Adoption of international financial reporting standards at Ethio telecom. Challenges and prospects

Bachelor Thesis, 2019
64 Pages, Grade: 3.5

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Table of Contents



List of Tables


CHAPTER ONE: Introduction
1. Introduction
1.1. Background of the study
1.2. Statement of the problem
1.3 Research questions
1.4 Objective of the study
1.4.1General objective
1.4.2 Specific Objective
1.5 significance of the study
1.6 scope of the study
1.7 Research design and methodology
1.7.1Research design
1.7.2Data type and source
1.7.3Data collection method
1.7.4Target Population, Sampling technique and sample size
1.7.5 Sampling technique
1.7.6 Data analysis and presentation
1.7.7 Organization of the Paper

CHAPTER TWO: Literature Review
1. 2. Introduction
2.1 theoretical review
2.2 origins and early history of ISAB
2.3 IFRS For public owned enterprises
2.4 approaches to IFRS adoption
2.5 benefits and challenges of IFRS adoption
2.6 challenges of IFRS adoption
2.7 Ethiopian IFRS Implementation Roadmap
2.8 Empirical Evidence
2.8.1 The adoption of IFRs by developing countries

CHAPTER THREE: Results and Discussion
3. Data Analysis, Results and Discussion
3.1.1 Demographic characteristics of the respondents
3.1.12 Academic Level of Respondents Work experience of respondents
3.4 Rationale behind IFRS preference
3.5 GAP Assessment
3.6 Period for transition to IFR
3.7 Perform in accordance with AABE Regulation
3.8 Motivation to Adopt IFRS
3.9 Perceptions on Benefits of IFRS adoption
3.10 Cost Vs Benefits of IFRS
3.11 Complexity of IFRS over GAAP
3.12 Benefits of Adoption IFRS
3.13 Challenges of IFRS Adoption

Chapter Four: Summary, Conclusion and Recommendation
4.1 Summary of findings
4.2 Conclusion
4.3 Recommendations




First and for most, we would like to give my glory and praise to the Almighty GOD for his Invaluable cares and supports throughout the course of our life and helped me since the inception of our education to its completion and enabled us to achieve our career. Next, we are grateful to appreciate our Advisor Mr Girma Leta who has taken all the trouble with us while we were preparing the paper. Especially, his invaluable and prompt advice, constructive corrections, suggestions and professional helps are highly appreciated.

A special word of mouth is his credit. Our sincere and heartfelt gratitude goes to Ato Wasihun, head of accounting Department at ethio telecom and IFRS implementation team members of for their frank response to our interview questions and questionnaires without which this paper would not come to life. Last but not least, we would like to thank Ato Yohannues Nigatu (ACCA) and chairman of Ethiopian professional association of accountant and auditor for his valuable comments.


Abbildung in dieser Leseprobe nicht enthalten

List of Tables

Description Page

Table 3.1 Gender distribution of respondents

Table 3.2 Academic level of Respondents

Table 3.3 Professional Experience of Respondents

Table 3.4 Rationale behind IFRS Preference

Table 3.5 Period for transition to IFRS

Table 3.6 Motivation to adopt IFRS

Table 3.7 Perceptions benefits of IFRS adoption

Table 3.8 Costs vs. Benefits of IFRS

Table 3.9 complexity of IFRS over GAAP

Table 3.10 benefits of Adoption of IFRS

Table 3.11 benefits of Adoption of IFRS [continued]

Table 3.12 Challenges of Adoption of IFRS

Table 3.13 Challenges of Adoption of IFRS


Globally, users of financial statements need harmonized, transparent international financial reporting standardized to help them make economic decisions and to enable them to invest in across the globe their capital resources. Ethiopia has recognized the need for accepting those financial reporting standards that were set out by IASB and started implementing it.

This study aims to assess the benefit and challenges of International Financial Reporting Standards (IFRS) adoption in ethio telecom. This study was employed a descriptive research type and census sampling was used for the sampling technique the questionnaire data were analyzed using descriptive statistics and data from interview were interpreted quantitatively. Out of the total questioner distributed to 15 respondent 14 questioners returned to which 93% response rate.

The research analysis and findings indicated that IFRS adoption in ethio telecom will result in a number of important benefits to a wide range of stakeholders. Lack of awareness, high potential knowledge gap, lack of technical competent staff are the main challenges of IFRS adoption, complexity and difficulty of the standards, lack of the professionals and training institution to adopting IFRS. From the findings it is recommended that a rigorous IFRS capacity building program should be embarked by the government, all regulatory bodies, firms and training institutions in order to provide the needed and companies, investors, policy makers and national regulators should work together towards the increment of awareness for managing the dynamics of continuous amendments of IFRS.

Keywords: Adoption, benefits and challenges, International Financial Reporting Standards,Ethiotelecom




The international Financial Reporting standards (IFRS) are a set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements. IFRS are issued by international accounting standard board. The international Accounting standards board (IASB) was established in 2001 to develop international financial reporting Standards (IFRS) . IFRS is posed as the global language of accountancy which is aimed to make the comparison and interpretation of the financial statements across the world easier. It includes international accounting standards(IAS) until they are replaced by IFRS and interpretations originated by IFRIC or its predecessor .IFRS is a set of international accounting and reporting standard that will help to harmonize company financial information ,improve transparency of accounting and ensure that investors receive more accurate and consistent report (Nguyen, chi 2015).

Worldwide convergence of the fragmented accounting standards is seen as an attempt to reduce accounting diversity across countries. Such imitative of reducing accounting standards may seem a timely effort to integrate the reporting languages as evidenced with the recent increased globalization in international market, international trade, cross border financial transactions and Investment opportunities. Therefore, this had lead to the adoption of IFRS as a basis of preparing and presenting accounting reports across several national borders. As part of the world, in recognizing the benefits of IFRS adoption, Ethiopia has enacted financial reporting proclamation in the year 2014 which can be applicable by all reporting entities, operating in Ethiopia and announced the official adoption of IFRS as established by IASB. There is no accounting standards set in Ethiopia and the accounting practices of Vary among institutions and differ from IFRS requirements. Besides, its poor experience of implementing international accounting standards and availability of weak financial reporting infrastructures would expect to pose many challenges during their practical application of IFRS by reporting entities. Some academic studies were conducted focusing on the benefits, challenges and progress of IFRS adoption in Ethiopia(Firdawok,2017).

According to these studies implementation costs, complexity of standards, lack of IFRS implementation guidance, increased volatility of earnings, lack of technical skills and inadequate knowledge of professionals, Resistance to Change, Absence of Professional Institutions, high level training requirement, lack of proper instructions from regulatory bodies problem, and problem with IFRS use of fair value accounting were identified as the major challenges IFRS adoption in Ethiopia (Mihiret, 2016, Kassa etal,2015,Hailemichale, 2016). Implementing IFRS will help Ethiopia to increase stability, stewardship, Accountability and transparency as well as to increase the education of accounting profession and standard setting bodies, improve good governance and reduce corruption and rent seeking behavior.(AABE, strategic plan ; 2016). As per Financial Reporting proclamation 847/2014 article 5 (2) ,the public interest entities are required to comply international financial reporting standards when preparing financial statements .Among others ,public development enterprises are also one of the public interest entities which mobilize financial resource from the public and injects it to the economy. As per roadmap of IFRS implementation, accounting and Auditing board of Ethiopia has established three phase of IFRS implementation, which will be conducted from year 2016-2020 G.C. based on this public Development enterprises are commencing activities as they required by first time adopters of public development enterprises, which includes Ethio telecom and the focus of our research is from the perspective of challenges and prospects on first time adoption of IFRS.


Many countries have faced challenges in their decisions to adopt IFRS, its wide spread adoption has been promoted by the argument that the benefits outweigh the costs. Many jurisdictions have Cultural, legal, or political obstacles to an immediate full adoption of IFRS (Wayne, 2010). Recently there has been a push towards the adoption of IFRS developed and issued by the International Accounting Standards Board (IASB). IFRS are attracting significant scholarly attention especially in markets where decision making on its adoption is approaching (Thi Phana and Mascitellib, 2014).

In the past few years many developed and developing countries have adopted international financial reporting standards (IFRS) as the basis for financial reporting. While some countries have been using these standards for decades, it is however new for transition economies like Ethiopia. In Ethiopia, implementation of IFRS was launched in recent years. The benefit is intended to ensure that public development enterprises. IFRS financial statements contain high quality information that is transparent for users and comparable over all periods presented; provides a suitable starting point for accounting under IFRSs; and can be generated at a cost that does not exceed the benefits to users. According to Report on observance of Standards and Codes (ROSC, 2011) there is no specific set of accounting regulations in Ethiopia and therefore accounting practices vary across institutions. As a developing country, Ethiopia also needs international financial reporting standard sets (IFRS/IFRS for SMEs) to produce high-quality financial information for accessing global capital markets and international financial resources.Recently, Ethiopia has officially adopted IFRS as a means of its corporate reporting through Proclamation number 847/2014. Accordingly, the Accounting and Auditing Board of Ethiopia (AABE) has designed IFRS implementation road map and announced the commencement dates of different groups of reporting entities. However, IFRS adoption cannot be realized simply through stating that the country has adopted IFRS. Evidence implies that moving to a single set of accounting standards is not enough to produce the required outputs rather benefits of adopting IFRS depends on the strengths of supporting institutions, rigorous enforcement, education and trainings, and professional competence and integrity (UNACTED,2008 & ICAEW,2007).

The IFRS adoption notwithstanding, there are however a number of challenges to be faced in the process of adoption of the international financial reporting standards.(Iyoha and Owolabi, 2012).Some of the challenges include lack of knowledge and expertise in IFRS, quality education and training, high cost of implementation, resistant to change ,complexities of standards, inconsistency of laws and regulations ,poor preparedness (ball 2003,&Dwommor ,2017). As evidenced by the global experience, convergence with IFRS would have significant challenges to all countries and companies. As a first time Adopter it is inevitable that many challenges will likely influence the probabilities of the Adoption of IFRS. Therefore the aim of this study is to study the prospects and challenges of adoption of international financial reporting standards and the factors that might affect the implementation process in case of Ethio Telecom. In addition as there is no systematic study is conducted on prospects and challenges of IFRS adoption at ethio telecom which make us to do our research on this topic.


What are the factors affecting adoption of International Financial Reporting Standards at Ethio Telecom?
What are the prospects of adopting IFRS at the Ethio telecom?
What are the practical challenges faced in implementation of IFRS at Ethio Telecom?



The main objective of the study was to assess the prospects and challenges of first time adoption of international financial reporting standards at Ethio Telecom.


