Critical Perspectives on Accounting 18 (2007) 605–622

A critique of the influence of globalization and

convergence of accounting standards in Fiji夽
Parmod Chand a,∗ , Michael White b,1
a Macquarie University, Sydney, NSW 2109, Australia
b University of the South Pacific, Suva, Fiji

Received 11 January 2005; received in revised form 12 April 2006; accepted 11 May 2006

Abstract

The globalization of the world’s economies has inevitably brought with it moves to establish a single
set of financial reporting standards. Prima facie, the formulation and promulgation of International
Financial Reporting Standards (IFRSs) is concealed behind reified icons of ‘relevance’. This paper
adds a new dimension to the international accounting debate by discussing themes of regulation,
public and private interests, from a critical perspective. Specifically, this paper examines the reasons
for the willingness to accept IFRSs in Fiji. A critical conception of ‘relevance’ and ‘accountability’ is
developed to demonstrate how the needs of private interests’ are met in adopting the IFRSs. This paper
demonstrates that in this process of convergence, the influence of these private interests – multinational
enterprises and large international accounting firms – can lead to a transfer of economic resources in
their favour, wherein the public interests are usually ignored. The paper offers suggestions on how
public interest might be best served within the current financial reporting system and how, in principle,
the needs to report both globally and locally can be reconciled.
© 2006 Elsevier Ltd. All rights reserved.

Keywords: Harmonization/convergence; International Financial Reporting Standards; Accountability; Benefits

夽 The paper has benefited from the helpful suggestions made by the reviewer and participants at the 2005 Critical
Perspectives on Accounting Conference (held at New York).
∗ Corresponding author. Tel.: +61 2 9850 6137; fax: +61 2 9850 8497.

E-mail addresses: pchand@efs.mq.edu.au (P. Chand), white m@usp.ac.fj (M. White).

1 Tel.: +679 321 2543; fax: +679 330 1487.

1045-2354/$ – see front matter © 2006 Elsevier Ltd. All rights reserved.
doi:10.1016/j.cpa.2006.05.006
606 P. Chand, M. White / Critical Perspectives on Accounting 18 (2007) 605–622

1. Introduction

The globalization2 of the world’s economies has inevitably brought with it moves to
establish a single set of financial reporting standards. Developing such financial reporting
standards seems to be a legitimate role for the International Accounting Standards Board
(IASB) and its forerunner the International Accounting Standards Committee (IASC). The
primary argument for a single set of financial reports, premised on principles of economic
rationality, is to achieve global harmonization (or convergence), thereby creating an open and
accountable world (Lehman, 2005; Roberts, 1991).3 Prima facie, the International Financial
Reporting Standards (IFRSs) project an aura of objectivity by transcribing complex ‘local
reality’ into universal recognizable and acceptable information (Saravanamuthu, 2004, p.
296). In this process of convergence, IFRSs are developed with the view of global ‘rele-
vance’. Assuming that IFRSs are relevant to all societies, the factors causing the differences
amongst the nations are regarded as too simplistic and are seen to be easily effaced. This view
fails to acknowledge that even with the establishment of a single set of financial reports,
institutional difference in infrastructure, culture, legal requirements, and socioeconomic
and political systems between nations have contributed to the large scale of international
differences in financial reporting (Ampofo and Sellani, 2005; Nobes and Parker, 2004;
Radebaugh and Gray, 2002; Saudagaran, 2004; Schultz and Lopez, 2001). Given this osten-
sible disparity amidst nations, it would be naive to assume, as IASB does, that a single
regulatory framework can be established that meets the financial reporting needs of all soci-
eties. While the forces of globalization and convergence are moving accounting practices
towards a unified, or at least harmonized, regulatory framework for financial reporting,
this is unlikely to best serve the diverse interests of the disparate user groups of financial
reports.
Several studies have demonstrated that the work of the IASC/B is not related to the
needs for accountability to an individual society, but to the needs for accountability by
multinational enterprises to the world’s major capital markets (Chandler, 1992; Ngangan
et al., 2005; Saudagaran, 2004). Such accountability is clearly required for corporations
with multiple stock exchange listings over different jurisdictions. Reporting under the same
regulatory framework in all jurisdictions will certainly reduce costs and has the potential
to ameliorate transparency. An entity that reports a profit under one set of regulations
and a loss when applying another set of regulations will confuse rather than enlighten the
reader as to the entity’s true state of financial affairs. Adoption of IFRSs by all jurisdictions
resolves this problem. However, once the IFRSs are adopted by a particular country, both
the multinational and domestic enterprises may be required to follow the standards. A suite
of standards developed with the needs of international users of financial reports in mind,
specifically those seeking international comparability, will not necessarily meet the needs of

2 Globalisation, for the purpose of this paper refers to the “large and growing flows of trade and capital investments

between countries” (Hirst and Thomson, 1996, p. 48).

