Factors Affecting the Adoption of IFRS

This paper examines a comprehensive set of environmental characteristics based on Choi and Meek's (2008, CM) framework to explain international accounting system development, which we proxy by IFRS adoption. The main finding indicates that CM's framework is fairly descriptive. Factors relating to political and economic ties, reliance on foreign-sourced debt and common law legal systems create contracting incentives for adoption. Similarly, the need for capital investment evidenced by greater economic growth and capital formation, and higher literacy rates creates signaling incentives for adoption. However, other factors relating to size of capital markets, taxation, and inflation produce disincentives for adoption, which point to internal political and practical costs of converting current accounting systems to IFRS.