To assess factors that affect IFRS adoption at ethio telecom.
To assess the prospects of adopting IFRS at ethio telecom.
To aseses the practical challenges that will face IFRS implementation at ethio telecom.


The papers have an advantage to Ethio telecom to assess the factors that affect the first time adoption of international fianacaial reporting standards. In addition the study helps Ethio telecom management and staff by providing information about theoretical and actual benefits and challenges of adopting IFRS. The study will have knowledge contribution, provides an important introduction to the areas of IFRS adoption at ethio telecom as well as to increase the awareness of the perceived actual benefits of international financial reporting standards and give insights on how to adopt this international reporting standard more efficiently.


The scope of this research paper is limited to ethio telecom even though many enterprises are on the edge to adopt and implement IFRS the study limited to Ethio Telecom head office.



According to Kothari (2012) , A research design is the arrangement of conditions for collection and analysis of data in a manner that aims to combine relevance for the research purpose. In this paper the student researchers use descriptive research design. Descriptive research studies are those studies which are concerned with describing characteristics of a particular individual or Group Kothari (2012).


The target population for this study is the IFRS implementation team at Ethio Telecom head office. The sampling technique we used for this research was census as the number of our target population is small. A census is a study of every unit, everyone or everything, in a population and it is known as a complete enumeration which means a complete unit. According to Mahlotra (2008) “Sample size refers to the number of elements to be included in the study” The sample sizes for the research are the 15 persons which are the members of IFRS implementation team at ethio telecom. The study use census as the number of Population is small .A census is a study of every unit, everyone or everything, in a population It is known as a complete enumeration, which means a complete count.


This study was used mainly primary data type. The data sources for the primary data are mainly the employees at different department of ethio telecom who comprise the IFRS implementation committee of ethio telecom.


To answer the research questions and come up with pertinent findings, primary data was used. The primary data was collected by questioner from the IFRS implementation team member’s.


Following the completion of the data collection, the data was analyzed using quantitative data analysis tools .The data collected from questioners was analyzed using descriptive statistics and data analyzed will be presented in tables, showing frequency distribution and percentage.


It would be Vital conducting a study in all significant public interest entities who adopt IFRs in the country. However,. There are limitation On our research, the limitation of the study was though there are a number of entities, the data was collected from only IFRS implementation team members this makes some key staffs may not be incorporated in the study the last but not least the busy schedule of IFRS implementation team members of ethio telecom was the limitation to get enough information regarding the IFRs implementation process.


The study is organized in four chapters. The first chapter states the background of the study, statements of problem, objective of the study, scope and significance. The second chapter focus on literature available in the areas of IFRS adoption which includes defining terms and concepts, review of theoretical and empirical literature, the third chapter focus on result and discussion of the research study based on data collected by the researchers from a primary data sources.

The final chapter will present the summarized findings of the research work concluded and the results and forwarded recommendations based on findings of the study.



2. Introduction

The move towards developing an acceptable global high-quality financial reporting Standards started in 1973 when the International Accounting Standards Committee (IASC) was formed by 16 professional accounting bodies from Canada, United States of America, United Kingdom, Germany, France, Netherlands, Australia , Mexico and Japan. The IASC was reorganized into the International Accounting Standards Boards (IASB) in 2001. To date, the IASB has developed accounting standards and related Interpretations that are collectively known as the International Financial Reporting Standards (IFRS). According to Adam (2009) “the standards set by the IASB began to gain dominance when International Organization of Securities Commissions (IOSCO) in 2000 endorsed the then IASC standards. This was further boosted when in 2002; the European Commission approved a regulation requiring that listed companies in EU countries prepare consolidated financial statements in accordance with IFRS. The dominance of IFRS further improved in September 2002, when the United States Financial Accounting Standards Board (FASB) and IASB signed the Norwalk Agreement. By this agreement, the bodies undertook to work closely to develop high quality compatible accounting standards that could be used for both domestic and cross border financial reporting.

2.1 Theoretical Literature Review

The expansion of International Trade and the accessibility to foreign stock and debt market has given impetus to increasing the debate on whether or not there is need to be a global set of accounting standards. As companies compete globally for scarce resources, investors and creditors as well as multinational companies are required to bear the cost of reconciling financial statements that are prepared using national standards. It was argued that a common set of practices will provide a “level playing field” for all companies worldwide (Murphy, 2000). IFRS are standards and interpretations adopted by the International Accounting Standards Board (IASB). They include:

International Financial Reporting Standards (IFRS), International Accounting Standards (IAS) and interpretation originated by the International Reporting Standards Interpretation Committee (IFRSIC) (Oyedele, 2011). IFRS represent a single set of high quality, globally accepted accounting standards that can enhance comparability of financial reporting across the globe. This increased comparability of financial information could result in better investment decisions and ensure a more optimal allocation of resources across the global economy (Jacob and Madu, 2009). Cai and Wong (2010) posited that having a single set of internationally acceptable financial reporting standards will eliminate the need for restatement of financial statements, yet ensure accounting diversity among countries, thus facilitating cross-border movement of capital and greater integration of the Global financial markets. Epstein (2009), emphasized the fact that universal financial reporting standards will increase market liquidity, decrease transaction costs for investors, lower cost of capital and facilitate international capital formation and flows, various studies conducted on the adoption of IFRS at country level indicated that countries that adopted IFRS experienced huge increases in direct foreign investment (DFI) flows across countries (Irvine and Lucas, 2006). Cai & Wong (2010),in a study of global capital markets demonstrated that capital markets of countries that had adopted IFRS recorded high degree of integration among them after their IFRS adoption compared with the period before adoption. In a study on financial data of public listed companies in 15 member states of the European Union (EU) before and after full adoption of IFRS in 2005, Chai at al (2010), found that majority of accounting quality indicators improved after IFRS adoption in the EU. In a study on the question of usefulness of IAS/IFRS for developing countries using a case study of Zimbabwe, Chamisa (2000), analyzed the impact of the adoption of IASB standards on the accounting practices of listed companies. Results of the study revealed that these standards have particular importance for developing countries with emerging financial markets. In an analysis of the IAS/IFRS implementation process in developing countries using Armenia as the analytical framework McGee (1999), showed that this process poses difficulties, which can be overcome by concerted efforts in training and information dissemination about the new standards. Alp and Ustandag (2009) studied the development process of financial reporting standards around the world and its practical results in developing countries found that Turkey had encountered several complications in the adoption of IFRS. Such complications include the complex structure of the international standards, potential knowledge shortfall and other difficulties in the application and enforcement issues. Similarly, in a study on adoption of IFRS at firm level, Meeks and Swann (2009), demonstrated that firms Adopting IFRS had exhibited higher accounting quality in the post-adoption period than they did in the pre-adoption period. In a study of financial data of firms covering 21 countries, Barth (2008), confirmed that firms applying IAS/IFRS experienced an improvement in accounting quality between the pre-adoption and Post-adoption periods. Latridis (2010), concluded on the basis of data collected from firms listed on the London Stock Exchange that IFRS implementation has favorably affected the financial performance (measured by profitability and growth potentials).

There is also growing number of studies that question the relevance of IFRS in developing and emerging economies. Irvine and Lucas (2006), also reported that the development of globalized set of accounting standards provides other benefits that are not so relevant to developing and emerging nations. The adoption of IFRS will save Multinational Corporations the expense of preparing more than one set of accounts for different national jurisdictions, the professional status of accounting bodies will be enhanced and the big accounting firms will benefit in their efforts to expand the global market for their services. Perera (1989), posited that accounting Information produced according to developed countries accounting system is not relevant to the decision models of less developed countries. As evident from the foregoing, a good number of studies carried out in different countries have highlighted the benefits of having single set of financial reporting standards across the globe. Few of the studies have given contradictory views questioning the relevance of IFRS adoption in developing and emerging economies.

According to Barth et al. (2007:2), IASB"s goal of developing an internationally acceptable set of high quality financial reporting standards also meant allowable accounting alternative and accounting measurements that better reflect economic position and performance. Ashbaugh and Pincus (2001:422) argue that limiting alternatives can increase accounting quality because doing so limits managements" opportunistic discretion in determining accounting amounts. Therefore, accounting amounts that reflect a firm’s underlying economics can increase accounting quality because investors will have access to better information for their decision making. Other accounting literature in this area also argues that more rigorous enforcement of adoption can also lead to better accounting quality In comparing domestic standards to IFRS, some studies have shown that there are no significant differences in accounting results with the implication that the adoption of IFRS does not result in better accounting quality. Studies in Germany by Tendeloo and Vanstraelen (2005) and Hung and Subramanian (2007) did find similarities in earnings management and value relevance in comparing results of the national and international standards. Paananen (2008) reports no quality increases in the Swedish case and Elbannan (2011) reports mixed findings in Egypt. Accounting literature has operationalized accounting quality on the basis of earnings management, timely loss recognition and value relevance metrics. The arguments follow then that firms with higher quality earnings exhibit less earnings managements, more timely loss recognition and higher value relevance and this study hypothesizes the same for Nigeria.

Barth et al. (2007) like Christensen et al. (2008) and others argue that the metrics of accounting quality reflects the effects of the financial reporting system as well those attributable to financial reporting such as the economic environment and incentives associated with the adoption of standards. As stated in the introduction, this study intended to overcome these challenges and mitigate the confounding factors to ensure valid and reliable outcomes. In the case of Barth et al. (2007), this was a major problem because the research spread over 21 countries with different economic systems and incentives while in the Christensen research, the problems were overcome by focusing on one country, Germany, mainly because within a single a country, the underlying economic environment is the same for all the firms. This research took a similar approach to that of Christensen et al.(2008) and Barth et al.(2007) by making a comparison of the impact of adoption on accounting quality in firms during the pre adoption period and the post adoption period. Chen et al (2010) concur that matching firms in the pre and post adoption periods within a similar economic zone is the best control that ensures that only one variable (IFRS) is being investigated. Since the study focused on listed companies in Kenya, where compliance is mandatory, no other effects needed to be adjusted to ensure that the results were acceptable. As is the case in prior research, Barth et al. (2007) argued that there is no definitive way to determine the degree to which these research design features mitigate the effects of the economic environment and incentives on the metrics.


