International Accounting Convergence and Divergence: Towards a Framework for Understanding De Jure Adoption of IFRS

Abstract By bridging the two main approaches examining de jure adoption of IFRS, namely, convergence and divergence studies, we provide a framework that more fully captures the totality, dynamics, and complexity of voluntary adoption of IFRS by country. The framework offers an understanding of accounting regulators’ efforts to balance between pressure to adopt IFRS and national specific conditions that may conflict with IFRS requirements. The suggested framework depicts four propositions which are built on four institutional dimensions: the degree of IFRS diffusion, national accounting system compatibility with IFRS, country dependence on external financing, and accounting regulator’s international networking. These four propositions jointly predict national adoption level of IFRS, ranging from non-adoption to partial adoption, and to full adoption. The framework assumes that the current IFRS adoption status by country is not static and may change over time. The voluntary adoption of IFRS standards by country is understood as the result of tradeoffs among multiple factors. In doing so, the developed framework solves a theoretical dichotomy in IFRS studies: the tendency of using institutional isomorphism to examine convergence versus accounting classification to understand divergence.