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Accounting harmonization in the BRIC countries: A common path? Alessandro Ghio a,b , Roberto Verona b,∗ a b

ESSEC Business School, Department of Accounting and Management Control, 1 Avenue Bernard Hirsch, Cergy, France University of Pisa, Department of Economics and Management, Via C. Ridolfi 10, Pisa, Italy

a r t i c l e

i n f o

Article history: Received 10 May 2014 Received in revised form 27 November 2014 Accepted 5 February 2015 Available online xxx Keywords: BRICs Accounting harmonization Accounting systems IAS/IFRS GAAP

a b s t r a c t The aim of this paper is to understand the similarities and differences in the accounting convergence process of the BRIC countries. The study examines the evolution of these countries’ accounting systems by developing a three-dimensional framework based on the political, economic and cultural elements. Brazil and Russia merely imitate, whereas China and India edit and translate the international standards (‘informed divergence’). The political aspect, supported by the national culture and ‘community’, represents the main driver, even if the three dimensions are closely interconnected and overall, we show the current emergence of limits of the implementation of the dominant market model. © 2015 Published by Elsevier Ltd.

1. Introduction The process of international accounting convergence is undergoing a period of change. Several developed and developing countries around the world are adopting international GAAP. Today, the two main accounting standards are the IAS/IFRS, issued by the IASC/IASB and used or allowed in more than 120 countries, and the U.S. GAAP, issued by the FASB and mainly adopted in the USA. Those based on the first standard are principle-based, allowing room for interpretation (Ball, 2006), whereas those based on the second are rule-based (Benston, Bromwich, & Wagenhofer, 2006). The convergence process, confirmed by the Norwalk Agreement in 2002, is in progress. The Securities and Exchange Commission (SEC), convinced that one accounting standard could improve the comprehensibility of financial reporting, has decided to allow companies listed on the NYSE to use the IAS/IFRS, making the reconciliation form voluntary (Durand & Tarca, 2005; Henry, Lin, & Yang, 2009). At the same time, despite the many innovations in harmonization studies in the past 10 years, it is remarkable that a single standard has still not been fully achieved. The comparability and the transparency of financial reporting are without doubt affected by these decisions (Chiapello & Medjad, 2009). The convergence process toward a single set of rules is particularly interesting in developing countries, where accounting standards are usually of low quality, if not absent. The harmonization process of accounting standards toward IAS/IFRS is strongly influenced by political, cultural and economic elements. After reaching political and economic stability, these states need to regulate the capital markets and companies have to disclose additional financial information (Zeghal & Mhedhbi, 2006). Some governments are deciding to directly implement international GAAP without, or with a few, amendments

∗ Corresponding author. Tel.: +39 3479827793. E-mail addresses: [email protected] (A. Ghio), [email protected] (R. Verona). http://dx.doi.org/10.1016/j.accfor.2015.02.001 0155-9982/© 2015 Published by Elsevier Ltd.

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(Nobes & Parker, 2012). The BRIC (Brazil, Russia, India and China) countries (O’Neill, 2001), among the fastest growing economies in the world, are all converging toward a single set of international accounting standards as they are deciding or planning to adopt IAS/IFRS in the next few years. Their main goals are to facilitate the interpretation, transparency and comparability of the financial reporting of their companies all over the world. Moreover, all four countries are increasingly integrated in the world economy, they are becoming a central and crucial node in the global flows of goods and service and their economies are more export-driven (Fagiolo, Reyes, & Schiavo, 2010). They account for 20% of world GDP, they have a population of almost 3 billion people and their importance is also strongly linked to the growing trend of both inward and, more recently, outward investments. From a cultural point of view, it is also interesting to notice that Brazil, India and China are considered to be emerging powerful actors in the global mediascape (Straubhaar, 2010). Despite the growing importance of these countries, there is still a lack of comparative analysis of the BRICs’ accounting regulations. The aim of this study is to contribute to the current debate on accounting harmonization, investigating the process undertaken by the BRICs. Thus, the article attempts to respond to the two following research questions: (1) What are the similarities and differences in the accounting harmonization processes of the BRIC countries? (2) Why are the BRIC countries making these decisions? We initially study the evolution of the BRICs’ accounting systems over the last decades. In fact, as Merton (1959) says ‘it might at first seem needless to say that before social facts can be ‘explained’, it is advisable to ensure that they actually are facts. Yet, in science as in everyday life, explanations are provided for things that never were’. Then, we make a comparative analysis of the harmonization process of accounting standards. Differing from previous studies (Borker, 2012a; Ramanna, 2013; Xiao, Weetman, & Sun, 2004), we explain why BRIC countries made those decisions by developing a threedimensional theoretical framework based on the political, economic and cultural characteristics of the different countries. In fact, accounting is no longer considered a mere technique. To fully understand the current accounting systems, we need to adopt a broader perspective, specifically looking at the societal relations of power, as accounting shapes and is shaped by the environment (Chapman, Cooper, & Miller, 2009). We find that all BRICs are fast approaching the dominant model, which is represented by the IAS/IFRS (Lehman, 2005). At the same time, the analysis of the dynamic process of adoption of international GAAP highlights that China and India have decided to issue national accounting standards based on the IAS/IFRS showing a process of ‘translation/editing’, whereas Brazil and Russia have fully adopted the IAS/IFRS (‘imitation’). Different from Baudot (2014), we claim that the ‘informed divergence’ is not only a peculiarity of the relationship between different standards, such as between the IAS/IFRS and the U.S. GAAP, but it can emerge even within the same accounting standard. The political, economic and cultural dimensions of the accounting harmonization processes of the BRICs are strictly interconnected, and influence between them is extremely likely, especially if we consider that the accounting framework is strongly permeated by the local context (Arnold & Sikka, 2001). Nevertheless, the political aspect, supported by the national culture and ‘community’, represents the main driver of the decision process even if the three dimensions are intimately interconnected as identified in the analysis of the political economic aspects. Overall, the current globalization, which has strongly sponsored the standardization process among the different national GAAP, is actually showing its limits since national interests are limiting the achievement of a single and unique standard all over the world. In fact, in addition to the evident slowdown of the convergence process between the IAS/IFRS and the U.S. GAAP, we are assisting more and more to a well-identified willingness to protect the peculiarities of national economies and so the competitiveness of the respective firms. Despite the fact that the four countries have progressively liberalized their markets in the last decades, restrictions imposed by the political regulation of the market (‘statism’), especially in China and India, represent a clear pattern aiming to resist to a dominant and widespread model. At the same time, we still have to take into consideration that the other two countries have passively adopted the IAS/IFRS: Brazil moved even further since it has already introduced the IFRS for SMEs, meaning that also the small and medium firms, which are usually considered the ‘watchdogs’ of the local values, have to adopt this set of standard based on a different framework with respect to the local GAAP. To the best of our knowledge, this is the first study that comprehensively looks at the reasons behind the convergence process of a set of developing countries. These results are useful to policy makers in studying the convergence process as well to other developing countries that are planning to adopt the IAS/IFRS. Several of the least developed countries, which do not have any accounting rules, wish to directly implement the IAS/IFRS in next few years. The transnational standard setting body necessarily has to take into consideration these discrepancies in the adoption process of the dominant accounting standards since they clearly represent voices which have been suffocated in the name of the liberation process in the last decades. Moreover, this paper, showing that accounting is fully embedded in in the political economy of a country, contributes to bring additional evidence to validate the presence of ‘varieties of capitalism’ which should be analyzed in a dynamic perspective since they gradually evolved in recent decades. In Section 2, we present the literature review and in Section 3 we define the theoretical framework. In Section 4, we analyze the evolution of the four accounting systems in the last century. In the last two paragraphs, we discuss the evidence gathered and we present our conclusions.