Financial reporting in the developed world evolved from two broad models, whose objectives were somewhat different. The earliest systematized form of accounting regulation developed in continental Europe in 1673. Here a requirement for an annual fair value statement of financial position was introduced by the government as a means of protecting the economy from bankruptcies. This form of accounting at the initiative of the state to control economic actors was copied by other states and later incorporated in the 1807 Napoleonic Commercial Code. This method of regulating the economy expanded rapidly throughout continental Europe, partly through Napoleon’s efforts and partly through a willingness on the part of European regulators to borrow ideas from each other. This “code law” family of reporting practices was much developed by Germany after its 1870 unification, with the emphasis moving away from market values to historical cost and systematic depreciation. It was used later by governments as the basis of tax assessment when taxes on business profits started to be introduced, mostly in the early twentieth century. This model of accounting serves primarily as a means of moderating relationships between the individual company and the state. It serves for tax assessment, and to limit dividend payments, and it is also a means of protecting the running of the economy by sanctioning individual businesses that are not financially sound or were run imprudently. While the model has been adapted for stock market reporting and group (consolidated) structures, this is not its main focus.

The other model did not appear until the nineteenth century and arose as a consequence of the industrial revolution. Industrialization created the need for large concentrations of capital to undertake industrial projects (initially, canals and railways) and to spread risks between many investors. In this model the financial report provided a means of monitoring the activities of large businesses in order to inform their (nonmanagement) shareholders.

Financial reporting for capital markets purposes developed initially in the UK, in a common law environment where the state legislated as little as possible and left a large degree of interpretation to practice and for the sanction of the courts. This approach was rapidly adopted by the US as it, too, became industrialized. As the US developed the idea of groups of companies controlled from a single head office (towards the end of the nineteenth century), this philosophy of financial reporting began to become focused on consolidated accounts and the group, rather than the individual company. For different reasons, neither the UK nor the US governments saw this reporting framework as appropriate for income tax purposes, and in this tradition, while the financial reports inform the assessment process, taxation retains a separate stream of law, which has had little influence on financial reporting.

The second model of financial reporting, generally regarded as the Anglo-Saxon financial reporting approach, can be characterized as focusing on the relationship between the business and the investor, and on the flow of information to the capital markets. Government still uses reporting as a means of regulating economic activity (e.g., the SEC’s mission is to protect the investor and ensure that the securities markets run efficiently), but the financial report is aimed at the investor, not the government. Neither of the two above-described approaches to financial reporting is particularly useful in an agricultural economy, or to one that consists entirely of microbusinesses, in the opinion of many observers. Nonetheless, as countries have developed economically (or as they were colonized by industrialized nations) they have adopted variants of one or the other of these two models.

IFRS are an example of the second, capital market-oriented, systems of financial reporting rules. The original international standard setter, the International Accounting Standards Committee (IASC) was formed in 1973, during a period of considerable change in accounting regulation. In the US the Financial Accounting Standards Board (FASB) had just been created, in the UK the first national standard setter had recently been organized, the EU was working on the main plank of its own accounting harmonization plan (the Fourth Directive), and both the UN and the OECD were shortly to create their own accounting committees. The IASC was launched in the wake of the 1972 World Accounting Congress (a five-yearly get-together of the international profession) after an informal meeting between representatives of the British profession (Institute of Chartered Accountants in England and Wales—ICAEW) and the American profession (American Institute of Certified Public Accountants). A rapid set of negotiations resulted in the professional bodies of Canada, Australia, Mexico, Japan, France, Germany, the Netherlands, and New Zealand being invited to join with the US and UK to form the international body. Due to pressure (coupled with a financial subsidy) from the UK, the IASC was established in London, where its successor, the IASB, remains today. In the first phase of its existence, the IASC had mixed fortunes. Once the International Federation of Accountants (IFAC) was formed in 1977 (at the next World Congress of Accountants), the IASC had to fight off attempts to become a part of IFAC. It managed to resist, coming to a compromise where IASC remained independent but all IFAC members were automatically members of IASC, and IFAC was able to nominate the membership of the standard-setting Board. IASC’s efforts entered a new phase in 1987, which led directly to its 2001 reorganization, when the then-Secretary General, David Cairns, encouraged by the US SEC, negotiated an agreement with the International Organization of Securities Commissions (IOSCO). IOSCO was interested in identifying a common international “passport” whereby companies could be accepted for secondary listing in the jurisdiction of any IOSCO member. The concept was that, whatever the listing rules in a company’s primary stock exchange, there would be a common minimum package which all stock exchanges would accept from foreign companies seeking a secondary listing. IOSCO was prepared to endorse IFRS as the financial reporting basis for this passport, provided that the international standards could be brought up to a quality and comprehensiveness level that IOSCO stipulated. Historically, a major criticism of IFRS had been that it essentially endorsed all the accounting methods then in wide use, effectively becoming a “lowest common denominator” set of standards. The trend in national GAAP had been to narrow the range of acceptable alternatives, although uniformity in accounting had not been anticipated as a near-term result.

The IOSCO agreement energized IASC to improve the existing standards by removing the many alternative treatments that were then permitted under the standards, thereby improving comparability across reporting entities. The IASC launched its Comparability and Improvements Project with the goal of developing a “core set of standards” that would satisfy IOSCO. These were complete by 1993, not without difficulties and spirited disagreements among the members, but then—to the great frustration of the IASC—these were not accepted by IOSCO. Rather than endorsing the standard-setting process of IASC, as was hoped for, IOSCO seemingly wanted to cherry-pick individual standards. Such a process could not realistically result in near-term endorsement of IFRS for cross-border securities registrations. Ultimately, the collaboration was relaunched in 1995, with IASC under new leadership, and this began a further period of frenetic activities, where existing standards were again reviewed and revised, and new standards were created to fill perceived gaps in IFRS. This time the set of standards included, among others, IAS 39, on recognition and measurement of financial instruments, which was endorsed, at the very last moment and with great difficulty, as a compromise, purportedly interim standard.

At the same time, the IASC had undertaken an effort to consider its future structure. In part, this was the result of pressure exerted by the US SEC and also by the US private sector standard setter, the FASB, which were seemingly concerned that IFRS were not being developed by “due process.” While the various parties may have had their own agendas, in fact the IFRS were in need of strengthening, particularly as to reducing the range of diverse but accepted alternatives for similar transactions and events. The challenges presented to IASB ultimately would serve to make IFRS stronger.


The term public enterprise refers to enterprises established under the ownership of the state or public authorities. However, the particular features of such enterprises are not the same in all definitions Tewodros (2014). Tewodros (2014), defined public enterprise as;

“Any commercial, financial, industrial, agricultural or promotional undertaking - owned by public authority, either wholly or through majority shareholding - which is engaged in the sale of goods and services and whose affairs are capable of being recorded in balance sheets and profit and loss accounts. Such undertakings may have diverse legal and corporate forms, such as departmental undertakings, public corporations, and statutory agencies, established by Acts of Parliament or Joint Stock Companies registered under the Company Law.” According to Public Enterprises Proclamation No. 25/1992, public enterprises defined as a wholly state owned public enterprise established pursuant to the same Proclamation to carry on for gain manufacturing, distribution, service rendering or other economic and related activities.

Public enterprises are subject to different accounting systems. The establishment of a public enterprise is contingent upon its capital which is indispensable for its existence. Owing to its commercial nature, the law requires it to maintain two books of account, i.e., a balance sheet and a profit and loss account. It should also follow generally accepted accounting principles in maintaining financial records and preparing financial documents. Accordingly, implementing high quality International Financial Reporting Standards (IFRS) is critical to meeting and sustaining Ethiopia’s economic growth potential. IFRS provides international investors with a brand of trust in the quality of financial reporting. That trust in financial reporting is essential if investors are to be encouraged to step in to promote continued economic growth. IFRS will also have a profound impact on the country’s growth potential because nationally supported IFRS will increase stability, stewardship, accountability and transparency both at institutional and government level. It will also increase the general level of professional education of accountants and standards setting bodies and improve their policies and decision making. It will lay the foundation to the much needed domestic capital market to mobilize financial resources for long­term investment. In general, implementation of IFRS contributes to Government efforts of improving good governance and reducing the level of corruption and rent seeking behaviors.

2.4 Approaches to IFRS Adoption

Adoption of IFRS is more than just an accounting exercise. This is because accounting and reporting represent only a small part of the conversion efforts (AABE 2015). A country can change its existing accounting system to a globally recognized accounting standard called IFRS either by totaling replacing or customizing it with IFRS over time. The first approach is known as adoption or ‘big bang’ approach while the latter is called a convergence approach. ‘Big bang’ approach is a strategic decision to adopt IFRS on a single date or, perhaps, a series of dates applied to companies of different sizes. Under this approach, once IFRS are adopted, all IFRS standards should be complied while preparing financial statements and the existing accounting standard should be replaced with IFRS; while in Convergence approach, gradual movement is made towards IFRS through customizing with the existing accounting standards and IFRS are applied gradually. Converging a few local standards to IFRSs each year can allow local preparers and auditors to learn a few topics at a time rather than immersing themselves in the full set of IFRSs and convergence approach can also allow time for necessary changes in local legal frameworks (IFRS, 2013).

2.5 Benefits and Challenges of IFRS Adoption

Armstrong et al. (2007) found that investors expected net benefits to IFRS adoption in Europe associated with increases in information quality, deceases in information asymmetry, more rigorous enforcement of the standards and convergence. The study on the implementation of IFRS in companies mainly shows that implementation of IFRS leads to improved comparability & reliability of financial statements, reduce cost of capital of firms through lower cost of information, facilitate easier international mobility of professional staffs across national boundary, greater marketability of shares, and reduced information asymmetry and others. According to Armstrong et al, IFRS has the following benefits

1. If a business adopts IFRS, the business will be able to present its financial statement on a single set of high quality and global standards.
2 .Adoption of IFRS will result in high quality, transparent and comparable financial statements that are based on modern accounting principles and concepts that are being applied in global markets.
3. If a company uses IFRS, the company could enjoy the benefit of raising capital from abroad.
4. Comparison is made easier with a foreign competitor if a company presents its financial statement according to IFRS.
5. The adoption of IFRS will improve cross border investment by enhancing comparability of financial statements prepared anywhere in the world.

It is advocated that adoption of IFRS will lead to greater transparency and understandability, lower cost of capital to companies and higher share prices, reduced national standard setting costs, ease of regulation of security markets, easier comparability of financial data across borders And investment opportunities, increased credibility of domestic markets to foreign capital providers and potentials to foreign merger partners. It will also facilitate easier international mobility of professional staffs across national boundaries (Odia,J.O & Ogiedu,K.O,2013). Generally, IFRS provides increased comparability and hence reduced information costs and information risk to investors (Ball, 2006). Gordon (2008) listed the benefits from adoption of IFRS in the world as: better financial information for shareholders and regulators, enhanced comparability, improved transparency of results, increased ability to secure cross border listing, better management of global operations and decreased cost of capital in the world.

