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FACTORS AND BENEFITS MOTIVATING LIBYA’S DECISION TO ADOPT IFRS
Abdulsalam Mahmod S Binomran Accounting and Finance Department, Sheffield Business School, UK
Abstract
Purpose: To examine and explore Factors and Benefits motivating Libya’s decision to adopt International Financial Reporting Standards (IFRS). Design/methodology/approach: This study has adopted a quantitative method, using a questionnaire to gather data and utilising SPSS to analyse this data.
Findings: The results of this study demonstrated that the Libyan’s economy’s potential for growth is a significant factor in its adoption of IFRS. Thus, economic growth plays a vital role in pushing Libya toward adopting IFRS. Furthermore, the benefits associated with adopting IFRS are another strong motivation for Libya to make that decision. In contrast, the accounting education in Libya plays a lesser role in encouraging Libya to adopt IFRS, because it still requires development and improvement, particularly in terms of curriculum and IFRS training courses.
Originality: This study focuses on financial accounting literature in developing states, particularly with regards to the key motivations for Libya to adopt IFRS. Therefore, this research can provide a valuable contribution to the field of accounting in Libya and other developing countries. Also, this study may be used as a guide for other researchers, academics or interested parties when conducting further study on IFRS, either in Libya or other developing countries.
Keywords: International Financial Reporting Standards (IFRS), Economics, Accounting Education, Libya
Introduction
Previously, most companies have prepared their financial statements at a local level, following the traditional accounting systems commonly used in their respective countries. However, more recently, the world has witnessed a major shift towards globalisation, whereby the scale of cross- border trade has surpassed local activity levels. Consequently, traditional accounting systems do not have the capacity to process the financial data being generated between countries, as they
Corresponding Author at: Accounting and Finance Department, Sheffield Business School, UK E-mail adresse: [email protected] Received 21 October 2020; Accepted 6 January 2021
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were originally designed only to manage local information (Zehri and Chouaibi, 2013). This development inspired the proposal to unify accounting standards (Shil et al. 2009).
In 1975, the International Accounting Standards Committee (IASC) issued International Accounting Standards (IAS). In 2001, The International Accounting Standard Board (IASB) assumed this role which adopted the IAS and subsequently issued a newer set of standards, named International Financial Reporting Standards (IFRS) (Pacter, 2005). The history of IFRS will be explored in further detail in the literature review section.
To date, IFRS have been adopted or approved in a total of 134 countries across the world, including the great nations (e.g. the states of the European Union, New Zealand and Australia) (Houqe, et al 2012). Moreover, they have been accepted by a large number of organisations, for example, listed companies in the capital market, global development agencies, international banks, politicians and professional accountants (Botzem, 2012; Botzem and Quack, 2009).
Many developing countries and emerging markets have also adopted these standards including, Egypt, Tunisia, Ghana, Nigeria, Jordan and Saudi Arabia (Biobele et al 2013). Owolabi and Lyoha (2012) attributed the increasing popularity of IFRS in developing countries to their need to gain greater economic benefits, including improving capital market profitability and attracting foreign investment. Despite the many advantages associated with adopting IFRS, many countries have yet to do so, including Malaysia, Colombia, Algeria, Mauritania and Libya, the latter of which will form the primary focus of this study.
Reasonable accountants can disagree about whether a move to International Financial Reporting Standards (IFRS) will improve financial reporting. One key concern is that principles-based financial statements are much more susceptible to fraud. Rather than relying on strict rules, management’s judgment will guide much of the reporting. Clearly this creates a risk of fraud, but how big is the risk? For several decades, both academic and professional literature has taken great interest in the notion of fraud. It is because of the financial impact resulted (Maulidi, 2020).
If we look at companies engaged in financial statement fraud under Generally Accepted Accounting Principles (GAAP) reporting, we often see that the abuse happens in accounts that require judgment in establishing balances. For example, reserve accounts require management to estimate the cost and timing of expenses. Sometimes firms intentionally understate the reserves to boost net income, thereby easily abusing these accounts. Other times, reserves can be overstated to create a cookie jar through which future losses can be concealed.
Despite the growing adoption of IFRS around the world, Zehri and Abdelbaki (2013) argue that IFRS are more suitable for developed countries, suggesting that this may be because the first version of IAS/IFRS were fundamentally focused on developed countries. Furthermore, the board members of the IASB are from only nine countries; five are from the European Union (EU) and the United States (US) and the other members are from Canada, China, South Africa and Japan respectively, not to mention the IASB is based in London (Chandra, 2011).
However, a number of developing countries and emerging markets have already adopted, or are seeking to adopt IFRS. Motivational factors vary from one country to another; often the choice to adopt IFRS results from a desire to obtain the advantages associated with such standards. Egypt,
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Tunisia, Nigeria, Ghana, Saudi Arabia and the United Arab Emirates (UAE) have already adopted IFRS, for example (Alsaqqa and Sawan, 2013). Using the example of Egypt, key motivators to adopt IFRS were the economic advantages, aid from the World Bank and the level of education.
Libya is one of the developing countries that has not yet adopted IFRS. Despite taking an initial step in this direction by issuing Law No. 1 in 2005, which allows listed companies and banks in the Libyan stock market (LSM) to apply IFRS, however, they have not yet been activated (El- Firjani, et al 2014). In light of this delay, this study seeks to identify the most significant factors and benefits to encourage Libya to adopt IFRS. Moreover, it aims to define the benefits associated with the process of adoption that might encourage Libya to adopt IFRS.
Currently, there is a substantial body of literature that has studied the process of adopting IFRS in developed countries, as well as the factors that motivate nations to do so. A number of studies have also addressed this issue in Africa and other developing states (e.g., Stainbank, 2014; Zori, 2015; Shima and Yang, 2012; Zehri and Abdelbaki, 2013). In addition, some research has been conducted specifically in Libya, for example LAGA (2013), Elhouderi (2014) and Zakari (2014), among others.
However, the entire body of Libyan-based research has primarily concentrated on the challenges associated with the adoption of IFRS. To date, no study has focused on the factors that may potentially impel Libya to adopt these standards, or identified the benefits that may convince Libya to adopt IFRS. Accordingly, this study aims to address this gap in research on accounting practices in Libya specifically, and in developing countries in general. This study seeks to explore the key factors and benefits associated with the adoption of IFRS that may impel Libya to adopt IFRS.
Libya has great potential to boost its economy with its many assets. For example, according to Almnfi and Yang (2015); KPMG (2013), quoting the International Monetary Fund (IMF), “the value of Libya's oil reserves per capita is the fifth highest in the world after Kuwait, Qatar, the United Arab Emirates and Saudi Arabia. Because of this oil wealth, many of Libya’s macroeconomic indicators compare favourably with that of other African economies”.
Furthermore, according to Carpenter (2015), Libya is considered to be the fifth leading oil industrialist in Africa, and has the ninth largest oil reserves in the world. In addition, El-Firjani, et al. (2014) highlighted that the Libyan education sector has witnessed significant developments in recent years. However, Libya is held back by its accounting system; it requires a uniform framework to regulate its accounting practices, as discussed by Elhouderi (2014).
According to Stainbank (2014), states that are capable of economic growth are likely to adopt IFRS because of the increased size and complexity of business transactions in these countries. In the same vein, Zeghal and Mhedhbi (2006) conclude that there is a positive relationship between adoption of IFRS and potential for economic growth.
On the other hand, Hegarty, Gielen and Hirata Barros (2004) explain that application and adoption of IFRS requires a certain level of education and training. Therefore, any country that has an acceptable level of accounting education and training will seek to adopt international standards. Similarly, Brown (2011) claims that the adoption of IFRS will help countries to
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improve the quality of accounting and financial reporting and create a uniform framework for their national accounting practices.
The motivation for undertaking this research derives from all of these considerations, including the positive correlation between the adoption of IFRS and economic growth, and improvement of accounting education system, along with the benefits associated with IFRS' adoption. This study will seek to verify the factors and benefits associated with IFRS that may encourage Libya to adopt these standards.
The primary aim of carrying out this research is to examine and explore the significant factors and benefits which may push Libya to adopt IFRS. In order to achieve this aim, the following objectives were set for this study:
1. To assess the potential relationship between the Libyan economics potential for growth and taking the decision of adoption of IFRS, supported by perceptions from academics and qualified accountants. 2. To assess the potential relationship between improvement of accounting education in Libya and taking the decision to adopt IFRS, supported by perceptions from academics and qualified accountants. 3. To evaluate the potential relationship between the benefits associated with adopting IFRS and taking the decision to adopt IFRS in Libya, supported by Perceptions from academics and qualified accountants. 4. To determine IFRS adoption benefits that may positively influence on Libya’s decision to adopt these standards. 5. To determine the important factors that may motivate Libya’s decision to adopt IFRS.
