Standards, Management Incentives and Accounting Practice – Lessons from the IFRS Transition in Sweden

Abstract

The process of preparing financial statements gives rise to numerous accounting choices. Understanding these choices is critical for an understanding of accounting practice. The 2005 transition to IFRS in Europe provides a unique opportunity for studying the forces and factors that shape accounting practices. Based on empirical data from a series of in-depth interviews focusing on the choices and problems listed companies faced in the transition to IFRS in Sweden, we suggest that it may be appropriate to enrich the accounting policy choice literature by recognizing a wider spectrum of management incentives and available alternatives when making accounting policy choice decisions. In particular, we suggest that it may be fruitful to explore the role of incentives arising from the management control function. Our findings underline the importance of addressing how management incentives shape accounting practices and hence influence the outcome of the IFRS transition. They also suggest that a better understanding of the relationship between standards, incentives and actual accounting practices requires distinctions of different degrees and aspects of compliance.