Iyoha, and Faboyede, (2011), conducted a research on the adoption of International Financial Reporting Standards in Nigeria. The results of the study show that the introduction of IFRS in Nigeria will result in a number of important benefits for a wide range of stakeholders. The benefits of ease of using one consistent reporting standard in subsidiaries from different countries will accrue to companies while investors will benefit, amongst others, more confidence in the information presented in financial statements which they can understand and use. For policy makers (management), the adoption of IFRS will create better access to the global capital markets and a higher standard of financial disclosure for national regulatory bodies. Similarly, other stakeholders would benefit from overall better reporting and information on new and different aspects of the business.

Waterhouse Coopers (2005) “Accounting for change: A Survey of banks IFRS” The study objective to find out how they comply with the IFRS first year mandatory adoption in 20 EU leading global banks. The study found that compliance had been the top concern for the banks, as For disclosure it would take longer to be closer to the IFRS requirements. There was less volatility in the first set of financial statements and IFRS adoption is a long, costly and controversial results process for different countries, sectors of economy and companies. It leads to some advantages improving the financial statements information quality and is more likely to be profitable for companies in countries with strong enforcement mechanisms and reporting incentives. For financial institutions and for internationally owned and active companies it is more likely the convergence to be voluntarily acted and to have a small convergence effect. Despite the advantages of IFRS adoption, there could be enumerated some draw backs, including lack of transparent consistent disclosure and uniform treatment of standards. Monir Z. Mir and Abu S. Rahaman (2005) conducted a research on the adoption of International Accounting Standards in Bangladesh financial institutions. The aim of the paper was to evaluate the decision of the Bangladesh financial institutions and accounting profession to adopt international accounting standards (IASs). The paper uses a variety of archival data and interviews with key actors, including preparers and users of annual reports, members of the Securities and Exchange Commission, and members of the professional accounting bodies. Findings of the paper shows that institutional legitimization is a major factor that drives the decision to adopt IASs because of the pressure exerted by key international donor/lending institutions on the Bangladeshi Government and professional accounting bodies. Such pressure results from not only the need to provide credibility to foreign investors but also the need for strong accountability arrangements with lending/donor agencies. However, the perceived undemocratic nature of the adoption process appears to be creating and enhancing conflict among various constituencies, resulting in very low compliance with these standards.

2.6 Challenges of Adopting IFRS

The adoption of IFRS is not an easy task due to the fact that several challenges could be faced in the way of its implementation. Accounting Professionals across the world have listed various benefits of adopting IFRS. In spite of these benefits, adoption of IFRS is a difficult task and has Many challenges. For instance Alexander, (2003) The survey result shows that the respondents identify various IFRS implementing challenges of Banks that high implementation costs, the complexity of financial reporting, lack of IFRS implementation agent, lack of IFRS implementation guidance, lack of availability of competent specialists, high level training requirement, less familiarity with The IT challenges in handling the implementation of IFRS, lack of proper instructions from regulatory bodies, and problem with IFRS implementation proper plan. From the challenges listed by the respondents of the questionnaire, lack of education & expertise, lack of adequate technical capacity of advanced financial management, insufficient familiarity with specific IFRS Implementation IT challenges, absence of commitment & proper plan to implement IFRS and requirements of the existing Tax law amendment are identified as factors that makes companies unwilling to implement IFRS. Robyn and Graeme (2009) identified Lack of training facilities and academic courses on IFRS will also pose challenge in India. A key challenge is to ensure companies, auditors, regulators and the investment community is appropriately skilled to apply and interpret IFRS.

Throughout the world every implementation process has its own challenges and IFRS cannot be An exception. There are a number of factors in the adoption process of IFRS which may necessarily not be technical but rather cultural, legal, educational and political influences (Obazee, 2007). Rong- Ruey Duh in 2006 said that compliance challenges may comprise of interpretation of standards, continuous modification of IFRS, accounting knowledge available and expertise in relation to users of financial statement its preparers and regulators.

Iyoha and Faboyede (2011) identified ethical environment and the ability to protect qualified and competent employees from being poached by other companies as main challenges facing Nigerian companies. Wong (2004) said that education and training are considered as major challenges militating against the adoption of IFRS. (Schachler et al., 2012; Laga, 2012; Masoud, (2014) The adoption of IFRS in Libya faces several Challenges and obstacles including, lack of technical skills and inadequate knowledge of Libyan professional accountants, the difficulty to develop its existing accounting systems, and a regulatory framework to cope with economic and social development, recent evolution in accounting profession including international financial reporting standards application, and inadequate education and training of accountants. As evidenced by the global experience, convergence with IFRS would have significant challenges common to all countries and companies. Additionally, there are also certain specific challenges that are unique to particular countries (Robyn and Graeme, 2009). With the adoption of the IAS Regulation, requiring all EU listed companies to prepare their consolidated accounts in conformity with IFRS, EU publicly listed companies are facing many challenges, including fair value measurements to be considered to a greater extent (Jermakowicz ,2004; Alexander, 2003). IFRS would also present a challenge by way of more complex financial reporting requirements and resultant increase in costs; and availability of resources with expertise in IFRS. Similarly from an overall perspective, amendments to regulatory requirements and tax laws would be required; and impact on IT systems and compensation structures would need to be evaluated (Apostolos et al., 2010; Jermakowicz, 2004; Alexander, 2003).

Jermakowicz et al. (2007) examine the challenges and benefits, including value relevance, of the adoption of IFRS by DAX-30 companies in Germany based on a questionnaire sent to company executives. They find that most companies agree that implementing IFRS should improve the comparability of financial statements while the complex nature, high cost of adopting and lack of guidance for implementing IFRS, as well as increased volatility of earnings after adopting IFRS, are listed among the most important challenges of conversion to IFRS. Jermakowicz and Gornik-Tomaszewski (2006) provide “insight into the IFRS adoption process based on a questionnaire sent to EU-listed companies in 2004.” Among their findings are that the process of IFRS adoption is “costly, complex, and burdensome” and “the complexity of IFRS as well as the lack of implementation guidance and uniform interpretation are key challenges in convergence”, so “a majority of respondents would not adopt IFRS if not required by the EU Regulation.”

Chi Nguyen (2015) “Challenges in adopting international reporting standards for banking sector in Vietnam” The research objective is to point out challenges for Vietnamese banking sector in case IFRS is adopted. Attempted to see in-depth and semi-structured interviews were conducted to answer the fifth question of the challenges of IFRS adoption. The interviewees pointed out the advantages contribute to the accounting system. In case of IFRS adoption, IFRS enhances the accounting quality as well as the comparability and compatibility, which helps to increase the transparency of financial statements. Thus, credit institutions may have better reputation and better access to global financial market. However, time-consumption and cost are the main disadvantages of IFRS adoption leading to major challenges that the Vietnamese banking sector may face in IFRS adoption. Firstly, the difference in primary users between Vietnamese accounting standards and IFRS is a task for the government. Secondly, the accounting, auditing and IT upgrade process is an issue for credit institutions. Since Vietnamese accountants, auditors and specialists are familiar with Vietnamese accounting that leading to the lack of specialists on IFRS. Thus, the demand in training the preparation and presentation of financial statements in conformity with IFRS is great. Lastly, the government as well as credit institution is required to Build up an active market for evaluating fair value, which is one of the most difficult tasks. Thus, The IFRS adoption is time-consuming and costly. IFRS is one of the prominent issues among the person who has been affected by the IFRS. There are different users of IFRS for example accountants, investors, executives, regulatory bodies. These users had the different awareness and perception toward the IFRS. In this section the challenges and risks faced or to be faced by different users of different nations adopting IFRS Towards the IFRS related survey, research and articles have reviewed and these are the following; Charalambos Spathis, Eleftheria Georgeakopoulos (2007), “The adoption of IFRS in South Eastern Europe: the case of Greece”. This paper presents a study of the adoption of IFRS in South Eastern Europe by examining the case of Greece. It outlines the underlying factors and constraints affecting the compliance of firms with IFRS and most importantly highlights some key differences between IFRS and the Greek accounting system, which have had a major impact on the conversion to IFRS. Furthermore, it deals with specific issues related to local accounting practices and IFRS, the issue of enforcing compliance with IFRS and how this relates to current accounting and audit services. John Sapsford (2006), “IFRS: are you ready?” The results were tallied from 10 questions responded to by more than 200 CAs from 13 industries in various organizational roles: 21% controllers, 9% VP finance, and the remaining (70%) had differing roles in finance and elsewhere. they said the new reporting standards will have a very significant impact on shareholders‘ understanding of financial statements, this concern was topped by five others when respondents were asked to list the biggest challenges in order of difficulty: capacity of staff, e.g. workload, capability of staff, e.g. upgrading skills, reporting, financial processes, financial systems, shareholder understanding. Forty percent think the challenge of IFRS will require about the same level of effort as SOX; believe it will take significantly more effort to implement; and the majority expects it to take the same or more effort.

Waterhouse Coopers, (2006), “IFRS: The European investors’ view Real influence on investment decisions”. This survey finds that investors are already alert to the new IFRS information reported to them during 2005. They see the change to IFRS as significant and, even at this early stage, it has changed some perceptions of companies‘ value and had an impact on the investment decisions of over half the fund managers they spoke to. This underlines the significance of the first IFRS year-end accounts that are about to be published.

Ciliate Dewe Rogerson (2006), “The Adoption of International Financial Reporting Standards: Who should lead the way (Survey reveals equity market unprepared for IFRS changes)”.- Findings of the survey that most analysts are being left to decide for themselves how IFRS should affect their approach to company valuation. As a result, many are waiting for companies to offer guidance which, to date, has appeared on a piecemeal basis. The risk is that market valuations and share prices may be affected by a prolonged period of volatility while analysts lack consensus and a consistent approach to the interpretation of financial data under IFRS. Citigate Dewe Rogerson concludes that companies need to do more to lead the way in communicating the impact of adopting IFRS.

Stewart Jones, Alison D. Higgins (2006), Australia's Switch to International Financial Reporting Standards: A Perspective from Account Preparers”. They find evidence of strong systematic Variation in survey responses with factors such as firm size, industry background and expected impacts on financial performance, the general results indicate that many respondents have not been well prepared for the transition and are generally very skeptical about the claimed benefits of IFRS as enunciated in the government's Corporate Law Economic Reform Program. The results have implications to other international reporting jurisdictions, particularly the European Union, where adoption of IFRS is already underway.

KPMG report (2006), “Perceptions and realities” The significant message from the survey is that companies face a real risk that their financial performance as reported under IFRS will be misunderstood or misinterpreted by the market. None of the surveyed analysts felt 'very confident' about their ability to distinguish between changes in a company's reported results due to changes in underlying business performance and those that directly relate to the adoption of IFRS. Brendan Sheridan and Delloite (2006), “IFRS Reporting. The Time is nigh”. Finding of the study were that with the financial reporting date of many European first-time adopters of International Financial Reporting Standards less than a month away, final preparations are being put in place. A recent survey carried out by Deloitte of European banks provides further indication of where they may expect the main changes to be in the reported financial position and results of companies.