Definition of IFRS
“International Financial Reporting Standards (IFRS) are a set of accounting standards developed by the International Accounting Standards Board (IASB) that is becoming the global standard for the preparation of public company financial statements” (IFRS, 2016a).
In addition, Pacter (2015) states that IFRS are a set of internationally recognised standards for the preparation of financial statements by commercial organisations. These standards describe the following:
A. The elements that should be recognised as liabilities, income, assets and expense. B. The way to measure these elements. C. The method to express them in financial statements. D. Disclosure on those related elements.
History and development of IFRS
In the past, the majority of companies around the world have prepared their financial statements according to their country’s local accounting system, which is known as Generally Accepted Accounting Practices (GAAP). Consequently, each country follows a different practice, with an
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entirely different GAAP. This has led to inconsistencies among countries in the method of preparation of financial statements and the presentation of financial performance (LAGA, 2013). To fill the gap between different accounting standards from state to state, IASC was founded in 1973 and issued the IAS in 1975 (Barth, et al 2008).
The aim of the IAS was to bridge the gap between the global accounting standards among different nations, thus increasing understanding between companies in different countries by creating a unified accounting system (Bensadon and Praquin, 2016). Soderstrom and Sun (2007) mentioned that The IASB took over the role of preparation of IASs from IASC in April 2001. They also added, thenceforth, IASB adopted the IASs issued by IASC and in addition also issued new standards called IFRSs.
According to Whittington (2005), the popularity of IFRS has significantly increased since the EU decided to leave GAAP (e.g. UK GAAP and Germany GAAP) and converge their financial reporting standards to IFRS. The IFRS represents an image of globalisation and their key aim is to prepare high-quality financial reports that are consistent across multinational companies and developed countries (Latifah, et al 2012). To date, more than 120 countries have endorsed or adopted the IFRS, including the great powers such as China, the EU, Russia, Australia, South Korea, Japan, etc. (Latifah et al. 2012).
The adoption of IFRS was a divisive issue in the US. However, there was progression in harmonising accounting standards following a series of regulatory changes aimed unite IFRS and US GAAP. From 2007, the Securities and Exchange Commission (SEC) allowed international companies to use IFRS in Securities and Exchange Commission filings without reconciling US GAAP (Lakmal, 2014). Despite this, it is still a controversial issue in the United States and should be considered in the future influence on US GAAP (Hoarau, 1995).
Recent years have seen significant shifts from domestic trade to international trade, as well as the emergence of financial markets, which have moved beyond local to international borders. All of this has meant that financial data processing in accordance with national standards does not meet the needs of users on the cross-border level (Zeghal and Mhedhbi, 2006). Also, as Levich (2001) shows, as a result of increased participation in the global economy, many companies have decided to invest in emerging markets because they present different opportunities. However, it needed to be taken into consideration that these emerging environments had poor accounting systems. As a result, the idea of unifying accounting standards emerged.
The rationale behind the pursuit of international companies in adoption of IFRS is quite simple. The IFRS make investors feel that their investments are protected because they enable stakeholders to assess the performance of investment (Carson and Dowling, 2010; Latifah et al., 2012).
The term “harmonisation of accounting” and the main merits and obstacles associated with it.
Fritz and Lämmle (2003) define the term “harmonisation of accounting” as a process that increases the compatibility between accounting practices by reducing the differences between
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them. Shil et al. (2009) express several key reasons behind the need to standardise methods of accounting, such as international trade growth, the internationalisation of companies, an increase in international competition and the developments in means of communication.
According to IFRS (2016b), harmonisation of IFRS helps a business to prepare its financial statements in line with foreign competitors, which facilitates the comparison of financial data between companies in different countries. Also, it contributes towards enabling parent companies that have subsidiaries in different countries to use the same accounting language. In the same context, Shil, et al. (2009) reported that harmonisation of accounting standards will have many benefits for global business, including facilitating transactions between different states and reducing the cost of exchange; it will also provide standardised information for decision-makers globally as well as improving the quality of information.
Moreover, Iqbal et al (1997) claim that harmonisation will assist foreign investors in understanding financial reports and assess the performance of foreign companies. Additionally, harmonisation can assist multinational corporations, enabling them to prepare financial statements for a variety of countries following the same method, thereby facilitating the external investment process (Nobes and Parker, 1991).
However, as Nobes and Parker (2002) illustrate, there are some obstacles facing harmonisation. Firstly, the large number of differences in accounting practices between the various countries; secondly, the lack of accounting bodies that organise professional accounting in some countries; finally, the variance between economic and political systems in different states.
Overall, harmonisation of accounting standards aims to formulate one global accounting system and to unify the language of accounting, both internally and externally. This in turn will facilitate the work of multinational companies and attract foreign investors, enabling them to easily understand and assess the performance of companies.
Controversy about the benefits and obstacles associated with the decision to adopt IFRS
There is a lot of controversy about the benefits of and Obstacles of the adoption of international standards. The proponents of the adoption of IFRS look at it from the perspective of the economic benefits accruing from the process, which aims to improve the capital market and develop performance (Daske, et al 2008). Also, as a tool to attract foreign companies and foreign direct investment and to monitor and evaluate the state financial sector (Ball, 2006).
Supporters of adoption contend that the state will benefit from the economic results through the process of improvement in comparability of financial statements prepared in accordance with international standards, thus creating a high-performance financial market (Barth et al., 2008). As Brown (2011) points out, the best example here is the argument presented in the EU about the expected economic benefits of adopting IFRS for European firms in 2002. It asserted that:
''...requiring listed companies, including banks and insurance companies, to prepare their consolidated accounts in accordance with International Accounting Standards (IAS) from 2005 onwards... will help eliminate barriers to cross-border trading in securities by ensuring that company accounts throughout the EU are more reliable and transparent and that they can be
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more easily compared. This will in turn increase market efficiency and reduce the cost of raising capital for companies, ultimately improving competitiveness and helping boost growth'' (European Commission, 2002).
In addition, the main benefits of adopting IFRS are to remove cross border obstacles and to increase the transparency, comparability and reliability of financial statements in order to raise the performance of the market and minimise the capital cost (Brown, 2011). However, a study by Ramanna and Sletten (2009) found that there were no firm conclusions to indicate whether there was actually a relationship between the adoption of IFRS and the reduction in the cost of information, thus facilitating access to and support for capital markets.
On the other hand, despite the claim that the adoption of international standards will contribute to improving the quality of accounting and financial reports, a study conducted in Egypt by Ebaid (2016) found that Egypt had failed to improve its accounting system quality and accounting information. This was as a result of several reasons, including, for example:
A. Egypt did not take into consideration that institutional improvements are needed before making a decision on adoption. B. There was a lack of adequate knowledge on the part of the Egyptian institutions and companies about the adoption of standards before making a decision about the adoption. C. There some legislation also needed to be amended before the decision.
All of the above could have contributed to the failure of Egypt to improve the quality of accounting, according to the results of this study.
Libyan economy Libya is a developing country (Thompson, 2016) located in North Africa, with a population of close to 6.278 million (Worldbank. 2016a). Libya shares borders with Tunisia, Egypt, Niger, Sudan, Algeria and Chad.
Libya is considered to be one of the world’s top ten richest countries, with oil reserves estimated at about 48 billion barrels (CNN, 2016). The Libyan economy depends on oil and gas revenues as well as it owns Agricultural, Marine and Tourist wealth (El-Firjani et al., 2014). The economic system in Libya is a central system, which is directly controlled by the state and each Libyan citizen of enjoyed a Gross National Income (GNI) estimated at $US12,070 in 2008, which ranked 67th in the world, and $11,940 in 2009 and 2010, ranked at 71. This GNI fell to $7,820 in 2014 because of the political fluctuations (Worldbank, 2016b).
Furthermore, Libya has the largest oil reserves in Africa and is thus considered an attractive environment for foreign investment for the exploration and production, transportation and refining of oil. Over the years, the oil industry in Libya has seen several strong sharing agreements for exploration, production and exportation of oil with many countries, such as the United Kingdom, Japan, America, Australia, Spain, France, Canada, Brazil, Germany and China (Ramadan and Joseph, 2015).