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2. Literature review The growing importance of the convergence process toward a single set of accounting standards has led to a significant increase in research into comparative international accounting. Accounting harmonization is currently in progress, but numerous implications have not yet been highlighted. Several studies have tried to find similarities and differences among accounting systems. The classification process generally focuses on a set of widely investigated countries. Groups are based on extrinsic values (Buckley & Buckley, 1974; Gray, 1988; Leuz, 2010; Mueller, 1967, 1968; Puxty, Willmott, Cooper, & Lowe, 1987; Seidler, 1967; Shoenthal, 1989) or intrinsic values (da Costa, Bourgeois, & Lawson, 1978; D’Arcy, 2001; Nair & Frank, 1980; Nobes, 1983, 1998). Mueller (1967) identifies four different patterns, based on external elements using simple examples, which are framed later on by Choi and Meek (2011).1 Gray (1988) explains international accounting differences by adapting a previous cultural classification model of Hofstede (1980). Seidler (1967) divides countries according to the ‘zone of influence’ they belong to. Puxty et al. (1987) differentiate accounting systems following three main regulatory drivers: the market, the state and the community. Within these extremes, they identify other terms, such as liberalism, associationism, corporatism and legalism. They apply this model in a concrete way to the United States, the United Kingdom, Germany and Sweden. On the other hand, intrinsic classifications use accounting data directly. Nobes (1983) tries to overcome problems evident in the previous analysis relating to data, methodology and hierarchy. He studies 14 Western developed countries in 1980, and he identifies nine discriminating factors.2 In recent years, the global convergence process toward the IAS/IFRS has raised questions on the validity and efficacy of the criteria used to analyze accounting systems. Much research focuses on the same set of developed countries and does not take into consideration the actual changes in developing countries. Thus far, studies of the harmonization process can be divided into two different categories. In the first category, researchers highlight the main characteristics of the global convergence process. They analyze the cost–benefit relationship relevant to the adoption of a single set of accounting standards (Ainajjar, 1986; Ball, 2006; Bloom & Naciri, 1989; de Lima, de Lima, de Carvalho, & Lima, 2010; Nobes & Parker, 2012; Palacios Manzano, Martínez Conesa, & Marín Hernández, 2007; Weetman & Gray, 1991). In the second category, authors mainly investigate single states or homogenous areas to determine the level of compliance with international accounting standards (Alves & Antunes, 2011; Hellström, 2006; Jermakowicz & Rinke, 1996; Perera & Baydoun, 2007; Sudarwan & Fogarty, 1996). Regional and comparative studies focus on clusters based on geographic proximity (Delvaille, Ebbers, & Saccon, 2005; Emenyonu & Gray, 1992; Ritchie, 2008; Saudagaran & Diga, 1998; Williams & Tower, 1998). At the same time, there are few analyses that widen the focus to countries with similar features (Zeghal & Mhedhbi, 2006). Studies that investigate the BRICs usually examine the main accounting changes since the adoption of the IAS/IFRS in single states (Borker, 2012b; Liu, Yao, Hu, & Liu, 2011; Rodrigues, Schmidt, & dos Santos, 2012; Srivastava & Bhutani, 2012). Moreover, these studies usually look at only one possible factor that could have influenced the adoption of a certain accounting system. Borker (2012b) analyzes the extension of the cultural dimensions to the accounting value dimensions introduced by Gray (1988) to explain and predict the development of different accounting systems. He identifies several similarities in the disclosure process between Russia and Brazil. In particular, he finds that no country shows completely consistent values with the IAS/IFRS. In the end, he compares the cultural characteristics of the BRIC countries to those of the G7 countries, highlighting several important differences. Walton (1986) studies the impact of the British accounting legislation on Malaysia, Cyprus, Antigua and the Australian State of Victoria, the four Commonwealth countries. He finds that despite the influence of the British legislation, it is not possible to identify a single accounting model, mainly due to the persistence of national cultural elements. Ramanna and Tahilyani (2011) look at the influence of political decisions on the changes to the Indian accounting system. Rodrigues et al. (2012) analyze the Brazilian case, looking at both the political and economic dimensions. In a recent paper, Ramanna (2013) studies the dynamics of politics in the harmonization process. The investigation, conducted on Canada, India and China, identifies two proxies in clustering different countries: proximity to existing political powers at the IASB on the x-axis and own potential political power at the IASB on the y-axis. Thus, he defines a framework about how political choices affect the adoption process of the IAS/IFRS at the country level. Arnold (2009) asks for more research to investigate the relationship

1 The four different patterns are: 1. Accounting within a macroeconomic framework; 2. The microeconomic approach; 3. Accounting as an independent discipline; 4. Uniform accounting. 2 The nine factors are: 1. Type of users of the published financial statements of listed companies; 2. Degree to which law or standards prescribes in detail and excludes judgment; 3. Importance of tax rules in measurement; 4. Conservatism/prudence (e.g. valuation of building, inventories, debtors); 5. Strictness of application of historical cost (in the main statements); 6. Susceptibility to replacement cost adjustments in main or supplementary statements; 7. Consolidation practices; 8. Ability to be generous with provisions (as opposed to reserves) and to smooth income; 9. Uniformity between companies in application of rules.

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between the macropolitical and economic environment and accounting. She affirms that most of the accounting research still considers accounting to simply be a tool that provides information to the capital market. This narrow perspective has been strongly criticized since the beginning of the financial crisis, and the study of the political economy together with ‘cultural explanations’ can represent an effective bridge between accounting practices and economies. In fact, it is widely accepted that accounting is not a technique, but represents a cultural and sociopolitical phenomenon fully embedded in the overall context (Hopwood, 1983; Mouck, 2004; Robson & Young, 2009; Suddaby, Cooper, & Greenwood, 2007; Young, 2003, 2006). Additionally, the global diffusion of the IAS/IFRS can be tackled in two different ways. First, the ‘modernization’ approach is based on the assumption that new forms of organization emerge independently because they are generally considered the most efficient. Second, the ‘diffusionist’ perspective looks at the different channels through which information enforces the transfer and diffusion of practices and structures (DiMaggio & Powell, 1983; Djelic, 2006). Djelic and Quack (2007) ask for more research on the relationship between national and international standard-setting arenas to better understand the co-evolutionary nature of path generation. In fact, there is a significant lack of literature on the analysis of the evolution of accounting systems, especially for the developing countries. There are several doubts as to the efficacy of most studies that simply adopt a static approach and do not take into consideration recent changes due to the convergence process toward international GAAP and the interconnections among countries. Moreover, an approach limited to a particular perspective greatly risks not taking into account important elements needed to understand the decisions made by the different countries. Finally, the BRICs represent an especially interesting group for investigation because their affinity is not based primarily on proximity. In fact, this study sheds additional light on the relationship between accounting and the development of capitalism (Arnold, 2009; Becker, 2013; Puxty et al., 1987). In particular, Lehman (2005) asks for further studies on the role of accounting to interpretate the decisions of the local communities in relationship to the global stimuli, above all looking at the economic, environmental and social forces. Similarly, Stephen (2014) questions the role of BRICs as a rising power in the existing structure of global capitalism. In fact, the globalization process is pushing countries toward homogenization and standardization which risk to reset local cultures and the IAS/IFRS are considered a possible manifestation of this, especially if we consider the barriers and challenges that developing countries could face to adopt accounting standards based on a different framework (Irvine, 2008; Rodrigues & Craig, 2007). Furthermore, Cooper, Neu, & Lehman (2003) highlight the possible side effects of this process, since financial representation has been pursued following accounting standards based on the American model, raising serious concerns about the possible inequities between countries since they do not have the same characteristics and voice at international level. 3. Theoretical framework In this study on the convergence process toward the IAS/IFRS, it is necessary to take into consideration that the homogenization process can be fully achieved through the rationalization of institutional factors (Judge, Li, & Pinsker, 2010). A growing number of organizational interactions have taken place since the establishment of the IASC/IASB, the international standard setting body. Moreover, different institutions, in primis the World Trade Organization (WTO) and the World Bank, which have a strong influence over the decisions of many countries, are currently endorsing the project of a single accounting standard worldwide, providing concrete legitimization to this complex process characterized by a multiplicity of different voices. DiMaggio and Powell (1983) describe this dynamic of homogenization as isomorphism, which can be defined as ‘a constraining process that forces one unit in a population to resemble other units that face the same set of environmental conditions’. Organizations usually develop a series of myths and stories to legitimize themselves and their activities with the different players. The authors identify three possible mechanisms of isomorphic institutional changes, such as the mimetic, the normative and the coercive. The literature has mainly studied and used the mimetic isomorphism, often disregarding the other possible cases (Mizruchi & Fein, 1999). This category is representative of situations where the lack of a well-defined and organized setting may lead to adopting through a mere imitation process, a legitimized and successful model. We should also look at the normative pressures, economic dominant agents support rules and structures which are subsequently widely adopted. For instance, the so-called Big 4 (PricewaterhouseCoopers, Ernst & Young, Deloitte Touche Tohmatsu and KPMG) are definitely monopolizing the audit industry and thus they are also shaping the overall accounting profession and practices. Finally, the coercive mechanisms lead organizations to follow precise and pre-ordinated rules mainly through political force. In addition to the institutional isomorphism, there could be additional ways to address changes, especially if we look at the diffusion of competing practices (Djelic, 2008). The convergence needs to be deeply scrutinized to understand the mechanisms that regulate institutional changes. The modernization view is mainly focused on the economic aspect as the driver of convergence, providing a poor representation of the entire process, whereas the diffusionist arguments leave room for a critical interpretation of today’s accounting field. Consistently, Baudot (2014) reports three different patterns of diffusion, such as imitation, editing or translation and co-construction. In the first case, the recipient passively follows the overall trend. Editing and translation describe two similar situations, even if with some distinctive peculiarities: in the first case, rules preserve the original template, but it is possible that changes occur across space and time; in the second, ideas are transformed and new frameworks interact with existing ones and translators play an active role in this process. Finally, the notion of co-construction overcomes the inflated idea of path dependency to introduce the concept of path generation which relies on a process of collection of blocks from different models and systems. So far, these notions have been used to Please cite this article in press as: Ghio, A., & Verona, R. Accounting harmonization in the BRIC countries: A common path? 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investigate the convergence process between two competing standards, such as the IAS/IFRS and the U.S. GAAP: in this paper, we aim to understand whether similar mechanisms can take place after the endorsement and above all the commitment to adopt a well-defined accounting standard. At the same time, we need to further investigate the mechanisms that lead countries to adopt certain decisions. In fact, after considering practices and organization as outcome, we need to understand the process which encompasses a broad range of elements, in particular, looking at the dynamics of power (Irvine, 2008). Dillard, Rigsby, and Goodman (2004) present a framework which allows a more dynamic representation of both incremental and radical changes since they integrate the institutional framework with the structuration theory developing the tensions fulcrum of new situations. Moreover, they identify the interactions between the economic and political levels, the organizational field level and the individual organization level as possible source of changes. At the societal level, they interrelate three constructs, such as legitimation, representational schemes and domination perspective. The first aims to legitimize the grounds for norms and values (e.g. private property rights, free trade policies, facilitation of commercial activity, etc.); the second represents the political and economic system and the last defines the institutions that dominate the resources. Within the broad perspective embedding the dynamic social context, the interactions among the structures lead to the support of these practices which endorse the dominant group’s position, mainly through the initial definition and then with the constant allocation of resources. A change follows a reconfiguration of power relationships which could appear either as a change in the rules or in the control of resources and ‘such changes are the result of actions by knowledgeable, reflexive agents as they construct and reconstruct the enabling and constraining social structures’. As described by Irvine (2008), developing countries, like the BRICs which desire to enter in the global capital markets, ‘are faced with the necessity of embracing increasingly globalized technologies of trade, investment, regulation and accountability’. Therefore, we need to better understand the role of nation states in the global arena looking at the patterns that define the sources of power which legitimize the overall decisions, in particular, since we consider accounting fully embedded and reflexive in the political, economic and cultural environment. So far, the institutional dynamics at both national and international levels have mainly followed a predominant American/Anglo-Saxon model and national business systems have suffered different point of pressure (Chiapello & Medjad, 2009; Crawford, Extance, Helliar, & Power, 2012; Djelic & Quack, 2007). At the same time, we have to understand the underlying ground on which decisions are taken and the reactions to the growing external influence: a continuum of stimuli challenges the existing order, requiring additional evidence to explain the possible generation of alternative paths. Through the lens of the theoretical framework that we have just highlighted, we undertake a longitudinal analysis that challenges the current static representations of the accounting systems, above all in relationship to the evolution of the socio-economic context in which they are embedded. In particular, we look at the societal pattern to investigate both the internal and external pressures which influence the overall order. 4. The evolution of BRICs’ accounting systems in the last century In this section, we first undertake a longitudinal review of the accounting systems of the four countries under analysis since ‘a historical perspective is necessary to understand the spread of practices’ (Djelic, 2008). We provide a glance all the different situations at the beginning of the twentieth century and then we focus on the changes of the last decades more related to the harmonization process toward the IAS/IFRS. Finally, we provide the current state-of-the-art situation in order to understand the precise decisions of each BRIC country. 4.1. Brazil In the early twentieth century, Brazilian accounting decisions were strongly influenced by Italian equity theorists (Rodrigues et al., 2012). Indeed, unlike many other countries, accounting was perceived as a science and not as a professional matter. The research approach to accounting was both doctrinal and theoretical. The first accounting bodies, the Paulista Institute of Accounting (Instituto Paulista de Contabilidade) and the Brazilian Institute of Accounting (Instituto Brasileiro de Contabilidade), were created in the 1920s. Professional accountants were strictly regulated during the ‘corporatist’ period of President Vargas (1937–1945 and 1951–1954). In these years, accounting rules were related to tax legislation and all activities of government. In 1932, the government required that all accounting books be certified by a public accountant. The standards for Brazilian Railways in 1937 and decree 2627 in 1940 represent the first two attempts to conceive a single set of rules. Two important bodies, the Federal Council of Accounting (CFC) and the Regional Councils of Accounting (CRC), determined the legal requirements for professional accountants in every state from 1946. After the Second World War, the increasing trading volume with new economic partners led to the adoption of the North American model. The main goal of this pragmatic approach was to regulate accounting practice (Rodrigues et al., 2012). Accounting was finally recognized as a requirement for college degrees (Rodrigues et al., 2012). In addition, the law strictly disciplined the profile of professional accountants, particularly differentiating accountants, accounting technicians and bookkeepers. These last two categories were merged with law 3384 in 1958. Post-graduate accounting studies were introduced in 1961. The aim of these reforms was to institutionalize the profession into the Brazilian society. In 1965, law 4728 established the ‘independent auditor’, whose role, however, became fully regulated by the Brazilian Central Bank in 1972. The General Accounting Principles and Standards and the Audit Standards and Procedures, issued by the Brazilian Central Bank and the Institute of Independent Auditors of Brazil (IBRACON) in 1972, respectively, were prepared on the basis of the Please cite this article in press as: Ghio, A., & Verona, R. Accounting harmonization in the BRIC countries: A common path? Accounting Forum (2015), http://dx.doi.org/10.1016/j.accfor.2015.02.001