3 Harmonization relates to the process of reduction of contradictory accounting rules in order to reach a better

international comparability of financial statements (Choi et al., 2002, p. 291), whereas international convergence
is a process that eventually results in the adoption of the IFRSs (Wong, 2004, p. 7). The two words will be used
interchangeably in this paper.
 P. Chand, M. White / Critical Perspectives on Accounting 18 (2007) 605–622 607

users in a particular jurisdiction. The IASB cannot take cognizance of the individual national,
cultural and political factors of all its member nations while preparing IFRSs. Transporting
IASB standards to developing countries – which have their own disparate group of external
information users that operate within internationally diverse cultural, social, and political
environments – should not be expected to have optimum results (Hopwood, 2000; Ngangan
et al., 2005). Therefore, of critical importance is the fundamental question, who gains
the most from harmonization/convergence and their informal, discretionary and spatially
diverse modes of co-ordination, and what are the roles of other international organizations
in this process? (Arnold and Sikka, 2001; Cooper et al., 2003; Lehman, 2005).
The issue of harmonization/convergence and its relevance/irrelevance has of course been
considered by a number of authors approaching the issue from a range of different per-
spectives (e.g. Briston, 1978; Chandler, 1992; Haswell and McKinnon, 2003; Hove, 1986,
1990; Perera, 1985, 1989a,b; Samuels and Oliga, 1982). Hopwood (1994) called for “new
vocabularies and new perspectives (which) might provide ways for more voices to enter
the international accounting arena” (p. 251). To shed further light on this issue of con-
vergence, this study has selected a developing country (Fiji) to provide insights into the
factors that motivate movement towards global accounting practices and those which mil-
itate against it. The Fiji Institute of Accountants (FIA, the “Institute” hereon) undertook
a comprehensive review of the International Accounting Standards (IASs) as they stood
at the turn of the millennium, adopting all those it deemed universally practical to apply
in Fiji’s economic context for reporting periods beginning on or after 1 July 2002.4 The
accounting profession in Fiji has been struggling to come to terms with further adoption of
IFRSs developed since 2002. Nonetheless, the Institute has agreed in principle on wholesale
adoption of IFRSs for reporting periods beginning on or after 1 January 2007.5 With only
sixteen listed companies on the local stock market (South Pacific Stock Exchange) Fiji does
not have the developed markets necessary to adopt fair value accounting that has become
the hallmark of IFRSs post millennium. Developed nations are adopting IFRSs to reduce
the cost of information and to facilitate capital flows particularly for multinational enter-
prises, with multiple stock exchange listings (Cooper et al., 2003; Haswell and McKinnon,
2003). But then why would a developing country such as Fiji that does not have a well
established capital market adopt the IFRSs? Questions concerning the effects of harmo-
nized accounting standards on domestic users and local communities have largely been left
unanswered.
In harmonization/convergence, “accountability should be based on ethical foundations
to provide direction to management who are torn between competing, yet interdepen-
dent, stakeholder need” (Saravanamuthu, 2004, p. 296). The tension between standardized
accountability and satisfying the multiple stakeholder needs creates the confusion and the

4 The Fiji Institute of Accountants is applying all extant IASs (numbered 1–31) with the exception of IAS 12,

Accounting for Income Tax (Fiji still uses the profit and loss approach of IAS 12 rather than balance sheet approach
for taxation). IAS 12 and the remaining standards (numbered 32–41 and IFRS 1–7) are regarded as “guidance
standards”—reporting entities are to refer to these standards and apply them where possible but application is not
mandatory (Chand, 2005, p. 214).
5 Various approaches to converge and harmonize include adoption of IFRSs in their entirety, full adoption of

IFRSs with time lags, selective adoption of IFRSs and countries developing national standards based on IFRSs
(Wong, 2004, p. 7).
608 P. Chand, M. White / Critical Perspectives on Accounting 18 (2007) 605–622