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Currently, in an attempt to advance economic growth, Libya has started to shift to a market-based economy (Masoud, 2013). Libya joined the World Trade Organisation (WTO) in 2004 in order to enable international companies to invest in Libya, and to facilitate international trade (El-Firjani et al., 2014). Also, with the aim of making the process more efficient, new legislations issued in 2014 and 2015 were enforced on both public and private companies, including Foreign Direct Investment (FDI) and Multinational Corporations (MNC). This resulted from an expansion in financing for infrastructure and development projects within the economy (KPMG, 2014). Moreover, it was intended to drive foreign banks to increase the mobilisation of funds for infrastructure investments (KPMG, 2014).
Libyan stock market
The stock market in Libya, created in 2006, led to growth and the need to adopt or develop uniform standards for the preparation of financial statements (Elhouderi, 2014). According to PricewaterhouseCoopers (PWC) (2012), ''There is a Stock Exchange which is open to Libyans only. There are about 10 companies traded mostly in the financial services sectors. The Libyan Stock Exchange has stated that the companies on the exchange should adopt IFRS, but to date, none of them apply IFRS'‘.
As a study by Edweib et al (2013) showed, the Libyan stock market has great potential to dramatically contribute to the growth of the Libyan economy. Masoud (2014) explained that the establishment of a Libyan stock market in 2006 resulted from a decision made by the General People's Community (GPC). He also stated that the presence of oil and gas wealth was a great contributor to the development of the market, also increasing the speed of growth in the industrial base and aiding Libya to enter the world capital market. Therefore, it might be more accurate to describe the Libyan market as an emerging market.
Nevertheless, the General Authority of the Libyan stock market needs to improve its policies and laws to encourage both local and foreign investors to invest in the Libyan market (Masoud, 2014). However, after the political conflict that followed 2011’s revolution in Libya, trading in the Libyan stock market (LSM) almost ceased, save for the Trade and Development Bank. The market is expected to reopen soon to function much more efficiently.
Libyan accounting system
Libya, like several countries, has undergone to periods of colonisation by different countries. It was under Turkish colonialism from the mid-16th century to 1911, becoming an Italian colony from 1912 to 1943. Then, it came under the joint rule of Britain and France in the period from 1943 to 1951. As a result of the colonial period, the current accounting system in Libya is a mixture of different backgrounds and regulations (Elhouderi, 2014).
Despite the constantly changing Libyan business environment resulting from the various colonial periods, Libyan decision-makers did not attempt to develop an accounting system and standards to keep up with the evolution of the global economy. Therefore, the current accounting system in Libya does not reflect the local economic requirements of the Libyan state because it was derived
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from different countries and has not been improved or developed to reflect changes in the Libyan environment (Elhouderi, 2014).
Kilani (1988) observed that the current accounting system in Libyan has been most significantly influenced by the British and US systems respectively, and that the Libyan government must establish a new system, or modify the current one, to suit Libyan requirements. For example, Libyan businesses only supply profit and loss accounts and annual budget according to the law's requirements, and generally they do not provide more than that, which reflects the low level of accounting and auditing in Libya. Kilani also added that, to date, there are no accounting principles or standards in Libya, because there have been no laws regulating accounting practice.
Elhouderi (2014) explained that the lack of a defined framework for accounting practices in Libya has led to the use of a different accounting system from company to company. It has also given professionals the freedom to select the accounting standards and methods of their choice, without accountability, which could lead to misuse of the system or be used to serve personal interests.
The Libyan accounting education
High-quality education undeniably helps to establish a strong accounting system, thereby preserving the quality of professional accounting practices. Libya, like other developing countries, can develop and improve the accounting profession by providing proper education to create professional accountants with the appropriate knowledge (Mashat, 2005).
Libya gained independence in 1952. At that time, the number of Libyan professional accountants and trainers who had graduated from university was very limited. Also during that period, the Libyan education system was based on a curriculum derived from the British and American system, but using books translated into Arabic (Ritchie and Khorwatt, 2007).
The accounting curriculum in universities at the time was also imported from the UK from 1957 to 1976, with textbooks that were either British, or written by Arabs who had graduated from British universities (Kilani, 1988). At the beginning of 1977, the British accounting curriculum was replaced by its American counterpart (Parker and Roffey, 1997) purely because the majority of accounting in Libyan universities at that time had graduated from American universities. Thus, the UK textbooks were replaced with American textbooks, which had also been translated into Arabic (Ritchie and Khorwatt, 2007).
From 1969, the Libyan government began to pay increased attention to the higher education system, as a result of a greater awareness of the importance of accounting services. This brought about the founding of many universities and technical institutes in cities across Libya during the 1980s and 1990s in order to meet increasing demand for accounting services (Ahmad and Gao, 2004). In spite of the growing interest, however, the number of qualified academics in the field of accounting was still insufficient, therefore there was little development of accounting education in Libya during that time. It worsened following the United Nations (UN) sanctions imposed on Libya during the 1990s, continuing until the beginning of the 21st century. Under these sanctions, Libya was not able to employ or import academically qualified accountants or experts from abroad to teach in Libya (Ahmad and Gao, 2004).
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Recently, following the resolution of the sanctions imposed by the Security Council, considerable effort has been made to raise the level of university education, increase efficiency and provide a better accountancy education (Ahmad and Gao, 2004). For example, according to Rhema (2005), the accounting department in Gharian University has been provided with new technology to enable web-based learning. Furthermore, Decision No. 165 was issued in 2006 by the General People’s Committee of Education (GPCE) establishing a division of Economic Sciences in secondary education, including accounting, banking sciences, administration and economics (Shihba and Embark, 2011). In recent years, specifically since 2011, the Libyan state has been working to develop the education system dramatically, including the curriculum of accounting at all levels. Libya also sends a large number of accountants to study abroad in Britain and America, especially for master's degrees and PhDs (El-Firjani et al., 2014).
The following points can be taken from all that is discussed above:
A. Libya is a wealthy country with significant resources in the oil, gas, marine and agricultural sectors; these have and will continue to benefit the growth of the Libyan economy. B. Libya has several old partnerships with European and American countries, especially in the oil industry. C. Despite some feeble attempts at the reform and development of the accounting system in Libya, it still lacks a unified framework to regulate accounting practices. Libyan accounting continues to reflect the colonial period and does not emanate from the reality of the Libyan environment. D. The educational system is being continuously developed in Libya, especially in recent years, including an increased interest in the fields of accounting and management.
The expected benefits of adopting IFRS in Libya
Vinayagamoorthy (2014) asserted that the decision to adopt international standards has many benefits for large institutions and companies. Firstly, an improvement in the quality of accounting practices through the development of high-quality financial reports following a unified framework. Secondly, improvement in the disclosure of financial practices amongst different companies and organisations. Thirdly, foreign investors and international companies are more likely to invest in a country that has adopted IFRS. Finally, the harmonisation of the accounting language will increase efficiency amongst accountants, both domestically and abroad.
In regards to Libya, according to Kilani (1988), Libya does not as yet have uniform accounting standards. The Libyan system only requires companies to submit a profit and loss account, and a balance sheet, which Kilani (1988) deems inadequate. Likewise, Elhouderi (2014) claimed that, to date, there is no uniform framework or accounting system in Libya. Therefore, each company or institution can choose whatever suits it from the standards and accounting system, which creates difficulty in comparing financial practices between firms. In the same context, he added that the 2006 emergence of the financial securities market in Libya demands the adoption of IFRS.
As such, it can be expected that the adoption of IFRS will help Libya in the following respects:
1. In improving the quality of the accounting system in general. 2. In the formation of a unified framework for accounting practices.
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3. In ensuring the success and development of the stock market by attracting foreign investors and multinational companies to invest in Libya. 4. In increasing the efficiency of accountants through the harmonisation of the accounting language, both domestically and abroad.
The most important factors influencing the decision of adopting IFRS in developing countries
Currently, IFRS has already been adopted by many developing countries such as Egypt, Tunisia and Ghana (Samaha and Stapleton, 2008). Although there is awareness that reporting and accounting systems must demonstrate the scope within which they operate to be fully effective (Samaha and Dawahy, 2010), IFRS are perceived to be more suitable for developed countries and multinational corporations, as these were the targeted entities for the first version of IAS/IFRS (Zehri and Abdelbaki, 2013). Consequently, many studies have been conducted on the most important factors influencing the decision to adopt IFRS in developing countries and emerging markets, including those by Shima and Yang (2012) and Zehri and Abdelbaki (2013).