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American accounting framework. The modernization of the accounting system, forced by the development of the economy and financial markets, explains the innovations introduced with the Companies’ Law in 1976, which mainly completed the separation between accounting and tax rules. In the same year, the Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários–CVM) was established to monitor and control the stock market. The Brazilian economy has always been affected by a high rate of inflation (Doupnik, 1986), even if several governments have tried to control and reduce it. The accounting regulations adopted the constant power accounting method (CPPAM) in 1987 and further rules were implemented in 1991 to provide additional information. In the last decade, the Brazilian economy has shown the capacity to maintain an incredibly high rate of growth while keeping inflation under control (World Bank, 2013). The Brazilian government started the harmonization process toward the IAS/IFRS in 2005 with a resolution from the CVM. Brazil completed the convergence in 2007 (Law 11638) by fully recognizing the IAS/IFRS. In addition, this law separated accounting from tax requirements (Rodrigues et al., 2012). In the same year, the CVM issued Rule no. 457, requiring listed companies and all banks to adopt the IAS/IFRS. The rule became effective in 2010 for consolidated financial statements, with an optional transitional period from 2007 to 2009 (Ernst & Young Terco, 2010). Financial statements for individual parent companies apply the BR GAAP, which has fewer options and requires disclosures additional to the IAS/IFRS (PwC Brazil, 2010). A specific set of accounting standards for non-listed, limited liability entities, together with technical interpretations, was provided by the Committee of Accounting Pronouncements, an independent body created in 2005 (Comité de Pronunciamentos Contábeis - CPC). This body was created by the Federal Council of Accounting and is composed of both representatives of the state, and of the accounting profession. Its main aim is to support the implementation of the new standards, mainly through the engagement of federal bodies and professional associations. The Central Bank of Brazil regulates the financial sector, whereas insurance and pension institutions have specific regulatory bodies. Additional accounting guidelines have been provided by the tax authority (Secreteria de Receita Federal - SRF). Through resolution 1255 of the CFC in 2009 (Deloitte, 2013b), Brazil has become one of the first countries to allow smaller companies to adopt IFRS for SMEs. The aim of the ‘Memorandum of Understanding’, signed in 2010 among the IASB, the Federal Council of Accounting (Conselho Federal de Contabilidade - CFC) and the CPC, is to establish mutual cooperation for the international accounting standard setting process. The decision by Brazil to fully engage in the convergence process toward the IAS/IFRS is mainly motivated by its desire to further attract foreign capital and investment. Moreover, Brazilian companies need to be more competitive on an international level, which also means having comparable financial disclosure. At the same time, financial disclosures prepared by Brazilian firms are still generally perceived to be of a low level. Legal and administrative systems strongly influence accounting decisions. Companies usually prefer to follow tax rules in order to avoid making any adjustments to the financial statements prepared with national GAAP (Lopes, 2006).

4.2. Russia Until 1985, Russia’s central government organized all factors of production and allocated financial resources to local units to meet the national targets, expressed in gross production. Accountants were considered simple bookkeepers and all information gathered was used by the government, particularly the Ministry of Finance (MinFin), to monitor and control the economy (Holt & Hein, 1996; Mills & Brown, 1966; Scott, 1969). The economic system did not allow private investors to hold company shares, and the Russian Accounting Regulations (RAR) had to comply with central requirements (Cumming & Gruber, 2005). The government issued very specific rules, with detailed forms to complete, so that all operations would be recorded according to a uniform chart of accounts (Ramcharran, 2000). Companies were not audited, and there was a total lack of legal and performance control. The only control was an inspection process that validated the accounts. To ensure the appropriate allocation of resources, the accounting system was essentially cash-based. The profit was used to pay for fixed assets, bank interest charges and reserves, after which it would eventually to go back into the state budget (Ramcharran, 2000). The only target was the maintenance of an adequate contribution to macroeconomic goals. In the 1970s, the planned and controlled economic system started to slow down (zastoy), mainly because the economic and political structure of the Soviet Union was facing difficulties from the rapid changes in the modern market (Lane, 1992). Perestroika (restructuring: 1985–1990) represented the starting point for important innovations. Gorbachev, the President of the Soviet Union, introduced the concept of the free market. Government structures became independent, and a more democratic and decentralized decision-making process was developed with the introduction of glansnost (openness), democratizatsia (democracy) and zakon i kontroll (law and control) (Bourmistrov & Mellemvik, 1999). After the break-up of the Soviet Union in 1991, the main radical changes were the deregulation and decentralization reforms of the economic system, the privatization of state ownerships and the possibilities of free trade (Bourmistrov & Mellemvik, 1999). At the end of the 1980s, the Ministry of Finance, with the support of the United Nations, the Bank for Reconstruction and Development and the ‘Big Six’ accounting firms, developed the first attempts at new accounting rules. The main innovations were the regulation of joint ventures and the introduction of a new chart of accounts (McGee & Preobragenskaya, 2004). The rules issued in the Regulation on Accounting and Reporting in 1992 represented the end of central government control. The standards were based on Western countries’ principles, with the main stakeholders being investors, suppliers, customers, creditors, tax, financial and bank authorities and all others players with an interest in the financial and business activities of enterprises (Enthoven, 1992). The implementation of international accounting standards was stimulated by the growing Please cite this article in press as: Ghio, A., & Verona, R. Accounting harmonization in the BRIC countries: A common path? Accounting Forum (2015), http://dx.doi.org/10.1016/j.accfor.2015.02.001