inability of the IFRSs to meet the needs of all the stakeholders. It is important to explore the
convergence and harmonization process to determine whether those accounting structures
satisfy the needs of all users, or whether they satisfy only a selected group of users, with-
out consciously addressing the needs of others (Hopwood, 1994; Lehman, 2005; Miller and
O’Leary, 1994). This paper seeks to add a new dimension to the debate by discussing themes
of regulation—public and private interests, from a critical perspective. This paper offers an
analysis of forces driving the adoption of the IFRSs and seeks to identify the major stakehold-
ers benefiting from this process. A critical conception of ‘relevance’ and ‘accountability’ is
developed to demonstrate how the needs of private interests’ are met in adopting the IFRSs.
This paper demonstrates that in this process of convergence, the influence of these private
interests can lead to a transfer of economic resources in favour of those private interests,
wherein the public interests are usually ignored. Additionally, the paper demonstrates the
‘irrelevance’ of the IASs and IFRSs, which cannot be meaningfully applied in the context of
Fiji’s economy and society. To this end, the paper offers suggestions as to how public interest
might be best served within the current system of financial reporting and how, in principle,
the needs to report both globally and locally can be reconciled. We argue that the advocates of
international convergence should realize the nexus of the economic and business functions
which accounting serves differ across nations (Baskerville, 2003, p. 10) and their needs may
not be met with a single set of standards that is concealed behind reified icons of ‘relevance’.
This paper proceeds as follows. The first section critically evaluates the work of IASC/B,
considering the implications and the inherent beneficiaries of this process. The second sec-
tion traces the development of financial reporting in Fiji, outlining how the development
of the financial reporting regime in Fiji has been influenced by public and private inter-
ests. In light of this, it briefly reviews the financial reporting systems and the needs of
the users in determining what is practical and appropriate for Fiji to adopt as a set of
accounting standards. The last section considers the implications of applying a reporting
framework determined globally and supported by local private interests. Issues requiring
further research that will help determine necessary and feasible changes in the system of
financial reporting are also considered in the last section.

2. The International Accounting Standards Committee/Board and its primary

beneficiaries

The international accounting community via the convergence project has undertaken
the costly task of reviewing current disparity in the accounting standards. The process of
harmonization/convergence has been characterized by a “very skilful orchestration of the
world-wide lobbying pressures” of multinational enterprises and the international account-
ing firms (Hopwood, 1994, p. 245). The process of convergence offers the multinational
enterprises and international accounting firms the mechanism to keep accounting standard
setting within a narrow and technical domain (Brown, 2006; Brown and Van der Zahn,
2005). IFRSs standardize corporate financial reporting across international boundaries and
cultures. Users of financial reports of multinational enterprises from different jurisdictions
are provided with the same financial information, offering the same insights into their oper-
ations. Multinational enterprises cannot be accused of ambiguity in their reporting and
 P. Chand, M. White / Critical Perspectives on Accounting 18 (2007) 605–622 609

confusing users by reporting different outcomes in different jurisdictions. However, in this

process an important factor is overlooked: that although the cost of information may be
reduced due to the uniformity in financial reporting, this may not lead to improved quality
in the information produced (Haswell and McKinnon, 2003, p. 16).
Globalization is ostensibly a process whereby multinational enterprises may enter devel-
oping countries. However, “(multinational) enterprises are still rare and capital mobility
has not yet produced a massive shift of investment or shift in employment from the
most to the least industrialized countries” (Everett, 2003, p. 418). Therefore, in this pro-
cess of globalization, if multinational enterprises invest in developing countries, a critical
notion of accountability is mediated through reformed accounting structures (Lehman,
2005; Robbins, 1993). The implicit role of accounting is to monitor and regulate multi-
national enterprises effects at enterprise, national and global levels (Lehman, 2005; Nelson,
1993). It is apparent that IFRSs neither intend nor enable the impacts of corporate multina-
tional enterprises on local communities and their environments to be monitored (see Hove,
1986; Lehman, 2005). These international accounting technologies enable the multina-
tional enterprises to create and sustain the non-equilibrium conditions that persist between
the developed and developing world (Graham and Neu, 2003, p. 452). Therefore, multina-
tional enterprises in search of increasing levels of wealth may ignore the needs of many
(Lehman, 2005, p. 989), even the needs of the country where they are operating.
Hopwood (1994) explicitly illustrated that international accounting was the output of
world-wide lobbying pressures of the audit industry. Large multinational accounting firms,
he explained, have power to command accounting agendas, primarily to serve their own
interests. The large multinational accounting firms are not only implicated in this process of
convergence, by offering a standardized audit and other financial services and by promoting
and providing expertise in harmonized financial standards (Cooper et al., 1998, p. 531), but
are direct beneficiaries of this process. A standardized set of global standards enables the
parent companies to monitor closely and provide highly structured training programmes
to train their professional accountants all over the world. A standardized set of standards,
by avoiding duplication, represents a significant cost saving, as analogical organizational
manuals on procedures and policies, together with a single set of guidance, can be provided
on interpretation and application of accounting standards (Barrett et al., 2005, p. 3). This is
particularly pertinent now when the legitimacy of auditing is under fire, the recent corporate
collapses having left the disputed boundary between auditing and consulting as impalpable
as ever (Power, 2003, p. 379). In this process of convergence, while meeting the needs of
dominant stakeholders – the multinational enterprises and international accounting firms
– little attention is given to the possibility that the existing accounting practices of the
individual countries are better suited, at least ostensibly to their local users.
It is generally agreed that both the US and the UK exerted significant influence over
the standard setting functions of the IASB (Briston, 1978; Chamisa, 2000; Hove, 1986,
1990; Perera, 1985, 1989a; Samuels and Oliga, 1982). Both the US and the UK employ the
“fair presentation/full disclosure” model of accounting as business enterprises in the two
countries typically source long-term finance through the stock market as opposed to the
banking system. The IASB/International Organization of Securities Commissions (IOSCO)
project also led to the ongoing application of the fair presentation/full disclosure model in
the further development of IASs/IFRSs, cementing the dominant position of the US and the
610 P. Chand, M. White / Critical Perspectives on Accounting 18 (2007) 605–622