The findings of the study carried out by Shima and Yang (2012) revealed that, in general, two motives affect the decision regarding adoption of IFRS. Firstly, the shift towards globalisation. Increased cross-border trade with countries that have adopted IFRS, in addition to membership of an economic community such as the European Union, have strengthened IFRS as a means of facilitating the sharing of information and capital across borders. Secondly, some countries, especially those which have considerable economic resources and the potential for economic growth, might be willing to adopt IFRS in order to attract foreign investment and thus obtain financing by delivering high-quality financial reports.
In their 2013 study, Zehri and Abdelbaki targeted 74 developing countries, including Tunisia and Algeria. The results revealed that the most significant factors affecting the decision to adopt IFRS are the potential for economic growth and the level of education. Therefore, states that have an abundance of economic resources and a high level of education are more likely to seek to adopt IFRS than others.
On the other hand, they added that some elements have less of an effect on the likelihood of a state adopting IFRS, such as political system, the stock market and culture. There are several reasons for this. Firstly, developing countries lack a real culture of accounting, thus the accounting culture has less effect on the adoption of standards. Secondly, the small size of the stock market in developing countries means it is less efficient in these countries and therefore has less effect on the adoption of IFRS. Thirdly, the political system is more relevant for socio-economic disciplines than for accounting.
The adoption of IFRS and the economic theory of networks
This theory assumes that developing countries may adopt IFRS because their trading partners, or countries that are working with them, have already adopted these standards (Ramanna and Sletten, 2009). This theory considers that there are two elements to take into account in the
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adoption of products, namely, the intrinsic value of the product and the value of the product’s network (Katz and Shapiro, 1985). According to Samaha and Khlif (2016), IFRS serve as a product and the country should assess the value of the product’s network and the intrinsic value of the product.
Samaha and Khlif (2016) also state that adopting international standards will minimise risk of domestic bias and facilitate doing business with foreign companies, if the country already has a strong relationship with other nations that have adopted IFRS. The best example here is in 2005, when most of the developing markets that had a strong partnership with EU countries adopted IFRS (Samaha and Khlif, 2016). Ramanna and Sletten (2009) added that the product value of a network is known as the “synchronisation value of IFRS”, whilst the value of the intrinsic application of IFRS is referred to as the “autarky value of IFRS”.
From the principles of benefit and cost, the state should embrace international standards only if the value of self-sufficiency and the value of IFRS synchronisation are greater than the value of the generally accepted national accounting principles, the GAAP (Samaha and Khlif, 2016).
Libya has trade agreements with a large number of countries such as America, Italy, the United Kingdom, France, Canada and Germany, particularly with regards to the exploration, production and export of oil and gas (Ramadan and Joseph, 2015). Additionally, as Joffe (2001) mentions, Libya has had strong trade relations with Europe since the period of Italian occupation. On the other hand, Hamuda and Sawan (2014) note that the Libyan Accountants and Auditors Association (LAAA) “has not issued any principles or standards of accounting or auditing”. Likewise, as Elhouderi (2014) shows, there is no specific framework for accounting practices that could be implemented on the various systems of accounting by Libyan companies.
It is possible that Libya’s existing business relationships with countries that have adopted IFRS could motivate Libya to follow suit. At the same time, Libya does not have a local GAAP or a unified accounting framework, therefore, the value of national GAAP will be zero. Furthermore, Libya stands to gain economic benefits from the adoption of IFRS, such as attracting foreign investors and international companies to invest in Libya, which could ultimately contribute to the development of the Libyan economy. It is clear that, in Libya, national GAAP has a lower value than that of the synchronisation of IFRS. Thus, according to the Economic Theory of Networks, Libya may stand to gain more benefits if it adopts IFRS.
The adoption of IFRS and the theory of isomorphism
This theory states that three varieties of isomorphism can be used to illustrate the adoption of the international standard in a state (Powell and DiMaggio, 1991), which are as follows:
The first is normative isomorphism, which represents the degree of education in a country (DiMaggio and Powell, 1991), a factor that might reflect on accounting practices. It means that, whenever the level of educational attainment in the population increases, the need to adopt IFRS will be also increased (Hassan, 2008).
The second variety is coercive isomorphism, which indicates the absence or presence of organisations or institutions that could impose on the state to embrace IFRS and amend its
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national standard to be consistent with them. For example, the International Monetary Fund (IMF) obliges developing countries to adopt IFRS in order to obtain foreign aid (Judge and Pinsker, 2010).
The third variety is a mimetic isomorphism, which means adopting the practices of other states because they are more successful and legitimate, whereby an accounting body may exert pressure to move in the direction of adopting international standards (Hassan, 2008).
The evidence of motivation theory relating to the decision to adopt IFRS
Generally, it can be said that evidence supporting these theories in the markets and developing countries is limited. There is little evidence linked with the theory of isomorphism in regards to the adoption of IFRS in developing countries. Zeghal and Mhedhbi (2006) concluded that there are several factors that drive developing markets to the adoption of international standards, which include the level of literacy in a country, growth of the economy and the extent of economic openness in the state.
In addition, Hassan (2008) studied the impact of foreign aid from the IMF, the percentage of educated individuals and the desire of Egyptian accountants to adopt IFRS. He confirmed that these three factors played a vital role in the decision of the Egyptian state to move towards adoption of international standards. Hassan’s (2008) study thus proved that the three theories of isomorphism are applicable in this case.
In regards to Libya, the recent period has witnessed a number of developments in the field of education, for example, as Rhema (2005) noted, the introduction of Internet-based education in accounting departments. In addition, Libya introduced an accounting education curriculum into secondary schools in 2006 (Shihba and Embark, 2011), as well as the study in the abroad (including both Masters and PhD), have contributed to the development of the accounting field in Libya (El-Firjani et al., 2014). It can be expected here that the current level of accounting education in Libya might be a strong impetus for the adoption of international standards, therefore falling under isomorphism theory, in particular, and normative isomorphism.
As for coercive isomorphism, the absence of an organisation that will exercise pressure on Libya is evident, for example, Libya does not need World Bank aid, thus is not subject to the pressures of the World Bank. In regards to potential of mimetic isomorphism, Libya’s oil reserves are estimated to be the fifth highest in the world per capita, following Kuwait, Qatar, the United Arab Emirates and Saudi Arabia (Almnfi and Yang, 2015; KPMG, 2013). In regards to these countries, all of them have already adopted IFRS because they have economies capable of growth. The capability of the Libyan economy to grow may play a vital role in encouraging Libya to adopt IFRS, in imitation of the experience of these countries.
Research Methodology
Research philosophy
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As Easterby-smith, Thorpe and Lowe (2002) illustrate, it is critical for researchers to understand philosophical issues for three key reasons, as follows. Firstly, it assists the researcher to clarify their research plan in order to gain appropriate answers to the research objectives. Secondly, it enables the researcher to identify methods that will be successful for their purpose, and any that will not. Finally, it can aid the researcher to create a new research plan that might be from outside the previous experience and knowledge of the researcher.
Collis and Hussey (2003) claim that the philosophies or paradigms can be divided into two key types. Firstly, Positivistic Paradigm, which includes quantitative and experimental studies. Secondly, Phenomenological Paradigm, which includes case studies and qualitative methodology (see table below).
Table 1: Phenomenological Paradigm and Positivistic Paradigm
Phenomenological Paradigm Positivistic Paradigm
Qualitative Quantitative Subjectivist Objectivist Humanistic Scientific Interpretivist Experimentalist Traditionalist
Source: Hussey and Hussey (1997).
This study seeks to explore views on what might motivate Libya to adopt IFRS. Research philosophy is significant to this study as it clarifies the model that will be followed to reach the most satisfactory conclusion to the research question, based on strong and accurate results. Accordingly, this research follows Positivistic Paradigm, which suits the nature and objectives of this study.
Research methodology and approaches Mingers (2001) said that, in many cases, there is confusion between terms “methodology” and “method”. Research methodology is the procedure followed by the researcher to reach certain results from the theoretical basis for data collection and analysis (Collis and Hussey, 2003). In contrast, the term “methods” indicates the different means and techniques utilised to collect and analyse data (Saunders, Lewis and Thornhill, 2003).
Furthermore, Creswell (2003) states that research methodology depends on three approaches: eclectic, qualitative and quantitative methods. Additionally, Collins and Hussey in a 2003 study divided business research methodology into two varieties: positivistic and phenomenological. The choice of methodologies depends on the nature and hypotheses of the study. Further, Hague, Hague, Nicholas and Morgan explain in a 2004 study, accurate and reliable information with real support figures can be better provided by quantitative rather than qualitative research methods.