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importance of financial markets and by the high number of foreign investors requiring reliable information (McGee & Preobragenskaya, 2004). Russian Accounting Standards (RAS) are regulated by the Russian legislature through federal laws. The MinFin provides guidelines and interpretations that are lodged at the Ministry of Justice. In 1996, the Federal Law on Accounting was signed, and 2 years later, the MinFin started the convergence process to align RAS with the IAS/IFRS. The process was slow and difficult, especially for banks that were initially required to adopt international standards from 2004 (Alon, 2013; Asquer & Krachkovskaya, 2010; Ramcharran, 2000). The Russian professional association, together with foreign institutional bodies, established the International Center for Accounting Reform (ICAR), which supports the Inter-agency Commission for Accounting Reform. In the same year, the MinFin issued the Concept of the Development of Accounting and Financial Reporting in the Russian Federation for the Mid-term in order to introduce the IAS/IFRS for consolidated statements and to start the harmonization process from national to international standards (Borker, 2012b). Asquer and Krachkovskaya (2010) affirm that several companies had to face additional costs because they prepared financial reports according to both national and international standards. RAS embody significant differences when compared with the IAS/IFRS mainly because they are rule-based standards, they adopt the historical value approach and they are also used to calculate taxes (Alon, 2013). The Law on Consolidated Accounts (LoCA), signed in 2010, introduced the requirement to use the IFRS, in addition to RAS, for consolidated financial reporting for public interest entities (PIEs), to be in effect from 2012. Consolidated statements must be audited, presented to the shareholders and monitored by the Federal Committee on Securities Markets (Deloitte, 2013a). As reported by Borker (2012b), the state was fully convinced by the value of the accounting harmonization project. In fact, in 2011, Prime Minister Putin fully endorsed the IAS/IFRS. First, he signed Regulation 107, which aimed to rapidly complete the adoption of the new standards. Then during a session chaired with the Minister of Finance, who is a supporter of the IAS/IFRS, Putin strongly emphasized the importance of the project. Finally, the author also highlights the importance of establishing support mechanisms, such as new institutional bodies, to successfully implement the IAS/IFRS in Russia. The most relevant body in this regard is the National Organization on Financial Accounting and Reporting Standards (NSFO), established in 2003 by the MinFin. The NSFO examines the application of international standards in the Russian accounting system. The MinFin collaborates mainly with three professional associations: the Professional Accountants and Auditors of Russia (IPAR), the Russian Collegium of Auditors (RCA) and the International Association of Accountants and Auditors (‘Sodruzhestvo’). Moreover, the MinFin holds the copyright for the Russian translations of all IFRS documents. To accomplish this task, the government wants to create a body of experts similar to the EFRAG that would examine and endorse new accounting standards (Borker, 2012b). Thus far, the MinFin has also played a key role in the implementation of the new standards through the issuance of documents (PBUs) that explain how to adopt the new IFRS both from a technical and a strategic point of view. The government is trying to keep under control several problems that affect the Russian economy, such as corruption, the strong dominance of state ownership, political instability and inflation. All these issues negatively influence the ease of adoption and the acceptance of international standards. The completion of the harmonization process is still lagging behind, even though Russia is trying to attract foreign investment and has made strenuous efforts to meet the requirements for entry into the World Trade Organization in 2012. The ‘substance over form’ principle is not well accepted mainly because accountants are used to working within formal and prescriptive tax rules (Borker, 2012b). The lack of transparency in the information disclosed is evident, and professionals are not well educated and trained in international accounting standards (McGee & Preobragenskaya, 2004).

4.3. India The Indian accounting practice, influenced by British colonialism, was, in the mid-1800s, among the first in the world to be developed. In 1857, the Indian Companies Act introduced the option of disclosing a company balance sheet, and 9 years later, accountants were legally regulated. At the beginning of the new century, in 1932, the Governor General in Council set up the Accountancy Board, an advisory body. After having obtained independence from the UK in 1947, the Indian central government took over strict control of all industries, which were normally designed to operate at overcapacity. It established a series of constraints to limit private business and foreign investments. The main sources of financing for companies were loans from public sector commercial banks and financial institutions (Jain, 2011). The Companies Act of 1956 provided guidelines for the preparation, publication and presentation of financial statements (World Bank, 2004). It required companies to be audited by members of the Institute of Chartered Accountants of India (ICAI), the national professional association established by the ICAI Act in 1949 and modeled on the Institute of Chartered Accountants in England and Wales (World Bank, 2004). This body has been part of the International Accounting Standards Committee (IASC) and of the International Federation of Accountants (IFAC) since the 1970s. The Accounting Standards Board (ASB), the national standard-setter established in 1977, issues accounting standards based on international accounting standards and provides guidance. Additional ad hoc standards were issued by the Securities and Exchange Board of India (SEBI), the Reserve Bank, and the Insurance Regulatory and Development Authority (Ramanna & Tahilyani, 2011). The structure of the standards was strongly influenced by the common law tradition, thus leaving room for interpretation. In 1991, the government started its liberalization program, opening the economic system to foreign companies and deregulating the industrial and financial sectors. These new accounting standards were designed to support capital market Please cite this article in press as: Ghio, A., & Verona, R. Accounting harmonization in the BRIC countries: A common path? Accounting Forum (2015), http://dx.doi.org/10.1016/j.accfor.2015.02.001

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needs. SEBI was the most important body supporting the implementation of accounting standards in the Indian economy, constantly looking at the interests of the financial market and of the investors (Ramanna & Tahilyani, 2011). To date, 35 accounting standards have been issued. ICAI’s structure changed significantly with the Chartered Accountants (Amendment) Bill in 2003. Similar to the ICAI, the Institute of Cost and Works Accountants of India (ICWAI) and the Institute of Company Secretaries of India (ICSI) represent segments of professional accountants. Additional accounting requirements were issued by the Securities and Exchange Board of India (SEBI) for listed companies. Financial institutions and banks came to be regulated by the Reserve Bank of India (RBI) following the provisions of the Banking Regulation Act (1949), whereby insurance companies came under the supervision of the Insurance Regulatory and Development Authority (IRDA). To enforce the Companies Act, the central government established the Department of Company Affairs (which became the Ministry of Company Affairs in 2004), Regional Directors, the Company Law Board and the Registrars of Companies (ROC). From 1999, all accounting standards proposed by the ICAI were required to be approved by the Central Government after the review and recommendations of NACAS, the National Advisory Committee on Accounting Standards (Shil, Das, & Pramanik, 2009). The Securities and Exchange Board of India prescribed that listed companies follow the ICAI’s guidelines. The ICAI actively collaborated with the IASB at various levels with the goal of eliminating any discrepancies between Indian accounting standards and the IAS/IFRS. An audit committee became mandatory for certain public companies following the Companies (amendment) Act in 2000 (World Bank, 2004). The ‘Concept Paper on Convergence’, prepared by the ICAI in 2007 detailed strategies for improving the harmonization process in three steps: the IFRS Impact Assessment, the Preparations for IFRS Implementation and the Implementation (Jain, 2011). Initially, the transition period was planned to start on 1 April 2010. In 2010, the new government’s Road Map applied two different sets of standards: - in the first case, specific companies were supposed to adopt national standards fully consistent with the IAS/IFRS from 1 April 2011, postponing the convergence process by one year; - in the second case, all other companies, including SMEs, were supposed to apply the existing national accounting standards (Ramanna & Tahilyani, 2011). The criteria for the classification of enterprises are based on size in terms of net worth and quotation on the stock exchange. In addition, in 2009, the Ministry of Corporate Affairs created the Indian Institute of Corporate Affairs (IICA) with the intention of facilitating dialog between the state and the business community. This body is also intended to represent the Indian interests at the IASB, even if it is still not playing a major role due to a lack of funds and expertise (Ramanna & Tahilyani, 2011). The convergence process is still in process. The ICAI ensures that national GAAP are consistent with the IAS/IFRS by removing alternative treatments, requiring additional disclosures, and adding IFRS numbers to local standards and IFRICs as appendices. It is interesting to note that the ICAI has not strongly supported the adoption of the fair value method due to the Indian economic environment (Ray, 2012). Moreover, the state has never been fully committed to the IAS/IFRS project, specifically because of the peculiar characteristics of Indian society. As reported by Ramanna and Tahilyani (2011), the chief of the SEBI affirmed that ‘The path [I see] is toward convergence and we must go down the path in a gradual manner. We speak English, but we speak Indian English. We understand British English and American English, but we still prefer to speak Indian English.’ The main fear is being involved in a global project that could damage the national identity. At the same time, Jain (2011) identifies positive effects of the adoption of international accounting standards on the Indian economy. In particular, financial statements of higher quality facilitate access to credit and financial markets for Indian companies. The country thereby attracts foreign investment and reduces costs generated by multiple reporting. In recent years, the general perception of the financial reporting quality has improved, even if there are still concerns over the independence of auditors (World Bank, 2004). In the long term, it is still unclear whether India will simply apply the IAS/IFRS issued by the IASB or will continue to use national GAAP based on international standards (Ramanna & Tahilyani, 2011). In any event, professionals need to be trained to understand and manage the new standards. A system of rules, harmonized with company and tax legislations that do not recognize all items recorded according to accounting standards, is still missing. 4.4. China The Chinese accounting system has changed dramatically in recent decades. The economic reforms that started in the 1970s set the country moving from a planned socialist model to a socialist market economic system (Graham & Li, 1997). Even if firms substantially belonged to the government, there was a gradual separation process between ownership and management. Before 1992, the central government implemented a Soviet-style uniform accounting system in which fixed funds, current funds and special funds were the three categories used to classify funds received by the government (Nobes & Parker, 2012). The main requirements introduced in China were a chart of accounts, a balance sheet based on sources and applications of funds, and analytical schedules (Skousen & Yang, 1988; Zhou, 1988). Financial disclosure, based on the relationship between revenue and expenses, and on historical costs, existed in order to provide accurate information to the government, the most important stakeholder. Companies mainly used accounting standards to calculate tax. Please cite this article in press as: Ghio, A., & Verona, R. Accounting harmonization in the BRIC countries: A common path? Accounting Forum (2015), http://dx.doi.org/10.1016/j.accfor.2015.02.001

