Globalization of financial reporting on specific case of central European countries

Paper contributes to the body of literature on international accounting harmonization by focusing on the particular case of Central European countries. The developed analysis is positioned under current circumstances challenging the road towards a single set of high quality global accounting standards. The originality of the paper consists in offering insights to four national accounting systems (Czech, Slovakian, Hungarian and Polish) that were rarely exploited by accounting research literature. National accounting regulations are analyzed and discussed in relation to IFRS, finally leading towards formal harmonization measurement. Emphasis is placed on measurement related aspects and financial statements. The employed research methodology includes qualitative content analysis for accounting regulations and coefficients previously used in literature in order to quantify the level of similarity between accounting systems. The obtained results document a lower similarity degree between Czech and Hungarian accounting system and IFRS, however considerably higher between Slovakian and Polish accounting system and IFRS. This should be considered by stakeholders when analyzing the current state of facts in the international arena. Such results should be used in documenting the national strategy to attract potential foreign investors in entering Central European markets.

When analyzing the process of accounting harmonization, the first distinction we must make is that between formal and material harmonization. This distinction is also made in literature, a significant number of international accounting studies within research literature focusing on issues related to formal and material harmonization. As Bonaci et al. (2011) note, formal harmonization or de jure harmonization studies mainly deal with quantifying the compatibility degree between the international accounting regulations (IFRS) and different national accounting regulations (NAS). On the other hand material or de facto harmonization studies mainly analyze, quantify and interpret to what extent the foresights of the international accounting regulations (IFRS) are actually found within entities’ accounting practices (Ding et al., 2003; Fontes et al., 2005; Garrido et al., 2002; Larson and Kenny, 1999; Tay and Parker, 1990). Fontes et al. (2005) clearly emphasize the difference between the two types of accounting harmonization. We might conclude that formal harmonization focuses on how accounting standards are developed while material harmonization analyzes the level of comparability and concordance proven by actual accounting practices in relation to the implementation process of accounting standards when considering national accounting systems (Bonaci et al., 2011).

A series of factors impact upon the process of accounting harmonization and only having harmonized accounting regulations does not guarantee similarity and complete comparability when it comes to practices. This suggests the limitation of this study only focusing on accounting regulations as well as potential future developments. Continuing our analysis by also considering companies accounting practices would provide the necessary information to asses to what extent the foresights of accounting regulations are also applied accordingly. Another limitation of the results obtained when quantifying formal accounting harmonization is linked to the nature and number of elements considered within the analysis.