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This study’s research objective is to demonstrate the factors and benefits that might encourage Libya to adopt IFRS. This study makes use of a questionnaire to obtain the views of participants towards this issue. Thus, in this study positivistic methodologies have been applied, with quantitative methods to derive accurate and reliable data relevant to the nature of the study.
In this respect, the study has followed quantitative methods, collecting primary data through use of a questionnaire that has been prepared in advance and is consistent with the objectives of this study. As Ellis, J. (2014) stated, the questionnaire is the cheapest and fastest way to collect data from a large number of people on a particular topic. By asking the same questions to each participant, responses are easily analysed and compared.
The sample in this research consists of three groups. They were selected on the basis of experience and knowledge in Libya’s accounting environment (Qualified Accountants) and knowledge of IFRS, in order to ensure accurate answers to the questionnaire, thus ensuring the reliability of study. Additionally, to enhance the results of the study, the questionnaires were distributed in two cities in Libya: Darna in the east and Tripoli in the west. The sample was distributed amongst the three groups as follows:
Table 2: The targeted sample
The targeted sample 1 Lecturers at the university 2 Auditors 3 Accountants in the banks listed in the stock market
Furthermore, the sample size has been formulated following other previous studies conducted in Libya, such as Baruni and Sentosa (2010).
Questionnaire
A questionnaire is a set of questions ranked in a chosen order (Collis and Hussey, 2003). It presents questions in a list format, often providing a selection of answers for respondents to choose from (Sekaran, 2003). Ellis (2014) stated that the questionnaire is the cheapest and fastest way to collect data from a large number of people on a specific topic by asking the same questions to each participant. Featuring responses in this way facilitates analysis and comparison.
This study had adopted the format of a questionnaire for the key reason that the nature of the study requires the thoughts of a large number of participants in categories relevant to the subject of study; furthermore, questionnaires have numerous advantages as explored above. Moreover, the ease of sending the questionnaire by e-mail or post or hand to the respondents in Libya facilitated this research, plus it is a format that has been adopted by prior studies examining IFRS such as Baruni and Sentosa (2010).
Questionnaire design and content
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According to a 1978 study by Dillman, questionnaires can use two types of questions: open-ended (unstructured) and closed-ended (structured). Closed-ended questions were selected to carry out the current study. Closed-ended questions, or structured questions, provide respondents alternative answers to choose from. This approach improves the response rate, as it generally requires less time than an open-ended questionnaire (Dillman, 1978). However, one of the questions was open-ended (unstructured) to enable the respondents to provide additional advice and add information considered valuable to the topic of study.
The questionnaire contains three pages (including the cover page), made up of four sections and eight questions. The content of the questionnaire is as follows:
The first section provides reliability and validity to the study by obtaining participants’ personal information through four questions related to participants’ qualifications, experiences, jobs, and IFRS knowledge. The second section assesses the potential relationship between the existence of resources that support Libyan economic growth and its role to take the decision to adopt IFRS. This section follows Gyasi’s 2010 views that economic growth can be measured through natural, human, and capital resource availability (it represents the first objective of study). The third section seeks to assess the relationship between improvement of accounting education and its role to motivate Libya's decision to embrace IFRS (it represents the second objective of study). The fourth section aims to evaluate the relationship between the benefits Associated with adopting IFRS and its role to drive Libya to take the decision of adoption of IFRS (it represents the third objective of study). The fifth section of the questionnaire is the open-ended question in which respondents are asked to provide advice or add any information relevant to the subject of study.
From section two and three, this study can identify the factors which might drive Libyan decision toward adopting IFRS (it represents objective five of this study). Also, from section four, it can uncover the key benefits associated with an adoption of IFRS that may encourage Libya to take the decision of adoption of these standards (it represents objective four of this study). Thus, the key factors and benefits which encourage Libya to adopt IFRS would be determined (see the primary objective of study).
Measurement scales
A scale was defined by Sekaran (2003) as a “tool or mechanism by which individuals are distinguished as to how they differ from one another on the variables of interest to our study”. According to Blumberg, Cooper and Schindler (2014), three kinds of scales can be utilised in business research: ordering, categorisation and ranking.
Two of these three categories were used in this study, as follows:
Part one of the questionnaire used the nominal scale to obtain personal information from respondents, inviting them to tick [√] next to the appropriate answers.
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Parts two, three and four adopted Likert Scales, which in this case contain five choices, however anything from four to seven options can be used (Bertram, 2007). This study has utilised five point scales under the following classifications: (1) Strongly Disagree, (2) Disagree, (3) Neutral, (4) Agree and (5) Strongly Agree. These classifications aim to determine the level of agreement or disagreement of participants. Part four depended on an open-ended question to collect further advice or information that might inform the study.
Translation of the questionnaire
The objective of this study is to find out the most important factors and benefits that may motivate Libya to adopt IFRS, and to provide a selected study sample from Libya. The official language in Libya is Arabic, and most of the population do not use English in the business sectors, therefore, this questionnaire has been translated into Arabic in order to make the process clearer for the respondents.
There were three options available for the translation of this questionnaire: direct translation, back translation or parallel translation (Malhotra and Birks, 2007). This study used back translation, which requires transferring the original questionnaire into its target language and then back again to its original state. Subsequently, the two questionnaires' sources must be compared before the final translation is produced. This is an important technique for this study to diminish any problems resulting from the process of translation.
Pre-testing the questionnaire
As Saunders, Lewis and Thornhill (2007) reported, the objective of the questionnaire's pilot test is to enable the respondents to answer the question without any problems as well as recording the data without problems. Moreover, it enables the researcher to assess the validity of questions and the reliability of data which has been gathered. To achieve these advantages, both the Arabic and English versions of this questionnaire were tested taking the following approach: Firstly, the questionnaire was examined and the English version was reviewed by a supervisor, taking the required amendments into account. Secondary, regarding the Arabic version, a sample was sent to a lecturer at the Faculty of Accounting in Libya, where it was tested and notes were made; it was then modified accordingly. Finally, six copies of the questionnaire were sent to Master’s and PhD students, and their comments taken into account. The reliability of the pre-test of samples was 0.851 (six questionnaires), which was deemed an acceptable level (see Table 3).
Table 3: Reliability statistics the pre-test of samples
Cronbach's Alpha Questionnaire Items
0.851 20
Data analysis
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There are several types of statistical software available for analysing and understanding the data. The most widely used in academic and business research is SPSS because it allows researchers to conduct various kinds of analyses and facilitates accurate findings (Arkkelin, 2014).
This study sent out a total of 80 questionnaires, of which 59 were returned, and three were removed as invalid. Thus, there were 56 valid questionnaires incorporated in the study. Structured questions were analysed using SPSS, with all of the participant data entered into SPSS software to test the study’s reliability. Each variable was then analysed separately using frequency analysis. Graphs and/or tables were used to aid data explanation. After that, each question’s variables were merged into a single variable using SPSS (median), with each question analysed separately using a frequency test. The results were displayed graphically. SPSS was chosen for usage because it undertakes different types of analyses and therefore provides an accurate result. Moreover, all participants did not answer the unstructured question, possibly due to the nature of the open-ended question.
Reliability
A reliability test is an indicator of the dependability of the questionnaire, primarily in matters of consistency. Bryman and Bell (2007) inform that the most common type of reliability is consistency assessed by Cronbach's alpha. Therefore, Cronbach’s alpha is used in this study in order to measure the scale of reliability. Moreover, “Alpha gives an estimate of the ratio of the whole variance that is not caused by an error” as explained by Saunders, Lewis and Thornhill (2009). They further explain that Cronbach’s alpha must be higher than 0.70 to be acceptable. As such, in this study, the reliability test was conducted by using SPSS on sample questionnaires, which showed the ratio of Cronbach’s alpha at 0.766 in this study. As it is above 0.70, this result was deemed satisfactory. The below table shows the Cronbach alpha findings in this research.
Table 4: Reliability statistics of the study
Cronbach's Alpha Questionnaire Items
0766 20
Research results
Background of respondents In this study, the researcher distributed 80 questionnaires in two cities in Libya in the period from the 27th July to the 22nd August. There were 56 valid questionnaires returned, which equates to 70% of the total number of questionnaires distributed. Personal data was collected from respondents in part one of the questionnaire, including qualifications, experience, current job and level of knowledge on IFRS.