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The first financial markets opened in 1990 in Shanghai and in 1991 in Shenzhen (Peng & van der Laan Smith, 2010), while Brilliance China Automotive was the first Chinese company to make an Initial Public Offering (IPO) at the New York Stock Exchange. In 1992, the Chinese Securities Regulatory Commission was established to prescribe the reporting practices of companies and to guarantee more reliable and transparent information. The Company Law of 1992 amended different accounting rules (Lichtenstein, 1993). The government recognized the right to equity and profit for investors. The Accounting Standards for Business Enterprises (ASBE), issued in 1993, reflected several characteristics of Western accounting systems. The main similarities were double-entry bookkeeping, mandatory cash or funds statements and the requirement of a consolidated financial statement (Tang, Chow, & Cooper, 1994). Additional industry-specific regulations were introduced (Xiao et al., 2004). Although several technical elements completely changed, the theoretical framework remained linked to socialist ideas, and criteria referring to market values were not introduced (Ezzamel, Xiao, & Pan, 2007). The accounting system still presented a conservative approach, based on a historical cost model for fixed assets. It favored the concept of reliability to that of relevance or ‘substance over form’. In recent years, a growing amount of foreign capital (Davidson, Gelardi, & Li, 1996; Liu & Siu, 2011) has been invested in China. The main reforms were contained in the CPA Law (1980), the Accounting Law (1993), the Company Law (1993) and the Stock Act (1999). With the support of the accounting firm Deloitte Touche Tohmatsu and a loan from the World Bank, an intensive period of reforms took place between 1994 and 1996. The regulation of the financial sector changed significantly with the Central Bank Law (1994) and the Commercial Bank Law (1995). In 1997, China became an observer at the Board meetings of the International Accounting Standards Committee (IASC) (Nobes & Parker, 2012). Several professional associations were set up in these years (Macve & Liu, 1995). In 1995, the Chinese Association of Certified Public Auditors (CACPA) merged with the Chinese Institute of Certified Public Accountants (CICPA). In the following years, the China Asset Evaluation Association (2000), the Certified Tax Consultant Profession (2002) and the China Institute of Certified Tax Consultants joined the CICPA. The professional association, the Chinese Institute of Certified Public Accountants (CICPA), is directly controlled by the Ministry of Finance, which is also the national auditing standards-setting body (Xiao & Pan, 1997). The new national Accounting Standards Committee, set up in 1998 by the Ministry of Finance, had issued 16 standards by 2005. The Enterprise Accounting System, issued by the Ministry of Finance in 2000 and effective after 2002, provided for impairment testing of most assets. It introduced the concept of ‘substance over form’ and tried to bring uniformity to accounting standards across industries (Nobes & Parker, 2012). The accrual view replaced the previous fund accounting framework (Rich, 2011). The process was also influenced by the admission of China into the World Trade Organization in 2001. The Accounting System for Joint Stock Limited Enterprises permitted for the first time impairment tests for inventories, investments and debtors similar to international GAAP. The Accounting Law improved investor protection. The ASBE framework, influenced by Financial Accounting and Reporting Rules, adopted an asset/liability view in 1999 (Huang & Ma, 2001). Despite the impressive changes in the accounting system, Chinese GAAP and IAS/IFRS still diverged in several aspects. Chen, Sun, and Wang (2002) compare the reconciliation of accounting earnings under Chinese accounting standards to the IAS. They find no evidence that the gaps between the standards had been significantly reduced or eliminated by government decisions. The harmonization process was also slower than expected because the government tried to avoid negatively impacting companies’ profits. Ding (2000) identifies three important elements that influenced the change: the transfer to a market-oriented economy, the diversification of enterprise ownership forms and the growth in foreign investors and capital. A simplified version of accounting standards, the Accounting System for Small Business Enterprises, was issued in 2005 for unlisted and small companies. The most important reform took place in 2006 when the Ministry of Finance made it a requirement for listed companies to adopt the Accounting Standards for Business Enterprises (ASBE), leaving unlisted companies to maintain national GAAP for financial disclosure. The Basic Standard and the 38 Standards are essentially similar to the IAS/IFRS. Chinese companies are classified on the basis of ‘A’, ‘B’ and ‘H’ shares. In the first case, firms are owned by the government, and they use Chinese accounting standards. Companies of the second category are owned by Chinese or international investors, and they use ASBE standards. The last group includes those entities that are listed on the Hong Kong Stock Exchange and adopt the IAS/IFRS or Hong Kong GAAP. In contrast with IAS/IFRS, the ASBE standards contain very few options. In addition, some items, such as employee benefits, share-based payments, held-for-sale assets and discontinued operations, are not fully regulated. Chinese accounting standards do not allow the reversal of all impairment losses (ASBE 8) and they require measurement at cost for biological assets (ASBE 5). Moreover, non-listed companies are not obliged to publish their financial reporting (World Bank, 2009). Xiao et al. (2004) affirm that the Chinese government plays a key role in accounting regulation because the professional associations have limited political power. At the same time, it is quite clear that the harmonization process also started due to external pressure and that the state was not fully convinced by the value of this project. They find that the Chinese government has been able to develop its own accounting system by following international accounting standards, exploiting internal and external drivers. Moreover, despite the poorly developed corporate governance mechanisms and the weakness of the capital markets, the government has set up several accounting constraints, thus reducing the number of possible options. Peng and van der Laan Smith (2010) divide the Chinese accounting convergence process into four stages. The first period (1993–1998) is characterized by the introduction of the market-oriented accounting model. In the second period (1998–2000), the Ministry of Finance (MOF) issued the Accounting System for Joint Stock Limited Enterprises. The Accounting System for Business Enterprises and new standards were prepared between 2001 and 2006 and replaced the previous rules. In the final stage (2006–2007), the Accounting Standards for Business Enterprises revised the standards. Only Chinese auditors and a few international members of the CICPA can state an opinion on financial reports and they are generally Please cite this article in press as: Ghio, A., & Verona, R. Accounting harmonization in the BRIC countries: A common path? Accounting Forum (2015), http://dx.doi.org/10.1016/j.accfor.2015.02.001

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considered the watchdogs of national accounting standards (Xiao et al., 2004). The higher quality of accounting standards has led to the development of new auditing rules. Sami and Zhou (2008) find that the significant increase in companies’ trading volumes and price volatility is positively correlated to the new auditing standards applied by Chinese firms. Over the same period, both earnings management and fraud have decreased, which may present a valid proxy of the higher quality of firm-specific information disclosed to investors (Rich, 2011). 4.5. The adoption of the IAS/IFRS In recent years, all the BRICs have started the convergence process toward the IAS/IFRS. Unlike other countries, such as the members of the European Union, complete acceptance of the standards prepared by the IASB has not been realized. Russia and Brazil have decided on full convergence with international GAAP by directly adopting the IAS/IFRS in their legislation. On the other hand, China and India have issued or are planning to issue new national accounting standards based on the IAS/IFRS. In Table 1, we summarize the main decisions made by the different countries. We have added the European Union to gain a better picture of the convergence process toward the IAS/IFRS (Brüggemann, Hitz, & Sellhorn, 2013; Yip & Danqing, 2012). It is evident from Table 1 that countries have undertaken different adoption processes. Brazil has made the most significant efforts to implement international standards in its local accounting system. It has fully adopted the IAS/IFRS for consolidated statements of listed companies and for foreign listed companies. In the remaining cases, companies either have to use national GAAP that have been fully convergent with international GAAP since 2010 or they can just opt for the IAS/IFRS. Brazil is the only country in this cluster that has decided to adopt IFRS for SMEs. The endorsement process in the regulation system, mainly run by the national setting body (CPC), is quite complex. Russia has recently decided to move toward the IAS/IFRS and all consolidated statements of listed companies and foreign listed companies must follow these rules. Following the endorsement of the National Accounting Standards Board of Russia and the Ministry of Finance, in collaboration with other national bodies, accounting standards have been included in the national regulations. In all other cases, companies have to use the national GAAP. The Ministry of Finance has not yet made a final decision on implementing IFRS for SMEs, and a public discussion is currently taking place. In India, the convergence process is still lagging behind, in part due to the peculiarities of national regulation. In practice, the consolidated statement is only required for specific entities and particular purposes by the Securities and Exchange Board of India, which allows companies to use either national GAAP or IAS/IFRS. In all other cases, companies have to follow national GAAP. At the same time, India is currently undertaking a project of revision of its accounting system, which includes a program of convergence toward international standards, and the government has decided that it will issue national GAAP consistent with the IAS/IFRS instead of direct adoption. Similar to India, China has developed national GAAP that have been considered by the IASB in 2006 as substantially convergent with the IAS/IFRS. Standards are constantly monitored and revised to reduce differences with international standards, and they have been included in current legislation. Ad hoc standards have been developed for SMEs. Companies listed in the European Union have had to adopt the IAS/IFRS for their consolidated statements since 2005. Single countries can opt for a broader application. The convergence process has been moving slowly in recent years, as is evident from the decision not to apply the IFRS to SMEs. Overall, we can say that all countries consider the IAS/IFRS suitable for listed companies and mainly for consolidated statements. It is evident that international standards are adopted to allow the comparison of financial statements across borders, but only for a defined group of companies. At the same time, policy makers have judged them not useful, and/or too costly, for other purposes, as we can see from the current failure to extend the IFRS for SMEs. In addition to the highlighted differences, each country has also made in the endorsement process some technical amendments to the standards. Consistent with Nobes (2006), the harmonization process shows that the different versions of the IAS/IFRS that have been adopted allow differences between companies. Second, national standards previously used in accounting systems influence the current implementation of international standards. As is evident from Table 2, all jurisdictions have heavily amended several standards and interpretations. Only Russia has fully accepted the standards, even after a complex technical and administrative examination. Similarly, the modifications made by the European Union and Brazil are not relevant and they do not significantly affect comparisons among financial statements. On the other hand, both China, despite being considered fully convergent with the IAS/IFRS, and India have made important changes. Both have decided to issue national standards instead of adopting the IAS/IFRS. China has even issued standards that are incompatible with international standards and some topics. For example, parts of ‘Employee Benefits’ (IAS 19) and ‘Share-based Payments’ (IFRS 2) are missing. Zeff and Nobes (2010) argue that countries have implemented different endorsement processes and the different methods used do not always ensure the same level of compliance to the IAS/IFRS. 5. Discussion 5.1. Unfolding the convergence process Above, we have investigated the evolution of the accounting systems in the BRICs, and we have looked at the similarities and differences between them. The accounting standards of these countries reflect the changes that the economic and social environments have undergone. From the evidence we have gathered, we can, through inference, develop a matrix that represents the BRIC countries’ strategies (Fig. 1). Please cite this article in press as: Ghio, A., & Verona, R. Accounting harmonization in the BRIC countries: A common path? Accounting Forum (2015), http://dx.doi.org/10.1016/j.accfor.2015.02.001

