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Antecedents of IFRS Compliance: The Moderating Effect of Audit Quality

Received: 8 October 2021     Accepted: 4 November 2021     Published: 10 November 2021
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Abstract

Despite the significant non-compliance with IFRS, most audit reports provide unqualified opinion which brings into question the audit quality in enforcing IFRS compliance. Therefore, the purpose of the study was to examine the antecedents of compliance with IFRS by focusing on the moderating effect of audit quality on the association of firm characteristics and IFRS compliance. The collection of data was done through quantitative content analysis of annual reports of 20 Zambian listed companies and Zambia Institute of chartered Accountants covering the years 2012 to 2018. Being a longitudinal study requiring panel data analysis, a Hausman test was done to choose the model to employ. The Hausman test showed that the random effect model was suitable. Results indicate that audit quality moderates the association of firm characteristics and IFRS compliance. Also, there was a positive association between firm size and compliance with IFRS. There was a negative association between firm profitability and compliance with IFRS. However, there was a statistically insignificant positive association between foreign investors, institutional investors, audit quality and IFRS compliance. The study suggests that large companies are expected to comply more with IFRSs and profitable firms withhold financial information. Audit quality was not impaired probably due to the size of the audit firms and international affiliation. Meanwhile, the influence of institutional investors and foreign investors on IFRS compliance was insignificant probably because both institutional and foreign investors in Zambian listed companies are transient investors without significant incentives to demand financial disclosures and they may have other means to access financial information. The financial reporting regulators should focus on enhancing audit quality for listed companies in Zambia and even in other African countries. Future research can focus on the relevance of IFRS disclosures to the domestic investors in Africa considering the cultural differences both at firm and national-level.

Published in Journal of Finance and Accounting (Volume 9, Issue 6)
DOI 10.11648/j.jfa.20210906.12
Page(s) 216-229
Creative Commons

This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.

Copyright

Copyright © The Author(s), 2021. Published by Science Publishing Group

Keywords

Audit Quality, IFRS Compliance, Firm Characteristics, Zambian Listed Companies

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    Martin Kabwe, Erastus Mwanaumo, Henry Chalu. (2021). Antecedents of IFRS Compliance: The Moderating Effect of Audit Quality. Journal of Finance and Accounting, 9(6), 216-229. https://doi.org/10.11648/j.jfa.20210906.12

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    Martin Kabwe; Erastus Mwanaumo; Henry Chalu. Antecedents of IFRS Compliance: The Moderating Effect of Audit Quality. J. Finance Account. 2021, 9(6), 216-229. doi: 10.11648/j.jfa.20210906.12

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    Martin Kabwe, Erastus Mwanaumo, Henry Chalu. Antecedents of IFRS Compliance: The Moderating Effect of Audit Quality. J Finance Account. 2021;9(6):216-229. doi: 10.11648/j.jfa.20210906.12

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  • @article{10.11648/j.jfa.20210906.12,
      author = {Martin Kabwe and Erastus Mwanaumo and Henry Chalu},
      title = {Antecedents of IFRS Compliance: The Moderating Effect of Audit Quality},
      journal = {Journal of Finance and Accounting},
      volume = {9},
      number = {6},
      pages = {216-229},
      doi = {10.11648/j.jfa.20210906.12},
      url = {https://doi.org/10.11648/j.jfa.20210906.12},
      eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.jfa.20210906.12},
      abstract = {Despite the significant non-compliance with IFRS, most audit reports provide unqualified opinion which brings into question the audit quality in enforcing IFRS compliance. Therefore, the purpose of the study was to examine the antecedents of compliance with IFRS by focusing on the moderating effect of audit quality on the association of firm characteristics and IFRS compliance. The collection of data was done through quantitative content analysis of annual reports of 20 Zambian listed companies and Zambia Institute of chartered Accountants covering the years 2012 to 2018. Being a longitudinal study requiring panel data analysis, a Hausman test was done to choose the model to employ. The Hausman test showed that the random effect model was suitable. Results indicate that audit quality moderates the association of firm characteristics and IFRS compliance. Also, there was a positive association between firm size and compliance with IFRS. There was a negative association between firm profitability and compliance with IFRS. However, there was a statistically insignificant positive association between foreign investors, institutional investors, audit quality and IFRS compliance. The study suggests that large companies are expected to comply more with IFRSs and profitable firms withhold financial information. Audit quality was not impaired probably due to the size of the audit firms and international affiliation. Meanwhile, the influence of institutional investors and foreign investors on IFRS compliance was insignificant probably because both institutional and foreign investors in Zambian listed companies are transient investors without significant incentives to demand financial disclosures and they may have other means to access financial information. The financial reporting regulators should focus on enhancing audit quality for listed companies in Zambia and even in other African countries. Future research can focus on the relevance of IFRS disclosures to the domestic investors in Africa considering the cultural differences both at firm and national-level.},
     year = {2021}
    }
    

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    T1  - Antecedents of IFRS Compliance: The Moderating Effect of Audit Quality
    AU  - Martin Kabwe
    AU  - Erastus Mwanaumo
    AU  - Henry Chalu
    Y1  - 2021/11/10
    PY  - 2021
    N1  - https://doi.org/10.11648/j.jfa.20210906.12
    DO  - 10.11648/j.jfa.20210906.12
    T2  - Journal of Finance and Accounting
    JF  - Journal of Finance and Accounting
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    AB  - Despite the significant non-compliance with IFRS, most audit reports provide unqualified opinion which brings into question the audit quality in enforcing IFRS compliance. Therefore, the purpose of the study was to examine the antecedents of compliance with IFRS by focusing on the moderating effect of audit quality on the association of firm characteristics and IFRS compliance. The collection of data was done through quantitative content analysis of annual reports of 20 Zambian listed companies and Zambia Institute of chartered Accountants covering the years 2012 to 2018. Being a longitudinal study requiring panel data analysis, a Hausman test was done to choose the model to employ. The Hausman test showed that the random effect model was suitable. Results indicate that audit quality moderates the association of firm characteristics and IFRS compliance. Also, there was a positive association between firm size and compliance with IFRS. There was a negative association between firm profitability and compliance with IFRS. However, there was a statistically insignificant positive association between foreign investors, institutional investors, audit quality and IFRS compliance. The study suggests that large companies are expected to comply more with IFRSs and profitable firms withhold financial information. Audit quality was not impaired probably due to the size of the audit firms and international affiliation. Meanwhile, the influence of institutional investors and foreign investors on IFRS compliance was insignificant probably because both institutional and foreign investors in Zambian listed companies are transient investors without significant incentives to demand financial disclosures and they may have other means to access financial information. The financial reporting regulators should focus on enhancing audit quality for listed companies in Zambia and even in other African countries. Future research can focus on the relevance of IFRS disclosures to the domestic investors in Africa considering the cultural differences both at firm and national-level.
    VL  - 9
    IS  - 6
    ER  - 

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  • Graduate School of Business, University of Zambia, Great East Road Campus, Lusaka, Zambia

  • Graduate School of Business, School of Engineering, University of Zambia, Great East Road Campus, Lusaka, Zambia

  • School of Business, University of Dar-es-salaam, Dar-es-salaam, Tanzania

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