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Table 5: participants' qualifications
Qualification Frequency Percent% Diploma 4 7.1 Bachelor 14 25.0 Masters 28 50.0 PhD 10 17.9 Total 56 100.0
Based on the results shown in this table and figure, 50% of the participants in the survey have a Master’s degree, 25% have a Bachelor’s degree and 17.9% of them have a PhD. 7.1% of them have at least a Diploma. From the above, it is clear that all of the participants are qualified in accounting, while most of them have a Master's degree, which increases the credibility of this study.
Table 6: Participants’ experience and current occupation
Experience Frequency Percent% Less than 5 years 7 12.5 5– 10 years 18 32.1 11- 15 years 26 46.4 16 years or more 5 8.9 Total 56 100.0 Current occupation Frequency Percent% Lecturing at the university 19 33.9 Auditor 16 28.6 Accountant 19 33.9 Other (specific)1 2 3.6 Total 56 100.0
The above table and Figures demonstrate that 46.4% of the sample have between 11 and 15 years of professional experience, with 32.1% who have 5 to 10 years of professional experience. Most of the participants are accountants or lecturers at the university; 33% are qualified accountants and 28% are auditors. From these results, it is clear that most of the sample has a good level of experience and were qualified accountants, which will reflect in this study in terms of accuracy of information.
Table 7: Respondents' knowledge and experience regarding IFRS
Level of knowledge Frequency Percent% Regarding IFRS Low 3 5.4 Medium 21 37.5
1 (1) Employee in Lending Department in the bank with around 10 years’ experience. (2) Trainee at the Higher Institute of comprehensive vocations.
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High 24 42.9 Very high 7 12.5 (missing)2 1 1.8 Total 56 100
The above figure and graph demonstrate that 42.9% of respondents have a high level of knowledge and experience regarding IFRS, and 37.5% consider themselves to have a medium level, whilst 12.5% have declared a very high level. Only 5.4% of respondents have a low level of knowledge and experience, and there was one participant who had not responded to this question. Thus, it can be concluded that around 92% of participants in this study have a suitable level of knowledge and experience on IFRS, which guarantees reliable viewpoints on this questionnaire.
Perceptions towards the existence of resources and elements that support the Libyan economic growth and its relationship with the decision to adopt IFRS.
This pertains to part two of the questionnaire, which aimed to assess the potential for growth in the Libyan economy, and its relationship with the decision to adopt IFRS; this represents the first objective of the study. According to Gyasi (2010), “Economic growth can be measured using the Gross Domestic Product (GDP) of the country or in some cases; national per capita income. The availability of natural resources, human resources, capital resources, and technological development in the economy”. As such, the ability of Libya's economy to grow was measured through the availability of natural and financial resources, along with other elements that support the Libyan economy.
The results shown in this table suggest that the vast majority of responses confirmed the link between the presence of valuable elements and resources that support economic growth and Libya’s decision to adopt IFRS. More than 94% of respondents answered in approval of the relationship between the presence of oil and economic growth in Libya and the decision to adopt international standards, whilst only 5.4% of respondents rejected this statement. Similarly, 76.8% of respondents accept the relationship between the existence of marine and agricultural wealth and economic growth and the decision to embrace international standards. It should be noted that 21% of the respondents expressed reservation to this statement, most likely as a consequence of the political uncertainty in Libya in recent times, which was alluded to in literature review section. Economic factors including the existence of elements and factors that enable Libyan economic growth, such as oil and gas, marine and agricultural wealth, trade relations with foreign countries, the stock market, recent shifts towards a market-based economy and Libya's accession to the World Trade Organization.
2 1.8% of participants has not answered question 4.
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Table 8: Measurement of the economic growth factor in Libya and its relationship with IFRS adoption
% Disagree % Strongly Disagree% Agree % Agree % Strongly Total % % Neutral
Statement Disagreement Agreement Level (1 + 2) Level (3 + %3 4) %4
1. The presence of oil and gas supports 1.8 3.6 35.7 58.9 economic growth in Libya and therefore increases the need to adopt IFRS. 5.4 - 94.6 100
2. The existence of marine and agricultural 1.8 - 35.7 41.1
wealth in Libya contributes to the growth of the economy, which consequently 1.8 21.4 76.8 100 creates the need for adopting IFRS. 3. Trade relations with foreign countries, - 5.4 48.2 44.6 such as the EU and the USA encourage the growth of the Libyan economy and, therefore, increase the need of adopting 5.4 1.8 92.8 100 IFRS. 4. The existence of the stock market will aid 1.8 - 33.9 48.2 growth in the Libyan economy, which will increase the demand for adopting IFRS. 1.8 16.1 82.1 100
5. Recent shifts towards a market-based 1.8 3.6 42.9 41.1
economy contribute to improving economic growth in Libya and, therefore, 5.4 10.6 84 100 motivate Libya to adopt IFRS 6. Libya's accession to the World Trade - 3.6 46.4 37.5
Organization helps the growth of the economy, which may encourage Libya to 3.6 12.5 83.9 100 adopt IFRS 7. The current degree of economic openness 1.8 1.8 50.0 30.4
in Libya will further economic growth, which will also lead to increased need to 3.6 16.1 80.4 100 adopt IFRS.
3 1=strongly disagree, 2=disagree. 4 3= agree, 4= strongly agree.
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In the same vein, 92.8% of participants accepted the third statement, which concerns Libyan trade relations with foreign countries and its impact on the adoption of IFRS. Likewise, participants expressed agreement with each of the following statements: statement four, which connects the existence of the stock market in Libya with economic growth and thus the decision to adopt IFRS, had 82.1% in agreement; statement five, which concerns the recent shifts towards a market-based economy in Libya and its contribution towards economic growth, and its possible impact on the adoption on IFRS, had 84% in agreement; statement six, which supposes a connection between Libya's accession to the World Trade Organization and the improvement of the Libyan economy, and its potential impact on the decision to adopt IFRS, had 83.9% in agreement; finally, statement seven, which alleges that the current degree of economic openness in Libya will further economic growth, and therefore encourage Libya to adopt IFRS, had 80.4% in agreement. In contrast, in statements four and seven, 16.1% of participants expressed neutrality, which might be attributed to the current political instability in the country, which is expected to end soon.
Perceptions towards the development of the accounting education system in Libya and its relationship with the decision to adopt IFRS.
Part three of this questionnaire assesses the relationship between the development of the accounting education system and its role to drive Libya to take the decision to adopt IFRS in Libya; this represents objective two of this study.
Table 9: Measurement of Libyan accounting education as a factor and its relationship with the adoption of IFRS
% Disagree % Strongly Disagree Agree % Agree % Strongly
Neutral % Neutral Total %
%
Disagreem Agreement Statement ent Level Level (1 + 2) %5 (3 + 4) %6
1. The current accounting education curriculum 19.6 23.2 25.0 - in Libya is a motivating factor for the adoption 42.8 25.0 of IFRS. 32.2 100
5 1=strongly disagree, 2=disagree. 6 3= agree, 4= Strongly agree.
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2. Current graduates in Libya have the necessary 8.9 48.2 10.7 5.4
competence, knowledge, and skills on IFRS, which might encourage Libya to adopt those 57.1 26.8 16.1 100 standards. 3. Lecturers at universities in Libya have a 7.1 16.1 37.5 12.5 strong knowledge of IFRS, which will lead to improving the efficiency of the students in this 23.2 26.8 50.0 100 area, and therefore might drive Libya to the adoption of IFRS. 4. The universities in Libya provide training 12.5 30.4 17.8 - courses on IFRS, which may encourage Libya 42.9 39.3 17.8 100 to adopt them. 5. Introducing the division of accounting in 7.1 23.2 41.1 16.1 secondary school education has contributed 12.5 100 to enhancing the efficiency of accountants in 30.3 57.2 Libya, which may encourage adoption of IFRS. 6. The emergence of idea-based online education 3.6 21.4 32.1 12.5 in university accounting departments aims to improve the skills and knowledge of 25 30.4 44.6 100 accountants in Libya and, therefore, may encourage Libya to adopt IFRS 7. Studying abroad, especially in developed 3.6 10.7 21.4 39.3 98.7 countries (e.g. the US, the UK) contributes to providing knowledge and skills for Libyan 14.3 23.2 60.7 (1.8 accountants on IFRS, and may push Libya missing)7 toward adopting IFRS.