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Table 1 Enforcement of the IAS/IFRS in the BRIC countries and in the EU.

Listed companies Consolidated statements

Unconsolidated statements

Unlisted companies Consolidated statements Unconsolidated statements Foreign companies

IFRS for SMEs

Legislation

Notes

Brazil

Russia

India

China

EU

IAS/IFRS for companies whose debt or equity securities trade in a public market (since F.Y. ending 31/12/2010). Optional since 31/12/2007

IFRSs are mandatory for all companies whose securities are publicly traded, as well as for credit institutions and insurance companies, with two exceptionsa

Chinese Accounting Standards for Business Enterprises (ASBEs)

IAS/IFRS for companies whose debt or equity securities are traded in a regulated market

Brazilian GAAP (fully converged with IAS/IFRS)

Russian GAAP

National GAAP or IAS/IFRS (for the consolidated financial statements required by the Securities and Exchange Board of India (SEBI)) temporary option National GAAP

Brazilian GAAP or IAS/IFRS Brazilian GAAP (fully converged with IAS/IFRS) IAS/IFRS for listed companies in Brazil

Russian GAAP

National GAAP

ASBEs allowed

Russian GAAP

National GAAP

IAS/IFRS for companies listed in Russia

National GAAP or IAS/IFRS

No regulation for foreign companies because they do not trade in Chinese securities markets

Accounting standards issued by the Ministry of Finance for SMEs (IFRS for SMEs judged costs > benefits)

National GAAP, with some exemptions, are used by SMEs

The Chinese Accounting Standard for Small Entities is used by SMEs

IFRSs are part of Russian accounting and reporting regulation

IAS/IFRS are not included in current legislation

Chinese Accounting Standards for Business Enterprises (ASBEs) are part of law and regulations in China

For companies that currently report using US GAAP and for companies that have only debt securities trading in public capital markets, the application of IFRS is deferred until 2015)a

India is currently working to revise the Company Act to adopt national GAAP that are convergent with IFRS for listed companies (instead of full adoption of IAS/IFRS) and to introduce consolidated statements

National GAAP based on IFRS for SMEs or national GAAP or full IAS/IFRS (exemption of micro-entities) since 2010 Accounting standards are incorporated in the national regulations with the endorsement of the national setting body, CPC

Specific rules are applied to financial institutions

IAS/IFRS required for consolidated financial statements for listed companies except if they use Japanese, US, Chinese, Korean, Canadian GAAP and, until at least 31 December 2014, Indian GAAP IFRS for SMEs have not been adopted

IAS/IFRS are incorporated in European regulation

Individual EU member states can require or permit IAS/IFRS for: (1) small securities exchanges that are not deemed regulated markets; (2) separate financial statements of all or some companies whose securities trade on a regulated market; (3) consolidated financial statements of all or some companies whose securities are not traded in a regulated market; (4) separate financial statements of all or some companies whose securities trade in a regulated market

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Table 2 National amendments to the IAS/IFRS. Brazil

Russia

India

China

Modifications

IAS 27

IAS 21, 28, IFRS 1 and 3

Removal of options

IAS 16, 38 and early adoption IFRIC 15

IAS 1, 7, 20, 38, 40

Incompatibilities Gaps

IAS 12, 27, 28, IAS 39 (partially accepted in 2005), IFRS 10, 11 and 12 IAS 1, 7, 16, 20, 31, 38, and 40 IAS 36, 41 IAS 19, IFRS 2, IFRS 5 (partially)

IFRIC 15 and IAS 41

Deferred

EU

IAS 26, IFRS 6, SIC Interpretation 2, 4, 12 and 29

Source: ifrs.org and Nobes and Parker (2012).

The x-axis represents the type of accounting standards a country adopts. On the left, the countries that issue National GAAP are plotted, whereas on the right are those who use GAAP that are internationally recognized and adopted by different countries (i.e., IAS/IFRS as well as U.S. GAAP). The theoretical framework on which accounting standards rely are represented on the y-axis. The countries at the bottom adhere to national-based principles, while those at the top adopt accounting principles which are the result of a transnational agreement. As seen from Fig. 1, the BRICs have changed their positions. In contrast to previous studies, this matrix allows us to classify different accounting systems according to up-to-date points of interest and to chart the course of changes using two variables. The lower left box shows all the BRICs before the convergence process, all having issued their own accounting standards. The BRICs start the convergence process toward international accounting standards (the arrows indicate the respective paths followed) in the last 20 years, and this decision strongly influenced the actual position in the matrix. China and India have decided to implement national accounting-setting bodies that issue standards. Even if the standards are truly similar to the IAS/IFRS, national peculiarities can easily be identified. Brazil and Russia, like EU countries, have moved to the top right quadrant. They are classified in the top right box of Fig. 1 because they tend to fully adopt the IAS/IFRS in their accounting systems. For instance, the EU issued Commission Regulation No. 1606/2002 and No. 1725/2003 require listed companies as well as banks and insurers to adopt the IAS/IFRS for consolidated statements from 1 January 2005. The lower right box exemplifies the special case of the United States of America. U.S. GAAP represents, in practice, the only possible alternative to the IAS/IFRS that can ensure the same level of quality (Ramanna, 2013). The U.S. has developed widely accepted accounting standards that are consistent with its national accounting principles. The convergence process between U.S. GAAP and IAS/IFRS started in 2002 with the Norwalk agreement. At the same time, the economic crisis and rising doubts regarding the fair value principle have considerably slowed down the rapprochement between the two standards. The approaches taken by the BRICs in recent years, driven by internal and external factors, show that accounting systems should not be perceived as static sets of rules. At this point, we can affirm that the harmonization process has been completed by Brazil and Russia, whereas India and China are still strongly linked to their national GAAP. In fact, in the first case, the total homogeneity with the IAS/IFRS implies that the two countries have opted for a normalization process (Scorte, Popa, & Andreica, 2010). They passively adopt the dominant model identifying a mechanism of ‘diffusion as imitation’ since they transpose into their environment an existing system of rules (Baudot, 2014). Considering the growing relevance of these two countries at the global level, Brazil and

International principles based

China

Brazil

India

Russia

Theoretical framework National principles based

BRIC Countries

National GAAP

International GAAP GAAP

Fig. 1. Classification and evolution of accounting systems.

