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The role of corporate governance in convergence with IFRS: evidence from China

The role of corporate governance in convergence with IFRS: evidence from China Purpose – The purpose of this paper is to examine the important role played by corporate governance in de facto International Financial Reporting Standards (IFRS) convergence, and to provide empirical evidence that audit quality mediates the degree of IFRS convergence. Design/methodology/approach – The paper develops a model showing the role of corporate governance in converging national accounting standards with the IFRS, and empirically tests the model using a sample of Chinese listed companies with B‐shares. Both analysis of variance and multiple regressions are employed to test the hypotheses. Findings – Effective internal corporate governance helps companies to be more aligned with IFRS and thus provide high quality financial information. Furthermore, audit quality as an external governance factor mediates the relationship between internal corporate governance and IFRS convergence. Research limitations/implications – The paper extends research findings, as shown in the literature, by showing the role of corporate governance in the IFRS convergence, especially the mediating effect of audit quality. In addition to accounting standards, global convergence of auditing standards and corporate governance is imperative if de facto convergence of accounting standards is to be achieved. Originality/value – The paper highlights the effect of corporate governance and the interaction between internal and external corporate governance in achieving IFRS convergence, which has been largely ignored in the literature. Based on the results, the paper proposes an explanation for the mixed results shown in the literature. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png International Journal of Accounting and Information Management Emerald Publishing

The role of corporate governance in convergence with IFRS: evidence from China

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Publisher
Emerald Publishing
Copyright
Copyright © 2012 Emerald Group Publishing Limited. All rights reserved.
ISSN
1834-7649
DOI
10.1108/18347641211218470
Publisher site
See Article on Publisher Site

Abstract

Purpose – The purpose of this paper is to examine the important role played by corporate governance in de facto International Financial Reporting Standards (IFRS) convergence, and to provide empirical evidence that audit quality mediates the degree of IFRS convergence. Design/methodology/approach – The paper develops a model showing the role of corporate governance in converging national accounting standards with the IFRS, and empirically tests the model using a sample of Chinese listed companies with B‐shares. Both analysis of variance and multiple regressions are employed to test the hypotheses. Findings – Effective internal corporate governance helps companies to be more aligned with IFRS and thus provide high quality financial information. Furthermore, audit quality as an external governance factor mediates the relationship between internal corporate governance and IFRS convergence. Research limitations/implications – The paper extends research findings, as shown in the literature, by showing the role of corporate governance in the IFRS convergence, especially the mediating effect of audit quality. In addition to accounting standards, global convergence of auditing standards and corporate governance is imperative if de facto convergence of accounting standards is to be achieved. Originality/value – The paper highlights the effect of corporate governance and the interaction between internal and external corporate governance in achieving IFRS convergence, which has been largely ignored in the literature. Based on the results, the paper proposes an explanation for the mixed results shown in the literature.

Journal

International Journal of Accounting and Information ManagementEmerald Publishing

Published: May 4, 2012

Keywords: Accounting; Audit quality; China; Convergence of accounting standards; Corporate governance; International Financial Reporting Standards

References