While the standards on financial instruments and insurance contracts have a more significant impact on banks, due to the nature of their business activity, many of the more significant matters identified by the survey will have impact on the majority of IFRS first-time adopters. Private companies not adopting IFRS should bear in mind that many of the transitional changes facing our listed companies will also impact on them in 2005 with to the introduction of new standards by the Accounting Standards Board under the programmer of convergence.

2.7 Ethiopian IFRS Implementation Road Map

According to AABE (2016), this road map is prepared and publicized by Auditing and Accounting Board of Ethiopia (ABBE) for adoption and implementation of IFRS in Ethiopia officially launched at 26 of April, 2016 in Economic Commission of Africa (ECA) at Addis Ababa and also included the following further main issues.

Conversion of IFRS leads to greater transparency and other benefits include: Improved comparability of financial statement across sectors, countries, regions and companies, As Ethiopia sustains its growth trend, it requires increased access to capital markets to raise capital, reduce barriers to cross border mergers and acquisitions, and listings, (once a stock exchange is established).Increased level of confidence in financial reporting, common accounting systems, and better relationships with investors and stakeholders. IFRS addresses changing commercial practices, global markets as well as investor needs. Internal reporting is used as a basis for reporting under IFRS, e.g. Operating Segments IFRS 8.Cost efficiency-IFRS streamlines reporting; one accounting language is used group wide, eliminating the need for reconciliations and restatements for consolidation purposes. Change of management focus as IFRS are focused on risk and uncertainty. IFRS compliant financial statements have a positive impact on proactive risk management and focus on maximizing shareholder value.

Because of the profound nature of the change that will be introduced by the adoption of IFRSs Such as changes in accounting policy and IT system that must precede conversion to IFRS, necessary preparation and planning should begin at least 18 months prior to the planned adoption date. For example, a planned conversion to IFRS reporting by the end of 2016/17 will require one income statement and two balance sheets in both IFRS and the current reporting framework (GAAP) for the year 2016/17, requiring the closing 2015/16 balance sheet be converted from the Current GAAP to IFRS to serve as the opening for 2016/17. The Roadmap includes the preparation of the quarterly and half-year financial reports, consistent with the consolidated financial statement under IFRS. During the preparation period the Board will organize a series of workshops and training programs to create awareness and provide basic skills of IFRS for stakeholders. Furthermore, any contradiction between the Financial Reporting Proclamation and other laws, regulations and Directive relating to accounting and disclosure will be identified and aligned accordingly to facilitate smoother adoption of IFRSs. For these purpose different task forces with members drawn from relevant government agencies, preparers and auditors shall be established. Finally, the Roadmap recommends the establishment of the IFRS Roadmap Implementation Task Force, to oversee the implementation of IFRS adoption in detail.

2.8 Empirical Evidence

2.8.1 The Adoption of IFRSs by Developing Countries

Whittington (2005) indicates that the main motivator for adopting IFRSs is the need of international language of accountancy and the needs of internationalization of capital markets. Frey and Chandler (2007) point out that IFRS enable the comparison of financial statements between firms in the same field, even if they were operating in different markets. Moreover, countries such as UAE which does not have national accounting standards, would facilitate and rapidly improve their accounting practice which would enable them to gain access to global capital (Whittington, 2005). Frey and Chandler (2007) suggest that adopting IFRS in developing countries would save time and the effort for these countries setting their own standards. Moreover, the adoption of IFRSs would lead to improve the quality of accounting which will, in turn, increase competitiveness (Saudagaran and Diga, 2003). The adoption of IFRS in some developing countries, therefore, has become mandatory due to the external pressure or the influence of the international organizations such as the IMF and the World Bank (Hooper and Morris, 2004). Sucher and Alexander (2004) point out that the International accounting firms (IAFs) play a significant role in developing countries to motivate them to adopt IFRSs in order to list their firms internationally.

According to Saudagaran and Diga (2000), developing countries adopt IFRSs for the purpose of Becoming acceptable in the international market. However, they do not aim to make fundamental changes to their political and economic strategies which could be necessary to adopt the IFRS more efficiently (Husain et al., 2002). Many organizations both national and international wish to adopt IFRSs that provide them with the ability to achieve the acceptability of the financial report. Abd-Elsalam (1999), states that Egypt has adopted IASs in its financial standards in 1993.However in 1996 the Egyptian accounting board began to issue national standards. In June 2003 The Gulf Co-Operation Council Accounting and Auditing Organization (GCCAAP) agreed to Adopt the IFRS into their listed firms (Al-Shammari, 2005). All of the GCC members, except Saudi Arabia, do not have their own accounting standards, thus it was logical for the members to Accept IFRSs. Irvine and Lucas (2006) argue that UAE required its listed firms to prepare their financial statements under IFRSs on or before 2005.

Mostly countries have their accounting standards setting bodies. These bodies cope-up with the IASB for setting the standards. These bodies consider the IFRS for benchmark for issuing the standards for their respective countries. These bodies modified the IFRS according to their country need. Apart from it these bodies also issued the other accounting standards which are needed in the country without considering the IFRS. In this section the difference between the IFRS and local GAAP related research and articles have reviewed and these are the following Vinayagamoorthy. (2015) “opportunities and challenges in adopting IFRS in India.” This article Provides a summary and interpretation on adoption of IFRS, means that the entire set of financial statements will be required to undergo a drastic change. The differences are wide and very deep routed. It would be a challenge to bring about awareness of IFRS and its impact among the users of financial statements. While IGAAP has been converging with IFRS as much as possible in recent years, differences still remain, and some of these were viewed as significant challenge to overcome. Participants noted concerns a) IFRS is more principles based, and therefore more ‘liberal’ than Indian GAAP. More choice under IFRS will mean the increased need to use professional judgment, and this will require a fundamental change in mindset for Indian accountants. B) Initial transition will be a challenge given differing recognition and measurement Criteria for assets and liabilities. These will not only impact earnings, but it is important to be able to capture those differences through appropriate information systems.

c) Specific accounting areas that will be more complex included business combinations and financial instruments. Many of the problems associated with them arise from the greater use of fair value accounting under IFRS.

Songlan Peng, Rasoul H Tondkar, Joyce van der Laan Smith, David W Harless (2008), “Does Convergence of Accounting Standards Lead to the Convergence of Accounting Practices?, A Study from China”. In this empirical study examines whether China's efforts to converge domestic accounting standards with International Financial Reporting Standards over the past 15 Years have resulted in the successful convergence of Chinese listed firms. This study is unique in that they evaluate convergence of firms' accounting practices from three perspectives: (1) the level of compliance with Chinese GAAP and IFRS, (2) the consistency of accounting choices under Chinese GAAP and IFRS, and (3) identification of significant differences in the net incomes produced under Chinese GAAP and IFRS (earnings gap). Using the 1999 and 2002 annual reports of 79 Chinese listed firms they find improvement in both compliance with IFRS and in the consistency of the accounting methods used in annual reports prepared under Chinese GAAP and IFRS. They also find a reduction in the earnings gap from 1999 to 2002. However, Interestingly they observed that Chinese listed firms' compliance with IFRS is significantly lower than their compliance with Chinese GAAP. Overall they believe that their findings suggest that in China the convergence of accounting standards has been a channel to the convergence of Accounting practices.

John Goodwin, Kamran Ahmed and Richard Heaney (2007), “The Effects of International Financial Reporting Standards on the Accounts and Accounting Quality of Australian Firms: A Retrospective Study”. They find that IFRS increases total liabilities, decreases equity and more firms have earnings decreases than increases. The leverage ratio is higher under IFRS. Using two different models, they find no evidence that IFRS earnings and book value are more value relevant than AGAAP earnings and book value. They also find that the changes to accounting for share-based payment, intangibles, provisions and impairment components are value relevant but not consistent with the way the market perceives these components, but that goodwill accounting Under IFRS improves associations with market value. The information in the earnings reconciliations was impounded in prices before the release of the reconciliation note. Sofie Van Der Meulen, Ann Gaeremynck, Marleen Willekens (2006), “The Influence of Specific Accounting Differences on the Choice between IFRS or US GAAP”. This paper addresses the question whether specific accounting differences between IFRS and US GAAP determine the individual firm‘s accounting standard preference. The results show that firms prefer that accounting regime that offers them the largest flexibility (i.e. less disclosure or more measurement options) on relevant accounting items (e.g. R&D expenditures). Furthermore, the Flexibility in measurement seems to result in accounting numbers that are significantly valued by Investors. Chile A.G. (2006), “Chile International Financial Reporting Standards and International Standards on Auditing”. The general aim of the project is to bring Chile into line with global standards by adopting standardized criteria in the presentation of financial accounting information, thereby facilitating trade integration. Its purpose is to strengthen existing mechanisms to support the system and process for issuance and adaptation of international standards, and to strengthen effective mechanisms of coordination, integration and dissemination, to converge rapidly towards them. Van Tendeloo; Brenda; Vanstraelen and Ann (2005),“Earnings management under German GAAP versus IFRS.” They investigate whether German companies that have adopted IFRS engage significantly less in earnings management compared to German companies reporting under German generally accepted accounting principles, while controlling for other differences in earnings management incentives. There results suggest that IFRS adopters do not present different earnings management behavior compared to companies reporting under German GAAP. These findings contribute to the current debate on whether high quality standards are sufficient and effective in countries with weak investor protection rights. They indicate that voluntary adopters of IFRS in Germany cannot be associated with lower earnings management.

2.9 Summary and Gap in the Existing Literature

The review of the literature shows various discussions and perspectives about the IFRS adoption Practices based on other countries’ experiences. It reflects some of the issues relating to the Debates, benefits and challenges of IFRS adoption by countries with varying legal, cultural and Socio-economic contexts. It highlights the preconditions of IFRS adoption to be fulfilled by Adopting jurisdictions in terms of non-technical and implementation issues. In spite of the quite many benefits of IFRS adoption, it is also a difficult task and has many challenges. As evidenced by the global experience, convergence with IFRS has significant challenges common to all countries and companies and there are also certain specific challenges that are unique to particular countries and companies. Growing bodies of literature revealed that more complex financial reporting requirements; resultant increase in costs; availability of resources with expertise in IFRS; ethical environment, the ability to protect qualified and competent employees from being poached by other companies and from an overall perspective, amendments to regulatory requirements and tax laws; and impact on IT systems and compensation structures are the main challenges of IFRS (Iyoha and Faboyede, 2011; Apostolos et al., 2010; Jermakowicz et al., 2007; Jermakowicz, 2004; Wong, 2004; Alexander, 2003). Although various survey studies have been conducted to assess the adoption of IFRS in different Countries of the world, most of the studies have been carried out on IFRS analyzing the data from member countries of EU (Apostolos et al., 2010; William et al., 2010; Alessandro et al., 2009; Robyn and Graeme, 2009; Alicja et al., 2007; Jermakowicz et al., 2007; Susana et al., 2007; Jermakowicz, 2004). Comparatively fewer numbers of studies have been carried out on data from other countries (Iyoha and Faboyede, 2011; Ojeka and Mukoro, 2011). Even though IFRS seems to be equally important for all countries, there is a dearth of empirical study that examines the data from developing countries and in particular Ethiopia. Therefore, this study makes an attempt to bridge this gap and elaborated the benefits, challenges, and the factors that could influence the adoption of IFRS at ethio telecom.