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Russia strongly contribute to the legitimization of the activity of the IASB since they have introduced the IAS/IFRS into their legal systems and, more in general, they support the desire of full comparability and so, of standardization. In the second case, the decision to issue national standards consistent with the international standards allowed China and India to adopt a more flexible approach and make modifications that reflect their own domestic interests. The two countries have decided to play an active role in amending the international accounting standards and so, they are clear cases of ‘editing/translation’ since competing models are integrated to fit particular national interests. Neo-institutionalists, in particular, DiMaggio and Powell (1983) affirm that the decoupling process, which is characterized by the possible misalignment between structures and activities, may generate inefficiency and inconsistency: the different paths undertaken by the four countries are strongly affecting the final process of convergence and consequently the harmonization process could be considered de iure fully accomplished, but de facto differences still persist. In fact, the apparent commitment toward the IAS/IFRS actually represents a mere myth to which countries have also contributed to establishing and to legitimizing but in reality it is only possible to identify a ‘loose coupling’ between the different levels of adoption. 5.2. The dynamics of the institutional context The institutional framework mainly focuses on the outcome of the process rather than on the elements that determine the final results. Therefore, we move further and we complement our analysis looking at the structures and mechanisms that drive the distribution of power through the allocation of resources in order to keep track of the possible changes embedded in the social structures. To identify the elements that have influenced the decisions of the different countries, we have developed a threedimensional theoretical framework. The definition of the political, economic and cultural framework of the countries is essential to understand the choices made by each jurisdiction. Even if all the BRICs are moving toward the IAS/IFRS, we have previously discussed the significant amendments made in the adoption process. Puxty et al. (1987) affirm that reality cannot be perceived as a static element and that we need to adopt a more dynamic approach and, in doing so, go beyond the equilibrium model. In fact, we have to pay attention to how social inequality and conflicts are ‘mediated, modified and transformed’ and to understand which forces or principles are dominant, or determinant, in the constitution of accounting in modern society. The integrated order among state, market and community is illusory, and the system in advanced capitalist countries always presents tensions and contradictions, leading to continual ruptures and crises. The decisions of the different countries mainly reflect the singular features that characterize especially the political, economic and cultural milieu. As previously mentioned, so far, most of studies (Borker, 2012a; Ramanna, 2013; Xiao et al., 2004) have only investigated one or two dimensions, and only for one country, or a restricted number of countries. We are aware that the three dimensions do not have precise and defined boundaries, which also implies that they are strictly interconnected. At the same time, we still need to individually assess their different facets. From a political perspective, the governments of Brazil and Russia are strongly committed to the new project. As reported by Rodrigues et al. (2012), the ‘Memorandum of Understanding’ signed between Brazil and the IASB establishes ‘principles for future cooperation aiming at supporting adoption of IFRS in Brazil and fostering CPC engagement in the international accounting standard setting process’. This Memorandum, the presence of a Brazilian member within the IASB board and the fact that the IASB has officially affirmed that it is considering amending the IAS/IFRS and IFRS for SMEs, in line with the modifications made by the Brazilian government for the IFRS for SMEs, shows the country’s proximity to the existing political powers at the IASB. Similarly, the Russian government is strongly convinced by the value of this project, and important politicians have endorsed the IAS/IFRS. This active collaboration with the implementation of the new standards is truly significant in a country in which the Minister of Finance is, de facto, the national standard setting body. The growing political role of Russia within the IASB is particularly evident after having obtained the Russian translation copyright. Thus, Russia can have a significant influence over the large number of Russian speaking countries and, in a certain way, over those economies. The Indian and Chinese governments tackled the harmonization process in a different way. From the beginning, they were not fully engaged in this project. On the one hand, they were forced to be involved in this project by external pressures. On the other hand, they have always been skeptical and critical of the suitability of these accounting standards for their economies. SEBI and ICAI are supposed to lead the convergence process and to support the implementation of new standards. At the same time, we have seen that the plan to adopt the IAS/IFRS has been postponed several times, several amendments have been proposed, and there is still a high degree of uncertainty about its final completion. In addition, we can see that despite the mutual collaboration between the Indian governmental bodies and the IASB, India has always had minimal power over international accounting policies (Ramanna, 2013; Ramanna & Tahilyani, 2011). As far as China is concerned, from the beginning, the state was not fully motivated to pursue this project. Moreover, the Chinese government is the real decision maker, and its lack of commitment implies a clear red flag for the harmonization process. At the same time, it pursues a policy of constant monitoring of the IASB activities, and despite the relevant differences previously highlighted between the Chinese GAAP and IAS/IFRS, the Chinese accounting system is considered ‘substantially convergent’ with the IAS/IFRS. From an economic point of view, overall, we can observe that BRICs have changed their reference models. At the beginning of the twentieth century, financial accounting was strictly linked to tax rules, and accounting disclosure was mainly used for internal purposes. After the Second World War, Brazilian companies traded increasingly with the USA and they were strongly influenced by Western rules. More recently, it has become clear that all four countries are trying to attract foreign capital to Please cite this article in press as: Ghio, A., & Verona, R. Accounting harmonization in the BRIC countries: A common path? Accounting Forum (2015), http://dx.doi.org/10.1016/j.accfor.2015.02.001

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Table 3 BRICs cultural values.

Brazil Russia India China United States

Power distance index

Uncertainty avoidance index

Individualism/collectivism index

69 93 77 80 40

76 95 40 30 46

38 39 48 20 91

Source: Hofstede (2001).

boost their economies, which is also evident through the efforts made by the four countries to enter the WTO. Moreover, the governments are separating accounting requirements from tax rules in order to reduce the impact of national peculiarities on the objectivity of financial statements. At the same time, BRICs’ economic systems present relevant differences: China and India have based their growth on industry and manufacturing, whereas Brazil and Russia on the export of natural resources (Goldstein, 2011). In addition, we have seen that the weaknesses in the capital markets may also be caused by the numerous constraints imposed by the governments (e.g. a lack of corporate governance mechanisms, disclosure limits). For instance, the case of Tata has shown that some international standards are not well suited to particularities of a national economic system. International standards require translation of all loans into the home currency used for financial reporting. The high volatility of some currencies, such as the Indian rupee, can strongly affect disclosure and distort the information provided (Ramanna & Tahilyani, 2011). The cultural perspective concerns several aspects which influence and are influenced by the accounting decisions. We explore the accounting ‘community’, in particular, we look at the different positions of the accounting associations in relationship to the convergence toward the IAS/IFRS. The chartered accountant community and their national associations represent the watchdogs of the accounting profession, and their influence is often greater than is generally perceived (Arnold, 2009). The attitude toward the new standards is different between the countries considered. Then, we look at the evolution of the cultural environment and we also identify, fully aware of the possible limitations of metrics measuring so-vast notions, indicators to compare the different features within the BRICs. First, concerning the harmonization project, it is notable that the national Brazilian associations, especially the CPC, strongly support the IAS/IFRS on a professional level (‘pro-active role’). At the same time, the quality of the financial disclosure is still perceived as low and affected by legal and administrative requirements. Since 1992, Russia has also been strongly influenced by Western accounting principles, which has led to changes in the national accounting system. Professional associations have only been partially involved in the harmonization process and they have just assumed a sort of ‘consultancy role’, as the main choices are made by the Minister of Finance (‘passive role’). Since independence, India has preserved significant characteristics of the common law system, but it has also developed a strong national cultural identity. Despite the constant collaboration between ICAI and the IASB, the national association of auditors and chartered accountants is not fully convinced by the IAS/IFRS. It raises doubts on how well these standards fit the Indian economy, for instance, the suitability of fair value (‘opponent role’). Similar to Russia, China first followed a Soviet-oriented accounting system and then ‘opened its borders’ to Western principles, even if the State still has a relevant role in the decision process. The professional associations, which are fully under control of the government, strongly support the national GAAP. From this latter piece of evidence, it is possible to understand the real intentions of the state (‘opponent role’). Overall, professional associations (‘community’) have assumed different positions, usually consistent with the final decisions of the country. We have also to highlight that they are not always fully independent and their autonomy is strongly limited by the governments which usually set the guidelines. Second, we can observe that for a long time the Brazilian and Indian accounting systems have been exposed to Western cultural norms, whereas Russia and China have adopted Soviet-based systems. Since the beginning of the 1990s, these two latter countries have introduced an increasing number of elements that characterize Western economies. In Brazil, accounting has been recognized as a social discipline since the beginning of the twentieth century and has set the ground for the institutionalization of the accounting profession. Moreover, US economic culture is now fully embedded in Brazilian society. In addition, according to their cultural values, Borker (2012a) clusters Brazil and Russia in one group and China and India in another and all four countries do not present perfect alignment with the values of the IFRS adopters. Similarly, Cowperthwaite (2010), using the metrics discussed by Hofstede (2001), looks at the influence of culture on the audit process and he focuses on those values tightly linked to judgment and communication. Looking at Table 3, all the BRICs present a high power distance index and a low individualism/collectivism index. The main difference concerns the degree of uncertainty avoidance: on the one hand, China and India do not feel threatened by uncertain or unknown situations and they do not take seriously innovations, whereas Russia and Brazil prefer systems that reduce ambiguity and they have strong affinity for technological solutions. Of course, these indicators have to be considered cum grano salis as discussed in McSweeney (2002) and Hofstede (2002), but they still represent a good starting point to provide a more comprehensive picture of this difficult to measure variable. Thus, Sarquis, Luccas, Lourenc¸o, & Dalmácio (2014) affirm that emerging countries (e.g., Brazil and Russia) that adopt IFRS should compose a new cluster, different from those previously proposed by Nobes (2011). Please cite this article in press as: Ghio, A., & Verona, R. Accounting harmonization in the BRIC countries: A common path? Accounting Forum (2015), http://dx.doi.org/10.1016/j.accfor.2015.02.001