Table 9 shows that views differ on the extent that improved accounting education in Libya will motivate the country to adopt IFRS. 57.2% of participants agreed with statement five, which looks at the role of introducing the division of accounting in secondary schools, improving efficiency of accountants, which may encourage Libya to adopt IFRS. Likewise, 60.7% accepted statement seven, which supposes that studying abroad contributes to providing knowledge and skills for Libyan accountants on IFRS, which might in turn encourage the Libyan decision to adopt IFRS. However, 57.1% of respondents answered negatively to statement two, which questions the ability of current Libyan graduates to deal with IFRS, and 26.8% answered neutrally to this statement.
In the same vein, 42.8% of participants rejected statement one, which looks at the role of the current accounting education curriculum in motivating Libya to adopt IFRS, and 32.2% responded neutrally to this statement. Furthermore, 42.9% refused the idea that universities in Libya provide appropriate training courses on IFRS, represented by statement four, and 39.3% answered neutrally. Statement three divided opinions: 50% of respondents agreed that lecturers
7 1.8% of participants has not answered statement (7).
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at Libyan universities have a strong knowledge of IFRS, whilst 50% either disagreed or responded neutrally. Statement six, on the emergence of ideas-based online education in university accounting departments to improve the skills and knowledge of Libyan accountants and its potential to encourage Libya to adopting IFRS, was agreed to by 44.6% and rejected or answered neutrally by roughly 55% of the participants.
Perceptions of participants towards the benefits of adopting IFRS and its relationship with encouraging Libya to adopt IFRS.
Part four of the questionnaire aimed to assess a relationship between the perceived benefits of IFRS and its role to drive Libya to take the decision to adopt IFRS. This represents objective three of the study.
Table 10: Measurement of a relationship between the benefits associated with IFRS and its role to drive Libya to adopt IFRS
% Disagree % Strongly Disagree Agree % Agree % Strongly Total % % Neutral
%
Disagreem Agreement Statement ent Level Level (1 + 2) %8 (3 + 4) %9
1. Libya's desire to improve the quality of 3.6 - 58.9 33.9 98.2
financial reports might be a motivation for (1.8 adopting IFRS. 3.6 1.8 92.8 missing)10
2. The need of Libya for a uniform accounting - - 35.7 58.9 framework for financial practices might be an
incentive to adopt IFRS. - 94.6 5.4 100
3. Improvement in the comparability of financial - 1.8 44.6 46.4
statements between companies could be a motivator for Libya to adopt IFRS. 1.8 91
8 1=strongly disagree, 2=disagree. 9 3= agree, 4= Strongly agree. 10 1.8% of participants has not answered statement (1).
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7.2 100
4. The encouragement and facilitation of - - 28.6 64.3 international trade may serve as an incentive - 7.1 92.9 100 for adopting IFRS in Libya. 5. The development of the stock market may be - 3.6 30.4 57.1 one of the motives behind a decision to adopt 3.6 8.9 87.5 100 IFRS in Libya. 6. Enhancements in the efficiency of accountants - 3.6 42.9 48.2 through the harmonisation of accounting 3.6 5.4 91.1 100
According to Table 10, most of the respondents agreed with the idea that Libya might decide to adopt IFRS in order to gain certain benefits. The percentages were as follows: 92.8%, 94.6%, 91%, 92.9, 87.5% and 91.1% of respondents accepted statements one, two, three, four, five and six respectively.
General Discussion Discussing the first objective of study
The results of the questionnaire showed that the capability of the Libyan economy to grow might be a strong motivation for the adoption of international accounting standards. More than 90% of respondents agreed that there is a strong relationship between the potential for the Libyan economy to grow and the decision to adopt IFRS. This result is consistent with Shima and Yang’s (2012) explanation on motives that affect the decision to adopt IFRS; they stated that any country with considerable economic resources and the potential for economic growth would seek to adopt IFRS, in order to attract foreign investment and to improve the quality of their accounting system. These findings were confirmed by Zehri and Abdelbaki (2013), who state that the existence of strong economic resources, and the presence of an economy that has the potential to grow, are significant catalysts for developing countries to adopt IFRS.
Moreover, this result is consistent with the third kind of the Theory of Isomorphism, known as mimetic isomorphism. This theory indicates that a country might adopt the practices of other states that are perceived to be more successful and legitimate (Hassan, 2008). As such, Libya could move toward adopting IFRS in imitation of countries with a similar economic environment, yet which are more successful than Libya. Almnfi and Yang (2015) studied the best example on this, as is explained in literature review. KPMG (2013) explains that Libya’s oil reserves per capita are estimated to be the fifth highest in the world, following the likes of Kuwait, Qatar and the United Arab Emirates. Therefore, Libya might follow the example of these countries, which have already adopted IFRS and now have more successful markets than Libya. Similarly, Libya might be encouraged to adopt IFRS in imitation of the experience of neighbouring countries, such as Egypt and Tunisia, which have both already adopted IFRS.
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In addition, the existence of trade relations expressed in statement three, with foreign countries, such as the EU and the US, was considered by more than 90% of participants as a potential motivator for Libya to adopt IFRS, consistent with the Economic Theory of Networks. Samaha and Khlif (2016) claim that a country might adopt IFRS if it has strong trade relations with countries that have already adopted IFRS, in order to facilitate the work of foreign companies.
Discussing the second objective of study
This objective related to accounting education in Libya, and its possible influence on Libya’s decision to embrace IFRS; only 33% of respondents agreed that this might be a factor, whilst around 58% of participants responded “Neutral” and “Disagree”. Therefore, accounting education in Libya has limited effect in encouraging the country to adopt IFRS (a limited relationship).
In spite of this, Ahmad and Gao (2004) claimed that Libya has recently made significant efforts to improve university education and to raise the efficiency of the accountancy profession. Also, Rhema (2005) discussed the introduction of web-based learning in accounting departments in some Libyan universities. Moreover, there was the launch of the Division of Economic Sciences in secondary schools in Libya, including accounting (Shihba and Embark, 2011). In addition, the state has been trying to improve the efficiency of accountants by sending them to study abroad (El-Firjani, et al., 2014).
In spite of these improvements, the responses to this questionnaire indicate that accounting education in Libya still requires much improvement, especially regarding curriculum, which respondents thought needs a lot of attention. However, the lack of adequate training on IFRS for university students could be the cause for these responses.
In another aspect, this derived result is different from the previous assumptions that tried to apply the theory of isomorphism to Libya. Especially with normative isomorphism which assumed that improvements in Libyan accounting education may constitute strong impetus for the adoption of IFRS. However, study results demonstrate that education still plays a limited role in motivating Libya to adopt IFRS. Education’s impact may be limited because the overall improvement is still lagging, especially in relation to accounting education curriculum and training on dealing with IFRS.
Discussing the third objective of the study This objective concerned the benefits associated with adopting IFRS and if they take a role in motivating Libyan to adopt these standards. The findings of the questionnaire were that most respondents agreed Libya would be motivated by the benefits they stand to gain, because Libya strongly desires all of the related benefits. This is consistent with what stated in literature review for example, according to Kilani (1988), there are no local GAAP or accounting standards in Libya, and it has a weak accounting system that needs much improvement, thus Libya may adopt IFRS as a solution to improve its accounting system, particularly in regards to the quality of reports and the comparability of financial statements between companies. Elhouderi (2014) agrees that there is no uniform framework for accounting practises in Libya, therefore, IFRS may perform
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this role. Furthermore, Edweib et al. (2013) claim that Libya’s stock market has great potential to contribute to the growth of the Libyan economy, therefore adoption of IFRS may play a vital role in improving this market, by attracting investment in Libya and facilitating international trade.
Furthermore, Libya might be encouraged to adopt IFRS in order to gain economic benefits, consistent with the Economic Theory of Networks; this theory states the need to compare the economic value of the adoption of IFRS with the value of the local GAAP to ascertain which is higher. In applying this theory to Libya, Hamuda and Sawan (2014) note that the Libyan Accountants and Auditors Association (LAAA) “has not issued any principles or standards of accounting or auditing” therefore Libya might obtain the economic benefits linked with IFRS if it decides to adopt these standards, because it has not issued local GAAP. From these, it can be said there is a strong relationship between the benefits associated with IFRS and the decision of adoption IFRS in Libya. Also, the benefits associated with IFRS play a vital role to encourage Libya to adopt IFRS.
