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Factors and Benefits Motivating Libya's Decision to Adopt Ifrs Review of Business, Accounting & Finance Volume 01, Issue 01, 93 - 129 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 ISSN: 2635-0688 93 Review of Business, Accounting & Finance Volume 01, Issue 01, 93 - 129 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, ISSN: 2635-0688 94 Review of Business, Accounting & Finance Volume 01, Issue 01, 93 - 129 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.
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