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Following the previous considerations, the common point between the three areas (political, economic and cultural) just described is represented by the study of the political economies implemented, especially since we overcome the poor representation of ideal types in order to adopt a more empirical approach. The notion of ‘varieties of capitalisms’ introduced by Hall and Soskice (2001) and based on seven components such as industrial relations, intra- and inter-firm relations, corporate governance, training systems, social protection and market regulation, is widely used in comparative political economy and it divides capitalism models between ‘liberal’ and ‘coordinated’. Moving further, consistently with Becker (2013), first we consider five different typologies of capitalisms based on the relationship between capital and labor and between politics and economy, such as the liberal, the statist, the corporatist, the meso-communitarian and the patrimonial type; second, we claim that each country can present various features of the categories just mentioned, obviously not all with the same degree of intensity, also across time. Overall, all BRICs can be considered to have, after decades of important changes, a similar level of liberalism, even if they are still far from being comparable to the USA. The largest difference among them concerns the levels of statism, which define a situation ‘where the market is restricted by political regulation to determine the course of the economy’ (Becker, 2013). In China, state-owned companies still play a key role in the economy; similarly, in India, the liberalization process has been strongly constricted by elements of ‘dirigism’ and more, in general, by a strong statist imprinting (Kohli, 2006a,b). Stephen (2014) shows that China and India present more statist and less market-driven forms of states: on the one side, they moved toward the capitalism system and so they rely on the established dominant framework, but on the other side, the state still plays a dominant role in driving their economies toward less liberal systems. Both countries have implemented interventionist industrial policy, supported the ‘best national’ firms which are often state-owned, assigned to the sovereign wealth funds the leading role of driving the internationalization process and decided to define the finance sector, through the allocation of resources and regulation, handmaid of the industrial policies. Moreover, they both appear to strongly protect their economies: they have a higher degree of product market regulation, of employment protection and a lower business and financial freedom than the other BRICs, even if they show a slightly decreasing trend mainly determined by the pressures to move toward a more liberal type of system. State–society relations, different from liberal capitalist countries, are driven by state classes and not by an autonomous bourgeoisie: the technological development of the last decades has mainly been the result of the decision of the governments to prioritize growth. Finally, China and India, despite the significant differences in GDP per capita, poverty reduction and technological improvement, show almost identical paths and patterns. Brazil and Russia present different features compared to the two cases just described. The South American country is characterized by robust capital–labor cooperation, typical of the corporatist system, legacy of the dictatorship in the 1930s and emphasized by the last governments. More recently, the path toward liberalization has led the country to show the highest level of liberalism among the BRICs. Russia experienced a thrilling liberalization shock in the 1990s when President Yeltsin weakened the link between state and economy, giving large autonomy to firms. Yet the country has not gone all the way toward liberalism as was initially supposed, especially for the clientelist networks typical of the patrimonial system. At the same time, the weak legal barriers to entrepreneurship and the low level of government effectiveness show a slightly different picture of the power of the central state over the economy from the common Western perception. Furthermore, both countries show a high level of business and financial freedom and a low degree of product market regulation, all signs that indicate a limited state interventionism and a strong reliance on the market to regulate the economy, aiming to follow the dominant Western model market-based system. Finally, the analysis of the three dimensions (political, economic and cultural) allows us to have a better understanding of the accounting systems and to overcome the limitations of previous studies, which often presented a partial representation of this complex convergence process. From the evidence we gathered, we can infer that the three dimensions do not have exactly the same weight in the decision process. In fact, the political aspect, supported by the national culture and ‘community’, drives the decision process. At the same time, the diffusion and the enforcement of the IAS/IFRS in the different countries have shown the interplay among the three dimensions. Through a multiplicity of mechanisms which regulate the configuration of the power relationship between institutions, norms are legitimized in the systems in which they are implemented, mainly through the allocation of resources and ad hoc legislation. 6. Conclusion In this study, we have examined the changes in the accounting systems in the BRIC countries. In particular, we have looked at the mechanisms and logic that led to the diffusion of new accounting standards. The BRICs, which had initially implemented their own rules based on national principles, are now fast approaching international GAAP and they have committed to the IAS/IFRS. Unlike most previous studies, the matrix reported in Fig. 1 highlights the dynamic process undertaken by these countries. The BRICs have moved from the bottom left box to the top left (China and India) and top right (Brazil and Russia) quadrants. Despite their commitment of the IAS/IFRS, China and India have decided to issue national standards with significant amendments to the international standards (‘editing/translation’). At the same time, first Brazil and Russia more recently have fully embedded the IAS/IFRS in their economies relying on the dominant widespread model (‘imitation’). Different from Baudot (2014) who argues that the U.S. GAAP–IAS/IFRS convergence encompasses all three different types of diffusion (imitation, editing/translation and co-construction), the BRICs show that the paths toward convergence may differ. Furthermore, the differences are even more relevant if we consider that all countries claim to move toward a single set of standards and thus, Please cite this article in press as: Ghio, A., & Verona, R. Accounting harmonization in the BRIC countries: A common path? Accounting Forum (2015), http://dx.doi.org/10.1016/j.accfor.2015.02.001

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despite the general commitment to improve comparability among financial reporting, in the end what we have is, at best, a situation of ‘informed divergence’. To understand this process, we have conducted a three-dimensional study (political, economic and cultural dimensions) that has allowed us to create a more comprehensive representation of the harmonization process, especially compared to previous studies (Borker, 2012a; Ramanna, 2013; Xiao et al., 2004). At the same time, these three dimensions are intimately interconnected and interplay between them is extremely likely. The political dimension represents the key driver of the convergence process. Despite the influence of Western principles in all BRICs, the State still has a dominant role in the decision-making process. Without its full agreement and commitment to the project, it will be fairly difficult to finally conclude the harmonization process. At first glance, it appears that the proximity of existing political power at the IASB could represent a good indicator of the commitment of a state to the new accounting standards. Actually, countries such as China and India take advantage of their mutual collaboration with the IASB in order to introduce carve-outs that better fit the needs of their economies. These governments prefer to be free of constraints and to preserve the autonomy of their accounting systems. They fully recognize the various benefits their companies can gain through greater financial transparency and comparability, but at the same time, they strive to protect their national interests. The BRICs initially presented completely different economic and social backgrounds. At the beginning of the twentieth century, Brazil followed the Italian equity theory, whereas the growing importance of economic transactions with the USA and the high rate of inflation strongly affected the structure of the accounting standards until the 1990s. For China and Russia, the only purpose of accounting standards until the beginning of the 1990s was to provide information to the government for planning and monitoring their socialist economies. During the colonial period, British accounting systems strongly influenced the standards in India. The common acceptance of the capitalist model in the last 20 years has led to the adoption of new accounting principles and rules. In addition, the attitude of the professional accountant community to the IAS/IFRS usually represents a significant indication of the real level of commitment of a country toward the harmonization process. We observed that the professional associations have assumed different positions, which have been identified as ‘proactive’, in the Brazilian case where the convergence process toward the IAS/IFRS has been positively accepted and supported; ‘passive’ in the Russian situation since professional associations merely followed the guidelines provided by the central government; ‘opponent’ in the Indian and Chinese cases for which local communities thwarted the implementation of the new rules, supporting the local GAAP. At the same time, the strong role of the state still influences their activities, and their judgments are not always fully independent. Moreover, the four countries show different combination of cultural values, especially concerning the degree of uncertainty avoidance where China and India have a low level. Furthermore, even if BRICs have based their development on the growth of different sectors, all countries are trying to attract foreign capital and to further develop their financial markets, which is also evident by looking at the efforts made by the four countries to become members of the WTO. They generally assume that they can improve the competitiveness of their companies through the adoption of accounting standards of high quality. The adoption of the IAS/IFRS is usually considered the best way to pursue this goal, even if the governments are fully aware of its limits, particularly concerning the suitability of some rules to their economies. In fact, the so-far widely sponsored Western model perpetuates the imperialism of the dominant systems since its mere transposition into different contexts usually lacks an assessment of the local communities (Lehman, 2005). In pursuing the final goal of perfect comparability among financial information all over the world, specific local peculiarities and needs are often disregarded because they are considered not consistent with the overall theoretical framework of the ‘best’ model which perfectly fits with the policies suggested by the ‘Washington Consensus’. This standardization process strongly prejudices the national sovereignties, especially if we consider the not always transparent decision-making process (Chiapello & Medjad, 2009; Crawford et al., 2012). At the same time, the different paths undertaken by the BRICs and hence the ‘informed divergence’ between them represent signs of an emerging resistance and partial emancipation from consolidated systems of power. In fact, after the strong liberalization process of the economies based on the American model, we are currently assisting to the development of two different paths since some countries (e.g. Brazil and Russia) are passively adopting the dominant system while others (e.g. India and China) aim to pursue and protect their own interests minimizing the degree of domination. Unpacking the BRICs’ models, we provide additional evidence of the presence of ‘varieties of capitalism’ since accounting decisions encompass the different aspects of the political economy of a country and, more in general, the overall national systems. The configuration of power relationships, through regulation and allocation of resources, defines the choices which are subsequently legitimized at all levels. We also raise the concern that the harmonization process may negatively affect the transparency and comparability of the financial information because the highlighted decoupling between structures and activities strengthens the idea that the harmonization process represents a myth to which countries contribute, but de facto there are still significant divergence which could incentivize frauds and illegal activities, especially if the diffusion of the model is not inclusive of the rich, complex and unique contexts in which it wishes to be implemented. For instance, the case of Tata (Ramanna & Tahilyani, 2011) concerns rules defined in the national GAAP based on the IAS/IFRS. This is clear evidence that national GAAP based on international GAAP do not provide full comparability for financial disclosure. In some cases, exceptions permitted by national GAAP are so important that they can render the financial information provided by companies unreliable. On the other hand, harmonization does not mean all-out standardization (or ‘one size fits all’) (Ampofo & Sellani, 2005; Kvaal & Nobes, 2010). Please cite this article in press as: Ghio, A., & Verona, R. Accounting harmonization in the BRIC countries: A common path? Accounting Forum (2015), http://dx.doi.org/10.1016/j.accfor.2015.02.001

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An understanding of the convergence process in this transition period is particularly important. In fact, several countries are currently adopting international accounting standards. Even countries that have for the first time adopted GAAP are opting to immediately introduce international GAAP rather than to develop their own national GAAP. The decisions made by these countries exemplify the possible paths the so-called first-time adopters and their policy makers can follow as they implement accounting systems and so international setting bodies should be aware of countries’ different needs. In the end, current process is leading toward fewer accounting systems with small, but relevant, discrepancies. Our analysis is limited to the study of the decision process at macro- and mesolevels. 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