The objective of this study is to assess the challenges and prospects of first time adoption of international financial reporting standards at ethio telecom. This chapter explains and discusses the results of findings based on the analysis done on the data collected to address its objective. The results of the study are presented by triangulating the analysis of the response on questioner .The questionnaires were administered at ethio telecom IFRS implementation team members, from the 15 questionnaires distributed 14 questionnaires are filed and collected all the item dully filled and replied ,hence the response rate is 93%.


It has an importance to analyze the background of the respondents to put the study in context as these factors are cross cutting detrterminats of responses given by respondents. GENDER DISTRIBUTION OF RESPONDENTS

One of the demographic characteristics that respondents to be analyzed were their gender distribution .Accordingly, the researcher gathered and presented the demographic characteristics of the respondents covering their gender distribution below.

Table 3.1 Gender distribution of respondents

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(Source: Questionnaires, 2019) ACADEMIC LEVEL OF RESPONDENTS

The impact of international financial reporting standards (IFRS) in terms of perceived benefits and challenges are better articulated by professionals who have attended high level of education and professional trainings.

Table 3.2 Academic level of respondents

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(Source: Questionaries, 2019)

As we see from the above table that majority of the respondents are bachelor Degree holders followed by Masters Degree Holders. This implies that, the education level of respondents suggests that it is very good enough to get relevant and appropriate information need for the study on IFRS. In addition; the IFRS implementation teams at ethio telecom posses a team of professionals with good enough academic background which is required to understand and implement IFRS. WORK EXPERIENCE OF RESPONDENTS

In studying the benefits and challenges of IFRS , the experiences of the respondents play a significant role .The participants exposure enables them to quickly pinpoint the major benefits that were realized or could be realized in their perception .In addition they easily indicate the key challenges and technologies of overcoming them from their ample experience.

Table 3.3 Professional Experience of the respondents

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(source: Questionnaires, 2019)

As it is shown in the table Above the majority of the respondents , 35.71 % have work experience of 11-15 years, followed by 28.57 % 16-20 years of experience .this indicates ,overall IFRS implementation team members at ethio telecom are relatively well experienced and exposed with both GAAP and IFRS. In addition due to nature of Accountancy profession the more experience Employees have the more they refine their proficiency .this could yield them the ability to easily assimilate themselves with the new standard as they could build on what they profess the new requirement.


Analyzing the general preference towards IFRS was made to identify the factors that the participants realized more under IFRS. However it is mandatory to adopt IFRS at ethio telecom the objective of this question is to know their preference levels regarding IFRS benefits.

Table 3.4 Rationale behind IFRS Preference

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(Source: Questionnaires, 2019)

As it is shown in the above table, half of the respondents say that they prefer IFRS over US GAAP because of its relevance .Relevance is one of the qualitative characteristics of information that enables users of information to differentiate one alternative than other. Relevance will exist if information is timely, if it has predictive and confirmatory values. The other reseaon behind IFRS preference is the comparability which contributes 28.57 % ,this is due to the consistency that exist in fair values users in different concerns of the world enjoy different comparability while they use IFRS than US GAAP .the participants indicated faithful representation and cost to be least in their preference with frequency distribution 14.28 and 7 % respectively. In addition, however ethio telecom rationale behind IFRS adoption is the enforcement of the legal body AABE, we have to look at ethio telecom stakeholders and users of financial statements of ethio telecom .According to Ball(2009) IFRS has the following benefits to stakeholders ,IFRS provides more accurate ,comprehensive and timely financial statement information for public financial reporting in most of the IFRs adopted countries,IFRS eliminates many of the adjustments which have been historically by analysts in order to make companies financial report more comparable internationally ,reduction in the financial information processing cost increase market efficiency ,reducing international differences in accounting standards.

3.4 Gap Assessment

The transition process from GAAP to IFRS requires that gap assessment shall be done before The starting of the process.

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Chart 1: Gap Assesement.

As we see from the above chart 86 % of the respondents say that GAP assessment was done before ethio telecom starts IFRS implementation which makes the transition smooth. As it is difficult to transit to IFRs before gap assessment the transition from financial statements prepared in GAAP to IFRs compliant financial statement needs an assessment in order to identify the concentration area and to establish mitigation strategy for smooth transition to IFRS as well as to clearly show the difference between GAAP and IFRS. The other reason behind gap assessment is that as IFRs is a new phenomena the gap assessment enables ethio telecom to facilitate the necessary resources in order to handle the gaps in the smooth transition of

IFRS.Besides, the gap assessment conducted at ethio telecom allow to clearly identify the difference between the current accounting practice and policy of ethio telecom with that of international financial reporting standards.

3.5 Period for transition to IFRS.

It is known that the preparation time for transiting from GAAP to IFRS compliant financial statements requires adequate time .Respondents perception regarding adequacy of transition to IFRS is shown below.

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Chart 2:- Period for Transition to IFRS (Source: Questionaries,2019)

As we can see observe from the chart the majority of the respondents say that the time period given for preparation to transit into IFRS was Adequate, the rest of respondents 28.57 % , respond that the time period given to transition of IFRS was not adequate and their reasons are as asset valuation needs large period of time ,ethio telecoms financial transaction is vast and also it is a huge company with so many assets and revenue elements that require a lot of time to assess.

3.6 Perform in accordance with AABE Regulation.

Regarding whether Ethio telecoms is performing implementation of IFRS in accordance with proclamation number 847/2014 or not, the perception of respondents is shown below.

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Chart 3:- Perform in Accordance with AABE regulation (Source: Questionaries,2019)

As we see from the chart ,86 % of the respondents respond that ethio telecom is performing its IFRS adoption in accordance with proclamation number 847/2014 ,which enforces financial institution to adopt international financial reporting standards in Ethiopia .The remaining 14.28 % respond ants they say that ethio telecom is not performing in accordance with proclamation number 847/2014..when we look at the current situation ,ethio telecom is now at the verge of completion from GAAP to IFRS and ethio telecom will submit its IFRS based financial statement on July 2019 to the regulatory body AABE.

3.7 Motivation to Adopt IFRS

Regarding the motivation behind ethio telecom IFRS adoption, the perception of respondents is shown below.

Table 3.5 Motivation to adopt IFRS

(Source: Questionnaires, 2019)

From the above table, we can realize that 90 % of the respondents, respond that the requirement by the Accounting and Auditing board of Ethiopia (AABE) influenced ethio telecom to adopt IFRS. However 10 % of the respondents stated that ethio telecom own interest to standardize and improve the quality of financial reporting as another factor besides the requirement of the regulatory body .on the basis of this finding ,the student researchers realized that it is mainly the requirement of the regulatory body influenced ethio telecom to adopt IFRS. In addition to this the enactments of a proclamation to provide for financial reporting (proclamation no 847/2014) enables ethio telecom to adopt the international financial reporting standards for the purposes of preparing financial statement .The government of Ethiopia issued the proclamation to achieve the objectives as stated in article 1 of the proclamation to establish a sound /transparent and understandable financial reporting system applicable to entities both private and public sector to have uniform financial reporting law that enhances transparency and accountability by centralizing the hitherto decentralized financial reporting structure of Ethiopia ,to support various building blocks of economy and reduce the risk of financial crisis, corporate failure and associated negative economic impact and to ensure that the provision of financial information meets internationally recognized reporting standards.

3.8 Perception on Benefits of IFRS adoption

There could be plenty of benefits that may be associated with Adoption of IFRS. This may include improvement of quality which includes reliability and comparability, transparency and simplicity of financial reporting .The respondent’s perception about the practical benefits of IFRS adoption at the international arena.

Table 3.6 perceptions on benefits of IFRS adoption

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(Source: - Questionnaires, 2019)

The above table illustrates that the response on the perceptions on benefits which respondents expect to reap the fruit of IFRS internationally due to adoption of IFRS 100 % percent of respondents expect that the adoption of IFRS will improve the quality of reporting , increase the transparency of financial Reporting as well as the simplicity of raising capital abroad. Based on this finding improvement of quality and transparency of financial reporting and simplicity of raising capital abroad are is the major practical benefit regarding IFRS adoption internationally. Many countries recognized the need to have quality financial reports and other benefits such as enhance comparability of financial information, bringing excellence in financial reporting due to transparency, enable the entities to know its true worth, ability to access global capital market resulted in improvements to the quality and consistency of financial reporting (, 2015). Better Global Comparability, better Access to International Capital Market and Lower Cost of Capital, easy Cross Border Listing, avoidance of Multiple Reporting, better Quality of Financial Reporting, Economic Growth are the benefits of adopting IFRS in India (Thappa, 2012).

3.9 Cost Vs Benefits of IFRS.

The respondents perception about the benefits of IFRS exceed the cost of implementing in the context of ethio telecom is stated below.

Table 3.7 Cost vs. Benefits of IFRS

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(Source; Questionnaires, 2019)

The above table, illustrates the respondents opinion whether the benefits of IFRS exceeds the cost of Implementing Assuming both are long term 35.71 % of the respondents agree that the benefits of IFRs exceed the cost of Implementing, 21.42 % of the respondents strongly agree that the benefits of IFRS exceed the cost, 28.57 % of respondents are neutral and 14.28 % dis agree and 14.28 % strongly disagree. On the basis of the findings most of the respondents agree that the benefit exceeds the cost of implementing even though cost of implementing IFRS obliviously exceeds its benefits, during first time adoption but assuming the cumulative benefits to be derived from adopting IFRS will exceed its cost in long run. The rationale for most of the respondents who believe the benefit of IFRs exceeds its cost is that the benefits are realized mainly in the long run and in turn they outweigh the cost overtime. Among the major reason for the respondents stated for their opinion include: IFRS increases transparency and reliability of financial reporting and makes financial statements more understandable to users which builds confidence of the present investors and to allow them to make investment decisions which in turn make ethio telecom financially strong and profitable in the long run. The other reason which is stated by respondents is the experience of foreign countries who already implemented IFRs years ago that they also had faced the same challenge at the initial stage but finally they realize the benefits mentioned earlier in long run and in addition the experience and knowledge that will be gained through time will enable the adopting entities to realize more benefits.