Discussing the fourth objective of the study
The fourth objective is concerned with identifying the benefits associated with IFRS that could push Libya toward adoption of these standards. In this respect, the study findings show that the possibility of obtaining these benefits may play an important role in encouraging IFRS adoption:
1. Improvement of the quality of financial reports in Libya. 2. Formation of a uniform accounting framework for financial practices in Libya. 3. Improvement of the comparability of financial statements between companies in Libya, whether local or foreign companies. 4. The encouragement and facilitation of international trade in Libya. 5. The development of the Libyan stock market. 6. Enhancing the efficiency of accountants in Libya through the unifying language of accounting at home and abroad.
These benefits mentioned above are consistent with the benefits of harmonising accounting standards, as indicated by Shil et al. (2009); these benefits include the facilitation of trade amongst countries and improved quality of reports and of overall accounting methods. This is also similar to what Daske et al. (2008) state about the role of IFRS in improving the capital market. Furthermore, the results are consistent with what Ball (2006) expresses regarding the role of IFRS in attracting foreign companies and foreign direct investment. Moreover, the mentioned benefits above confirm the expected benefits of Adopting IFRS in Libya as indicated in literature review.
Discussing the fifth objective of the study
This final objective concerned the identification of significant factors to motivate Libya to adopt IFRS. This study has concluded that there are two key factors, based on illustration of previous
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findings concerning with objective 1 and 2, that will encourage Libya to adopt IFRS, which are as follows:
1. Economic growth, which is a strong motivator for Libya to adopt IFRS. 2. Accounting education, which is a weak motivator for Libya to adopt IFRS, as it still requires much development.
This conclusion is in the same line as other previous studies, such as Shima and Yang (2012), and it indicates the importance of potential for economic growth in pushing developing countries to adopt IFRS. Another study, conducted by Zehri and Abdelbaki (2013), included 74 developing countries, and its results emphasised the role of both accounting education and economic growth in encouraging developing countries to adopt IFRS. Therefore, it can be argued that each of economic Growth factor and accounting education factor may encourage decision maker in Libya to adopt IFRS. However, the Accounting Education in Libya still needs to improve especially in terms of curriculum and training in the use of international standards.
Fulfilling the main objective of the study
From the above, it can be taken that the main objective of study was to explore the key factors and benefits that might push Libya to adopt IFRS. These motivations include the following:
1. Economic factors including the existence of elements and factors that enable Libyan economic growth, such as oil and gas, marine and agricultural wealth, trade relations with foreign countries, the stock market, recent shifts towards a market-based economy and Libya's accession to the World Trade Organization. 2. The benefits of adopting IFRS also serve as strong motivational factors, including the improvement of the quality of financial reports in Libya, the formation of a uniform accounting framework for financial practices, improvement of the comparability of financial statements between companies, whether local or foreign, the encouragement and facilitation of international trade, the development of the Libyan stock market and enhancing the efficiency of accounting by unifying the language of accounting, both domestically and abroad. 3. Accounting education is also a limited motivator in pushing Libya to adopt IFRS. However, Libya should improve the strength of this factor, particularly in terms of curriculum and training regarding dealing with IFRS.
Conclusion
The results confirmed a strong relationship between potential for economic growth in Libya and taking the decision to adopt IFRS. Next, it moved to the second objective, and the results confirmed the importance of accounting education in encouraging developing countries to adopt IFRS. Nevertheless, it also demonstrated the need to improve accounting education in Libya. Then, the third objective was discussed, which also showed a strong relationship between the likelihood of IFRS being adopted in Libya and the benefits of adopting these standards. The
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benefits linked with the adoption of IFRS that could encourage Libya to adopt IFRS were identified. Then, the most important factors that may motivate Libya to adopt IFRS were explored, and it was concluded that these are economic growth (identified as a strong motive) and accounting education (identified as a weak motive). Accordingly, the main objective of the study was reached, as the main aim was to identify Factors and Benefits motivating Libya’s decision to adopt IFRSs.
Expected contribution of the study to current knowledge The benefits and factors motivating Libya’s decision to adopt IFRS were identified in this study. Therefore, this study has provided various valuable contributions to the field of accounting in developing countries, especially in regards to research on IFRS. These contributions include the following:
1. Libya is making improvements in its economy, moving towards a market-based economy and opening a stock market, whilst instigating economic openness and various economic reforms. However, the accounting system in Libya is still weak and needs further reform. This study may contribute to the development and reformation of the accounting system in Libya. 2. The absence of empirical research in Libya, especially on the subject of IFRS following recent economic developments, increases the importance of this study. This research may contribute to filling a gap in current literature and providing greater understanding of issues regarding the adoption of IFRS. 3. This study explores the most important motivations that may encourage Libya to adopt IFRS. Thus, the results of this study have the potential to assist decision-makers in Libya on whether or not to adopt IFRS. 4. This study can be used as a guide for researchers, academics and other interested parties on the subject of IFRS in Libya and similar developing countries.
The scope and limitations Given the magnitude and complexity of IFRS, this research has focused purely on the benefits and other factors that may encourage Libya to adopt them. From a theoretical standpoint, this study based itself on previous studies from neighbouring countries and areas with economic environments that closely resemble that of Libya. The ways in which Libya differs from other countries, in terms of its capacity and a number of other factors, have already been taken into consideration. For example, Hassan (2008) discerned that Egypt's need to acquire international assistance from the World Bank was the catalyst to their adoption of IFRS. However, this would not be a motivating factor for Libya, as it does not require World Bank aid.
Moreover, the factors that influence the decision to adopt IFRS can vary from one country to another. A significant number of motivating forces may also exist. Nobes and Parker (2004) highlighted the factors that might have an impact on the decision-making process. These include culture, taxation, inflation, accidents and legal issues. In addition, Zeghal and Mhedhbi (2006) suggested that economic growth and the presence of a stock market, along with level of education and economic openness, can all play a vital role in pushing a country to adopt IFRS.
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It is simply impossible examining all of these factors in a single study. Therefore, this research has focused on the most significant factors from a Libyan perspective. These include the economy and educational determinants, which constitute significant impetuses in encouraging Libya to adopt IFRS. Also discussed were the benefits that could encourage Libya for making this decision.
In relation to research methodology employed in this study, the researcher highlights few deficiencies that may impact on the findings. First, since this study is heavily really on statistical analysis (statistical descriptive), the researcher cannot explore the reasons in depth behind the respondents’ answer. It will be better if the further studies associating with this topic also take into account the exploration methods (e.g. interview) to obtain answers that are closely with real phenomena. Second, this study witnessed low-response rate when collecting questionnaires, so suggestion for the next studies try to broaden the sample of the study aimed at generalizing research findings to population in Libya conditions. In other words, this study can only generalize the research findings to the proposed topics.
In addition, the practical side of this study involved adopting a questionnaire to collect data. Therefore, there are likely to be certain restrictions to the findings of this study, due to drawbacks of the questionnaire format, such as the risk of incorrect responses from participants. To avoid this problem in future research, it might be advisable to collect data through interviewing, which provides accurate data that would enhance the validity and reliability of the study.
Furthermore, the limited timeframe for this study and the current political landscape in Libya might have affected this study, as they might prevent access to important information. Finally, the participants of this study were from only two cities in Libya, which restricts the possibility of generalising the results of the study widely.
Recommendations and suggestions for further research
This study recommends that Libya continues to improve its accounting education system before adopting IFRS, especially, in regards to curriculum as well as the provision of IFRS training sessions for students, lecturers and any others who might be expected to use these standards. We see that despite various troublesome adjustments in terminology, definitions, and layout, for different reasons the different groups of faculty have generally not had to undergo excessive adjustments in their teaching in order to embed IFRS into their courses. The adoption of IFRS would provide many benefits for the Libyan economy, especially in regards to the development and improvement of the stock market, which has the potential to impact the Libyan economy as a whole. Due to these implications, Libya must seriously consider the decision to adopt international standards. The current political situation in Libya might have prevented accurate results in this study, thus it is recommended that another study on this subject is conducted when circumstances have improved. Regulation is not only an activity performed by state actors and involving legal mechanism but it is seen as the intentional, global-directed and problem-solving effort undertaken by both state and non-state participants. Moreover, regulators might act at a transnational, multinational, national or sub-national level. Therefore, communications between all participants in the regulatory process are an important part of their operation.
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This study has focused solely on the factors that might motivate Libya to adopt IFRS, whilst neglecting the obstacles that may be encountered when adopting these standards. These impediments should be taken into account; it would be advisable to conduct a new study on potential obstacles before a decision is taken to adopt IFRS. Finally, the sample in this study was somewhat limited in that it included only two cities in Libya. Future studies should be undertaken to include samples from more than two cities, as this would enhance the possibility of generalization and the study could thus be applied to a larger scope.
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