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Alawneh, A., & Alawneh, A. (2022). THE EFFECT OF IMPLEMENTING THE INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) ON JORDANIAN FINANCIAL MARKET REPORTING EFFECTIVENESS.International Journal of Information, Business and Management,14(3), 93-102. https://4x10hw0wj-mp01-y-https-www-proquest-com.proxy.lirn.net/scholarly-journals/effect-implementing-international-financial/docview/2665173613/se-2?accountid=158399

Purpose: This paper investigates the effect of implementing International reporting standards in accounting on the quality and effectiveness of financial market reporting in Jordan. Design/ Methodology: Data is collected through a questionnaire consisting of parts (Demographic, and the variables parts). It is also used to measure the gap between implementing International Financial Reporting Standards (IFRS) and if they are not. Findings: The results showed that there is effect of implementing International reporting standards in accounting on the quality and effectiveness of financial market reporting in Jordan. Originality and value: The importance of this study lies in finding the effect of applying the standards in Jordanian markets. What make this study significant is the few studies and scarce recourses that talk about the Jordanian market and the benefits of applying accounting standards in Jordan. Moreover, the findings of this study will be translated into a roadmap and suggestions for the companies of the financial market to help them enhancing their performance.

Abstract

Purpose: This paper investigates the effect of implementing International reporting standards in accounting on the quality and effectiveness of financial market reporting in Jordan.

Design/ Methodology: Data is collected through a questionnaire consisting of parts (Demographic, and the variables parts). It is also used to measure the gap between implementing International Financial Reporting Standards (IFRS) and if they are not.

Findings: The results showed that there is effect of implementing International reporting standards in accounting on the quality and effectiveness of financial market reporting in Jordan.

Originality and value: The importance of this study lies in finding the effect of applying the standards in Jordanian markets. What make this study significant is the few studies and scarce recourses that talk about the Jordanian market and the benefits of applying accounting standards in Jordan. Moreover, the findings of this study will be translated into a roadmap and suggestions for the companies of the financial market to help them enhancing their performance.

Keywords: IFRS, Jordan, Industrial sector, Financial Reporting, Amman Stock Exchange.

1.Introduction

Recently, a new paradigm of having a set of unified global standards for the accounting all over the world has become a critical need. Those who support this idea say it will help in growing the investments across borders. They argue that such unified standards will help and save companies from failure and save time and efforts.

The International accounting standards committee (IASC) was established in 1973 for this purpose. It was followed by the International Accounting Standards Board (IASB) in 2001. IASB main responsibility is established, control, monitoring and giving acceptable interpretations of the provisions of International Financial Reporting Standards (IFRs). Amman Stock Exchange (ASE) was found in 1999, as a governmental authorized institute for trading securities through the securities legislations and law.

Standards of accounting are considered a business communication language that unifies the terminology between accountants in the financial markets. Applying these standards requires prerequisites preparations and ability to adopt them.

Thus, this study tries to explore the challenges that face implementing those standards and to what extent does implementing them affect the performance in the financial markets, to figure out if implementing them will enhance the performance and deserve the costs of implementation or if there is a resistance in the market for having those standards as a law at the work environment.

2.Literature Review

Business expansion is a strategy that recently has been adopted by companies for growing profits and sustained competitive advantage. Such strategies require investment take a place on a global bases, thus, globalized economy is needed. That is why adopting global standards for accounting like IFRs. (Negash, 2008).

Hope et al.(2006) found out that adopting IFRS helps the financial market by forcing them to upgrade the information and accounting systems. Moreover, it helps the markets to enhance their competitive advantage (Mnifand Borgi, 2020).

In 2012 Ann Tarca found that IFRS is efficient in developing capital markets. Also, the study focused on the importance of IFRS and the factors that affect the implementation of IFRS efficiently. On the other hand, the benefits of implementing IFRS vary according to legal enforcements of each country and the differences between GAAP and IFRS.

Masoud (2014) has explored the main factors that may affect the implementation of accounting standards. The study focused on culture, political system, educational system, legal environment, economic growth, privatization, firm size, liquidity, and the cost of equity capital. Yet in Egypt and Tunisia have experienced the disclosure effect of implementing IFRS (Eljammi et. Al 2020).

Trabelsi (2016) found that there is a cultural resistance that can affect the implementation of accounting standards; the study explored the differences between the developed and emerging countries. The emerging countries proved a lack suitable infrastructure and a lack for the real needs justifying the reform of international harmonization, except the need to display an IFRS to facilitate the access of firms from emerging economies to the developed financial markets. Implementing IFRS results in an improvement in earnings (Benkraiem et al, 2021).

Working in global markets is beneficial for the interest of investors. They can use the information of companies' reports without the need for translation or modification, which will help to expand the market (Alvaro 2011).

Alsaqqa & Sawan (2013) studied the cons and pros of implementing the IFRS in UAE (United Arab Emirates). It was clear that the benefits outweigh challenges and barriers. The IFRS implementation helped in attracting the investors and more effective financial reporting decisions (Lenormand, G. and Touchais, L. 2021).

To improve the wealth of the country, dominant ones take into considerations implementing the international polices, also adopting main global business practices (Harris 2002). The closeness between (IFRS) and GAAP is the hope to find a way for optimal solutions in accounting, developing countries shall take the chance of this globalized standards (United Nations General Assembly, 2004).

The variations among the accounting standards are caused by the environment and same cultures (Radebaugh& Gray 2006), in developing countries there are many challenges that limit the standards implementation, economic differences, cultural differences, shortage of experts, lack of adequate level of education specialized in those standards Chow et al., 1995; Yapa (2003); Zeghal and Mhedhbi (2006).