3.11 Complexity of IFRS over GAAP

The respondent’s perception about the complexity of IFRS over GAAP at ethio telecom context is stated below.

Table 3.8 complexity of IFRS over GAAP

Abbildung in dieser Leseprobe nicht enthalten

(Source:-Questionnaires, 2019)

From the above table, we can observe that 64.28 % of the respondents believe that the adoption of IFRS simplifies financial reporting, while the remaining 36 % of respondents respond that the adoption of IFRS complicates the financial reporting as compared to the previous financial reporting. This indicates that the complexity of financial reporting is one of the major impediments that faces adoption of IFRs. According to Jermakowicz,(2004) one of the reasons is the complex nature of some of the IFRS ,including standards related to hedge accounting (IAS 39) and impairment tests (IAS 36) and also in the survey of Caramanis and Papadakos (2008) ,the respondents indicated a number of difficulties that relate with the application of IFRS.


The main objective of this paper was to identify the benefits of adopting IFRS at ethio telecom there could be plenty of benefits that may be associated with use of IFRS.These may include reporting efficiency, Reliability, comparability, transparency, cost of capital reduction, better information for decision making, increment of confidence in the information presented using IFRS and enhancement of transparency of companies like ethio telecom through better reporting.

Table 3.9 benefits of Adoption of IFRS

Abbildung in dieser Leseprobe nicht enthalten

(Source: Questionnaires, 2019)

In this section, the questioner results related to the benefits of IFRS adoption were analyzed .The data related to the benefits to ethio telecom and stakeholders will be presented and discussed separately. Respondents were asked their opinion about the adoption of IFRS can improve the efficiency of financial reporting; the majority of the respondents agreed and believes that adoption of IFRs improves the effiency of financial reporting. This study also supported by the findings of (obazee, 2008) survey, convergence to IFRS will help in increasing efficiency in financial Reporting. In the table above it can be shown that 57.14 % strongly agree and 35.71 % agree that financial statements prepared based on IFRS are more reliable .this implies that, ethio telecom financial reporting will improve in terms of its reliability through adopting IFRs ,so this will be one of the benefits that can be realized by IFRS Adopting. Concerning respondents perception on adoption of IFRS improves effectiveness of Financial reporting ,the table shows that most of respondent agree on the adopting IFRS improves effectiveness of financial reporting which is 50 % were strongly agree ,43 % also agree on effectiveness. From the above description we can conclude that effectiveness of financial reporting under IFRS indicates that adoption of IFRS improves the effectiveness of financial reporting. Regarding, Comparability the above table shows that 50 % of the respondents strongly agree that IFRS enhances the comparability of financial statements, 35.71 % of the respondents also agreed on comparability enhancement of IFRS and the remaining 14.28 % disagree on the idea. From the above table we can see that 50 % of the respondents agree and 35.71 % of the respondents strongly agree on the proposition that IFRS improves transparencies. From respondents perception we can understand that adoption of IFRS enhances transparency of ethio telecom financial statements through better reporting and almost all of the respondents believed that the financial statements would become more transparent as a result of adoption of IFRS. One of the main objectives of IASB is to develop in public interest, a single set of high quality, understandable and enforceable global accounting standard that require high quality, transparent and comparable information in financial statement and other financial reporting to help various companies of the world and other user of the information to make economic decision. According to this objective of IASB adoption of IFRS enhance transparency of companies through better reporting and provides better information for decision making. Majority of the respondents believe that the financial statement would become more transparent at as adoption result of the adoption of IFRS.

Table 3.10 benefits of Adoption of IFRS [Continued]

Abbildung in dieser Leseprobe nicht enthalten

(Source: Questionnaires, 2019)

From the above table, it can be shown that IFRS enables that it reduces cost of capital, 42.85 % of respondents strongly agreed on the proposition that IFRS reduces cost of capital, 28.57% of the respondents agree on the propositions and 14.28 % of respondents are neutral and disagree. From this we can understand that majority of respondents agreed on the fact that IFRS would significantly reduce cost of capital of ethio telecom. Leuz and Veerchia (2000) states that lower cost of information, increased value relevance of accounting information asymmetry between manager and shareholder have positive impact on cost of capital. Further, 58% of the respondents strongly agree and 35.71 % agree that the adoption of IFRs will lead to provide information for decision making and more confident in the information presented. This shows that adoption of IFRs will make it easier for stakeholders to evaluate the financial performance of organization with which they might invest more, enhance transparency of companies through better reporting and they will have more confidence in the information presented. As shown above in the table, majority of the respondents believe that IFRS provides greater creditability and provides better financial reporting. It shows that 50 % of respondents strongly agree and 42.85 % agree and 7 % of respondents disagree.

From the table we can see that 58 % respondent strongly agree and 35.71 % agree on proposition IFRS enhances transparency of companies through better reporting and & % strongly dis agree. From the respondents perception we can understand that adoption of IFRS enhances transparency of companies through better reporting and they will have more confidence in the information presented.


There are a plenty of inhibiters encountered in adopting IFRS. The most prominent ones include cost, complex financial reporting framework, lack of implementation guide line ,problem with fair value accounting are the main ones. Accordingly the student researchers gathered the data presented to identify and analyze the challenges encountered in IFRS adoption the following tables.

Table 3.11 Challenges of IFRS Adoption

Abbildung in dieser Leseprobe nicht enthalten

(Source: Questionnaires, 2019)

From the above table we can understand that the respondents opinion regarding the adoption of IFRS is costly is that the majority of the respondents 64.28 %, stated that they agree on proposition that IFRS is costly ,21.42 % also strongly agree on the idea and 14.28 % are neutral. According to the respondents ,the benefits of IFRS are longer lasting than costs that occur during the initial phase of its adoption. In addition high implementation cost especially in related to consultant fee, cost of updating accounting system, cost of adjustment of information systems and training costs are the main challenge to adopt IFRS.

In survey of Jermakowicz et al (2007) ,examine the challenges of adoption of IFRS companies in Europe the findings show that most companies agree adopting IFRs should improve the comparability of financial statements while high cost of adopting are listed among the main challenges of conversion to IFRS. their findings also supported the result of this study. Regarding the respondents perception that IFRS increase the complexity of financial reporting, 42.85 % agree , 14.28 % strongly agree ,14.28. % neutral, 21.42 % disagree. this indicates the complexity of financial reporting is one of the major challenge that faces on the adoption of IFRS. According to Jermakowicz, (2004), one of the reasons is the complex nature of Some of IFRS including standards related to revenue from customers (IFRS 15) and fair value measurement accounting (IFRS 13).particularly difficulties are regarding the technical aspect of the application of IFRS is the lack of comprehensive training and lack of adequate IFRS implementation guidance. Even though IFRS is being criticized for its wide and complex nature of IFRS adoption seems decreasing at an increasing rate. They put two reasons to support the argument. The first is countries which adopt IFRS lately can learn lessons from early adopters mistake this means countries like Ethiopia have a late comer advantage. The other reason is high learning institutions of the country and ACCA are producing professionals with IFRS orientation. Another challenge on the process of adopting IFRS, according to respondents is lack of IFRS implementation Guidance, majority of the respondents 42.85 % agree and 21.42% strongly agree that lack of implementation guidance decrease willingness on the adoption of IFRS and increases the risk of manipulation in interpretation of financial statements. Respondents were also asked their opinion regarding the agreement of lack of availability of competent professionals and it will be the challenge in adoption of IFRS. Majority of the respondents 64.28 % agree and 21.42 % strongly agree that lack of competent as a challenge of first time adoption of IFRS.As it is known Ethiopian accountants were not experienced and familiar with IFRS, is one of the major challenges in adopting IFRS, due to this Ethio telecom invites the giant consultant in the world ,which known as PWC to consult ethio telecom to consult in the process of adoption of IFRS. Respondents were asked their agreement about the challenges of adoption of IFRS ,it requires high level training almost all respondents agree that IFRS requires high level training. This indicates that training on issues related to IFRS is one of the major challenges facing that on the adoption of IFRS. In addition the current accounting curriculum of the country is not sufficiently support ethio telecom accountants as result giving training for employees at ethio telecom is another costly investment. in the survey of Robyn and Graeme(2009) ,identified lack of training facilities and academic courses will also pose challenges in India their findings were also support the result of this study.

Table 3.11 Challenges of IFRS Adoption [Continued]

Abbildung in dieser Leseprobe nicht enthalten

(Source: Questionnaires, 2019

As we can see from the table above, respondents were asked their opinion in the issues of problem with IT system in handling the transition to IFRS and according to the study 42.85% agree and 21.42% strongly agree that there is a problem with IT system in handling transition to IFRS. This is also supported by the results of Zinabu (2015), the survey result shows that the respondents identify various IFRS implementing challenges of Ethiopian financial institution are one that were less familiarity with IT challenges in handling the implementation of IFRS.

Regarding, fair value accounting it can be seen from the table that 42.85 % strongly agree and 28.57.14 % agree on the problem with IFRS use of fair value accounting and 14.28% of respondents disagree and strongly disagree .with problem in fair value accounting. most of the respondents ,believe that the adoption of IFRS which uses fair value financial reporting approach introduce significant volaiataility in the balance sheet ,more importantly in earnings. This is also supported by the result of survey accrued out by jermakowicz, according to which IFRS adoption brings increase volatility of earnings. From respondent’s opinion, we can realize that since fair value accounting incorporates more information into the financial statement than historical cost is a major challenge for developing countries like Ethiopia. With regard to resistance to change by different departments of ethio telecom which is expected to provide inputs to IFRS implementation project teams, 35.71 % strongly agree and 28.57 % agree that there is a resistance to change by different departments, while 21.42 % are neutral and 14.28 % dis agree. As it can be seen from the table above 35.71% agrees and 28.57 % strongly agree, 14.28 % are neutral and 21.42% dis agree that the Gap between the accounting education taught in Ethiopian higher education and IFRS requirements is a challenge to get competent accountant which are alien with IFRS. Respondents were also asked their level of agreement on the IFRS standards complexity of conversion and timely interpretation of standards, 42.85 % agree and 28.57 % strongly agree that the complexity of conversion and timely interpretation. Lack of effective coordination and communication ,weak understanding of some trainers and the quality of professionals to understand and proper interpretation interpretation by own understanding not what the standard says and culture of resistance to change are challenges to conversion and interpretation of standards.



