&A Accounting and Auditing AAN Association of Accountants of Nigeria AASB Australian Accounting Standards Board ABWA Association of Accounting Bodies in West Africa ACCA Association of Chartered Certified Accountant AfDB African Development Bank BIS Bank for International Settlement BRVM Bourse Régionale des Valeurs Mobilières SA CBL Central Bank of Liberia CBN Central Bank of Nigeria CNC National Accounting Council CPD Continuing Professional Development ECOWAS Economic Community of West African States EEC European Economic Community ERGP Economic Recovery and Governance Programme EU European Union FASB Financial Accounting Standards Board of the US FINSAP Financial Sector Adjustment Programme FRC Financial Reporting Council FRCN Financial Reporting Council of Nigeria FRS Financial Reporting Standards G20 Group of 20 Countries GAAP Generally Accepted Accounting Standards GAS Ghana Accounting Standards GDP Gross Domestic Product vii Acronym Definition GNASB Ghana National Accounting Standards Board GNI Gross National Income GNP Gross National Product GoG Government of Ghana GSE Ghana Stock Exchange HIPC Heavily Indebted Poor Countries IAASB International Auditing and Assurance Standards Board IAESB International Accounting Education Standards Board IAS International Accounting Standards IASB International Accounting Standards Board IASC International Accounting Standards Committee ICAEW Institute of Chartered Accountants of England & Wales ICAG Institute of Chartered Accountants Ghana ICAN Institute of Chartered Accountants of Nigeria IFAC International Federation of Accountants IFC International Finance Corporation IFI International Financial Institutions IFRS International Financial Reporting Standards IMF International Monetary Fund IOSCO International Organizations of Securities Commission IPSAS International Public Sector Accounting Standards ISA International Standards on Auditing ISAR Inter-governmental Working Group of Experts on Accounting and Reporting JSE Johannesburg Stock Exchange LICPA Liberian Institute of Chartered Public Accountants viii Acronym Definition LSE London Stock Exchange NASB Nigerian Accounting Standards Board NGOs Non-Governmental Organizations NSE Nigerian Stock Exchange OCAM Africaine, Malagache et Mauricienne OECD Organization for Economic Co-operation and Development OHADA Organisation pour l'Harmonisation en Afrique du Droit des Affaires OPEC Organization of the Petroleum Exporting Countries PAFA Pan African Federation of Accountants PCG Plan Comptable General ROSC Report on the Observance of Standards and Codes SAICA South African Institute of Chartered Accountants SAP Structural Adjustment Programme SAS Statement of Accounting Standards SEC Securities and Exchange Commission SMEs Small and Medium-Sized Entities SMOs Statement of Membership Obligations SOEs State Owned Enterprises SSNIT Social Security and National Insurance Trust SYSCOA The West African Accounting Systems ToT Training of Trainers TQM Total Quality Management UDEAC Economic Community of Central African States UEMOA West African Economic and Monetary Union UN United Nations ix