3.Hypotheses development:

Alawaqleh (2020) stated that Adopting IFRS in Jordan has many benefits such as the rapid process of transferring stocks into cash, least costs, and at a price close to the last trading price. It also reduced risks of investments. So, the following hypothesis was formulated:

HI: There is a relationship between adopting IFRS standards and the quality and effectiveness of reporting in Jordanian financial markets.

4. Operational Definitions:

Independent Variable:

This study depends on the panel analysis of Annual reports of ASE like other studies depended on previous studies like Alawaqleh (2020), (Nguyen, 2020; Barth et. al., 2008).

Dependent Variable:

Effectiveness of the financial reporting system. This will be reflected from the panel analysis for the amendments of using the IFRS versions through the last five years in ASE.

5. Methodology

Sample

There are 59 industrial companies listed on the Amman Stock Exchange for the five last years.

5.1.Suggested Model

5.2.Sampling and data collection

The population of this study consisted of 59 industrial companies. For the purpose of this research, only financial managers, Marketing Managers, senior accountants were selected. The total number of (150) questionnaires were distributed randomly. (120) valid questionnaires were returned. This constitutes 80% of distributed questionnaires.

5.3.Reliability and validity

To insure reliability Cronbach's alpha was used to measure of internal consistency, which indicates how closely, related a set of items or as a group. The results are shown in the following table

6.Findings and Discussion

6.1.Characteristics of the sample

Results showed regarding the education level, the results illustrate that (52.2 %) of the sample are holds bachelor (university degree) and higher certificates in accounting which reflects the high level of education in the sample. In addition, it is found that (62.4%) of the sample between 20-29 years old. Remarkably, it is found that (71.3%) of the sample have been working for less than 10 years, which implies that they are still juniors. On the other hand, it's realized that the sample represents few specialized accounting certificates such CMA and CPA with (6.1 %).

6.2.Relative importance of each dimension of EI according to the mean of the sample results

Since the 5-point Likert scale used in this study then the mean equals 3, (1+2+3+4+5/5=3), which means that 3 represents a medium level, less than 3 is a low level, and greater than 3 is a high level.

It was found that there are positive attitudes toward all IFRS variables since the mean values for all of them above (3). Which indicates that the all the variables are relatively important in this study. Moreover, it was found that "Systems Compatibility" has the highest positive attitudes whereas "Employees Knowledge" has the lowest positive attitudes.

On the other hand, mean and standard deviation of IFRS Adoption dimensions were used to describe attitudes of Accountants and financial Mangers toward the expected quality of reporting system in Jordanian Market. It was found that there are extreme positive attitudes toward all dimensions of IFRS Adoption because all means of this variable are above mean of the scale (3).

6.3.Hypotheses testing and findings

H0>1: There is no statistically significant relationship between adopting IFRS standards and the quality and effectiveness of reporting in Jordanian financial markets

Multiple regressions were used to test the proposed hypothesis; the results can be seen in the following tables.

In the model summary table, the R Square (0.018), What the results mean is that only (1.8%) of the variance (R-Square) in the sample responses has been significantly explained by IFRS dimensions, which is very low. We can conclude that there are other variables that may affect this relationship.

Ho.i.i; There is no relationship between Cost of IFRS implementation and effectiveness of reporting in Jordanian financial markets.

The decision rule is to reject the null hypothesis if the significance level is less than 0.05 as illustrated in table (6). Therefore, we fail to reject the null hypothesis, which means that there is no statistically significant effect of Cost of IFRS implementation and effectiveness of reporting in Jordanian financial markets.

H0.1.2: There is no relationship between Systems Compatibility with IFRS and effectiveness of reporting in Jordanian financial markets.

Again using the same decision rule, we fail to reject the null hypothesis since the significance level is less than 0.05 as shown in table (6), thus there is no statistically significant effect for Systems Compatibility with IFRS on effectiveness of reporting in Jordanian financial markets.

H0.1.3: There is no relationship between Employees Knowledge of IFRS and effectiveness of reporting in Jordanian financial markets.

Regarding the decision rule is to reject the null hypothesis if the significance level is less than 0.05 as illustrated in table (12). Therefore, we fail to reject the null hypothesis, so there is no statistically significant effect for Employees Knowledge of IFRS on effectiveness of reporting in Jordanian financial markets.

6.4.Discussion

The first outcome that can be drawn is the extent of applying IFRS in Jordanian Financial Market. According to the data analysis the mean of the dimensions of IFRS Implementation is relatively moderate; this indicates that the sampling unit of the industrial companies in Amman exchange stock is aware of the essential role of implementing IFRS in their organizations.

According to the equation of Gap analysis (Gap= P-E). Where p is the perceived value and E is the expected one, the following results were revealed:

Table (5) demonstrates the differences between the expected and perceived values for effectiveness of reporting If IFRS is used and if it's not, the differences are relatively remarkable, this leads to conclude that implementing IFRS makes difference in reporting systems when used.

This indicates that the sampling unit of the study is expecting a high difference in reporting system when IFRS is used than old traditional way.

The final outcome that can be drawn, based on the regression results, we fail to reject the null hypothesis, which means that there is a significant relationship between adopting IFRS standards and the quality and effectiveness of reporting in Jordanian financial market.

7.Conclusions

This research contributes to prior Knowledge literature by establishing a research model to examine the relationship between relationship between adopting IFRS standards and the quality and effectiveness of reporting in Jordanian financial market.

For this purpose 59 industrial companies listed on the Amman Stock Exchange for the five last years were taken as a sample of this research.

The results revealed that there is a significant relationship between adopting IFRS standards and the quality and effectiveness of reporting in Jordanian financial market.

Moreover, the findings imply that adopting IFRS standards has slight influence on the gap between the expected and perceived reporting in the industrial companies listed in Amman Stock Exchange. The top management in each of these companies is encouraged to look for other factors that influence the existing gab.