The objective of the study was to analyze the benefits and key challenges of first time adoption of international financial reporting standards at ethio telecom. This chapter presents the conclusion drawn from the summaries of the major findings in achieving the review objective and recommendation of the study. It has three parts the first part presents the major findings followed by the second part which presents conclusion made on the basis of summary of findings. In such a way that to achieve the overall objective and finally third part presents the recommendation provided on the basis of conclusions made.


The findings of the study provide insight on the challenges and prospects of first time adoption of IFRS at ethio telecom .the data collected for the study had been analyzed, interpreted and presented using appropriate technique in the previous chapter. Thus, this section presents the summary of major findings already discussed in the previous chapter as follows.

With regards to general background of respondents out of 14.28 respondents

-8(57.14.28%) of the respondents are men, and 6(42%) are female.
-On the other hand, 6(42%) are master degree holders 8(57.14.28%) are bachelor degree holders.
-About the work experience, 5(36%) of them 11 to 15 years of working experience, 4 (28%) have experience of working 16-20yeras,2 (14.28%) of the respondents have work experience of less than five years and 1(7%) of the respondents have work experience of more than 20 years.

With regards to major findings about issues related to adoption and practice of IFRS

-Regarding the rationale behind IFRS preference over GAAP almost half of the respondents (50%) agreed the relevance feature of IFRS, 4(28%) agreed to the IFRS feature of comparability, 2(14.28%) respond in favor of faithful representation and 1(7%) put cost as rationale behind IFRS preference.
-With regards to the GAAP assessment before transition was 12(86%) respondents agreed that GAAP assessment was done and 2(14.28%) say that GAAP assessment had not been done before transition.
-As far as the preparation time for transiting from GAAP to IFRS, 78 % of the respondents respond that the period given to transition was adequate where as the rest of respondents say that it was not adequate and With regards to whether ethio telecom is performing the implementation of IFRS in accordance with proclamation number 847/2014.28, 12 (86%) of the respondents respond that ethio telecom is performing in accordance with proclamation number 847/2014, the rest of respondents agreed that ethio telecom is not performing according to 847/2014.28 .
-With regards to the factors that influence or motivated ethio telecom to adopt IFRS 13(93%) of the respondents mention the requirement of the regulatory body the government organ of AABE is the main factor behind adoption and 1 (7%) respond that it is ethio telecom own interest to standardize and improve the quality of financial reporting as another motivator.
-With regards to the perceptions on benefits of benefits expected to be derived by adopting IFRS internationally, 100 % percent of respondents expect that the adoption of IFRS will improve the quality of reporting , increase the transparency of financial Reporting as well as the simplicity of raising capital abroad.
-As far as the benefits vs. cost of implementing IFRs is concerned, 5(35.71%) agree and 3(21.42%) strongly agree that the benefits of IFRS exceeds the cost of its implemerntation,4(28%) are neutral and the rest do not agree.
-With regards to the status of IFRS adoption in terms of complexity of financial reporting,9(64.28%) of the respondents believe that IFRS complicates financial reporting while 5 (35.71%) believe IFRS simplifies financial reporting.


IFRS has become the financial reporting standard for a significant amount of countries around the world. The decision of IFRS adoption would be the right choice for Ethiopia to strengthening the country’s quality of financial information that played a major role for attracting efficient capital inflows to the country and encourage domestic investments. The Ethiopian government had expressed its initiative to integrate financial reporting system of the country with internationally recognized standards. This standard was manifested by the recently issued proclamation called “financial reporting proclamation, no 847/2014.28 ‘which resulted with the formation of autonomous government organ ,accounting and auditing board of Ethiopia (AABE) and determination of its procedures. The newly established board with the implementation roadmap it sets out requires all significant public interest entities and SMEs to adopt IFRS in their financial reporting based on the schedule set out in the implementation roadmap. However, number of practical implementation challenges needs to address to utilize the full benefits of adopting IFRS. Therefore, the objective of this study was to identify factors affecting adoption and practice of IFRS, as well as to identify the potential benefits of the adoption of International financial reporting standards and key challenges that will face adoption of international financial reporting standards at ethio telecom. The study has analyzed the data collected through questioner from The IFRS implementation team members, questionnaire data were analyzed using frequency distribution and descriptive statistics.


In regarding the potential benefits of adoption of International financial reporting standards at ethio telecom ,the result shows a number of important benefit to ethio telecom and its stakeholders, the study identifies on the adoption of IFRS at ethio telecom has a benefit for ethio telecom mainly shows that it leads to enhance the efficiency and effectiveness of financial reporting ,comparability and reliability of financial statements, provides greater reporting transparency, reduce the cost of capital . Besides, the result also shows that introduction to IFRS at ethio telecom will result a number of important benefits for stakeholders i.e. it provides better information for decision making, more creditability in the information presented in financial statements using IFRS and provides better financial reporting for stakeholders.


The study result shows that respondents were indented various IFRS adopting challenges on ethio telecom; that are high implementation cost, the complexity of financial reporting, lack of IFRS implementation guidance, lack of availability of competent professionals, high level training requirement ,problem with the IT system in handling the transition to IFRS, using and ascertaining fair value measurement in financial reporting. Besides, resistance to change, problem with accounting education of Ethiopia and complexity of conversion and timely interpretation standards were identified by respondents of the study as challenges of adopting IFRS at ethio telecom.

In general the result of the study enable us to conclude that adoption of IFRS by ethio telecom, the IFRS adoption has appreciable positive benefits on financial reporting of Ethio telecom, the study also allow us to know the challenge of IFRS adoption at ethio telecom includes high implementation cost, lack of availability of competent professionals, problem with IT system in handling the transition to IFRS and lack of experience towards IFRS were among the major ones.


- Ethio telecom need to facilitate well organized and continuous program of IFRS relevant to the telecom industry and its conceptual framework to all concerned staffs not for senior finance personnel but also to all lower level accountants and concerned staffs.
- Since most of the reporting entities like ethio telecom are adopting IFRs mainly due to the requirement of AABE and other Regulatory bodies not with their own initiative, the board and other stakeholders should facilitate proper implementation guidance and support for ethio telecom.
- The government should make a policy through the ministry of education, mandating the incorporation of IFRS syllabus into school curriculum in order to increase the technical capacity of countries future accountants. Besides Ethiopian higher learning institutions should work in this regard and broadly include the concept of IFRS intensely in their academic curriculum.
- Ethio telecom should be careful planning, identifying knowledge gap regarding IFRS standards and periodically update their staff in the education ,expertise and technical capacities in connection with IFRS.
- To strengthen the benefits of other stakeholders the regulatory bodies should be adequately made stronger through engagement of qualified professional to ensure proper compliance and monitoring of the implementation of adopted IFRs for financial reporting.
- Ethio telecom should upgrade its Information communication technology infrastructure as IFRS successful implementation and transition to IFRS has to be premised, inter alia, on the existence of a formidable information technology supporting structure.
- Ethio telecom should assign highly competent and vibrant trainers that train the staffs in order to ease the complexity of conversion and timely interpretation of standards.
- Ethio telecom should work towards the increment of awareness for managing the dynamics of continuous amendment of IFRS, especially to the reporting and interpretation of existing financial report with in context of newly adopted IFRS amendment.


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St Mary’s Faculty of Accounting and Finance Questionnaire

We are a student of St Marry University studying Accounting and Finance. The purpose of this Questionnaire is to collect data for the research being conducted on the title “prospects and challenges of first time adoption of IFRS at ethio telecom”, for the partial fulfillment of the requirements for the degree of bachelor of Accounting and finance.

No personality identifiable information is being collected from you and all information you provide will be combined with other respondents’ data and analyzed in aggregate. Responses will be kept Confidential at all times and used only for academic purpose.

Thank you in Advance for taking your valuable time!

Tofick Temam


Bethlehem Chala

Part I: Demographic Background

Please kindly tick ( ^ ) your answer in the appropriate boxes or respond your answer by Writing in the space provided (if required).

1. Gender:

Female Q male Q

2. Academic level:

Level IV/Diploma СИ Bachelor’s degree □

Master’s degree

3. Working Experience:

Less than 5 years 6 to 10 years Ц 16 to 20 years □

4. Current position in your organization

PART II: Adoption and Practices of IFRS

1. When did your company start using IFRS? State the year

2. Did you have attended IFRS related trainings? 1.yes 2 .No

2.1.1 If your answer to question number 2.1 is yes

How adequate is the IFRS training that you have had for implementation of IFRS?

1. Adequate 2.Not adequate If Not adequate please tell us your reason.

3. If u compare the previous standard to the IFRS is IFRS preferable? Yes □ No □

4. What is reason for your preference?

Relevance □ Faithful □

Cost □ Comparability П

5. Did Gap assessment was done before starting IFRS implementation at ethio telecom.

П Yes □ No

6. Did time period for the preparation to transition IFRS was adequate?

□ Yes □ No

If your answer for question 7 is “No” can you tell us the reason?

7. Does your company understand and perform in accordance with proclamation number 847/2014 regarding financial reporting regulation.

I I Yes □ No

8. What factors/influenced or motivated ethio telecom to adopt IFRS?.

I I The requirement by accounting and auditing board of Ethiopia.

I I Recommendation from auditor

I I Ethio telecom own interest to standardize and improve financial reporting.

I I Others? Specify

9. What are the practical benefits you expect from ethio telecom to derive by just adopting IFRS under the existing circumstances?

0 Improvement of quality (reliability, comparability e.t.c) of financial reporting.

1 I Transparency of financial reporting which reduce problem.

I I Simplicity of raising capital abroad

П Others (specify) .

10. The benefits of IFRS exceed the cost of implementing it in the context of ethio telecom.

I I Strongly agred I neutral I I agree I I strongly disagree I I dis agree

11. How do you describe the status of IFRS adoption interms of complexity of financial accounting and reporting as compared to the previous reporting framework?

HH Complicates financial reporting EH simplifies financial reporting □ remain the same

Part III: Benefits of Adopting IFRS.

Please put only one tick mark (/) for each line in the labeled column where (1-Strongly disagree; 2-Disagree; 3- Undecit

ed/Neutral; 4

Agree; 5-Strongly agree.

Abbildung in dieser Leseprobe nicht enthalten

PART IV: Challenges of IFRS adoption.

Abbildung in dieser Leseprobe nicht enthalten

64 of 64 pages


Adoption of international financial reporting standards at Ethio telecom. Challenges and prospects
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adoption, ethio, challenges
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Tofick Shikuri (Author), 2019, Adoption of international financial reporting standards at Ethio telecom. Challenges and prospects, Munich, GRIN Verlag,


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