UK in the IASC/B. While the composition of the IASB claims a broader representation of
members than its predecessor, which is reflected by way of the expertise members bring to
the Board, yet in terms of country of origin the US/UK hegemony – they account for 8 of the
14 members – is still very apparent.6 The IOSCO project can also be seen to have strongly
influenced the marked shift towards fair value accounting in the development of IASs/IFRSs
(e.g. IAS 32, Financial Instruments: Disclosure and Presentation; IAS 35, Discontinuing
Operations; IAS 38, Intangible Assets; IAS 39, Financial Instruments: Recognition and
Measurement and IAS 41, Agriculture) and also to some extent the revision of standards
already established (e.g. revised version (2004) of IAS 16, Property, Plant and Equipment).
The fair presentation/full disclosure reporting model is attuned to the information needs
of the developed stock markets (see Gernon and Meek, 2001). More recently the IASB and
the Financial Accounting Standards Board (FASB) in the US have entered into a dialogue,
with a view to establishing a harmonized set of accounting standards that embraces the best
of the two suites of standards (FASB, 2002). To this end, Section 108 of the Sarbannes-
Oxley Act of 2002 instructed the Securities Exchange Commission to conduct a study on the
adoption of a principles-based accounting system in the US (Schipper, 2003, p. 61). The US
FASB has initiated several joint projects with the IASB, designed to produce high quality,
comprehensive and enforceable accounting standards (Ampofo and Sellani, 2005; Bullen
and Crook, 2005). This suggests that the US in particular will continue to exercise a very
strong influence over not merely the convergence, but also the globalization of accounting
processes. In short, there is no doubt that with the US involvement the IFRSs are likely
to become as comprehensive and complex as the FASB statements (Ampofo and Sellani,
2005; Chawla, 2003).
Set against the backdrop of a system of financial reporting geared to meet the needs of
providers of finance in developed capital markets it is necessary to consider if the IASC/B
actually provided assistance to developing economies to foster good financial reporting
practices (Cairns, 1990). The IASC put in place the ‘Developing Countries Project’ in
the late 1980s. The objective was to develop industry-based standards, particularly for the
primary industries, such as mining, sugar and plantations, which were regarded as key
sectors in developing country economies. The only standard that could be considered to
fall into this category till now is IAS 41, Agriculture, which was not promulgated until
2001. Agriculture contributes about 16% to Fiji’s gross domestic product (Reserve Bank
of Fiji, 2005). At the time it was acknowledged to be the most challenging of the IASs to
apply, with the world’s accountants being given an unprecedented 2 years to come to terms
with it before implementation date. The development of this statement may be regarded
virtually as an afterthought, as the developing countries project was sidelined when the
IASC redirected its attention to commissioned work from the IOSCO (Chandler, 1992).
The IOSCO project came with funding, whereas the developing countries project did not.
More recently, to satisfy the needs of the small and medium-sized enterprises (SMEs), the
IASB is formulating a separate set of standards for these enterprises.
The IASB in 2003, acknowledging the problem of applying existing IFRSs to SMEs,
agreed to develop specific accounting standards for this sector. To this end, the IASB is

6 In terms of the actual membership of the IASB, the 14 members are from the US (six including the vice-chair),

the UK (two including the chair), and one each from Australia, Canada, France, Germany, Japan, Sweden).
 P. Chand, M. White / Critical Perspectives on Accounting 18 (2007) 605–622 611

moving ahead with its demanding agenda to develop a separate set of financial reporting
standards that are suitable only for SMEs (IASB, 2004). The IASB timetable indicates that
this standard, or suite of standards, will be established in 2007 (IASB, 2006). The IASB
argues that individual national approaches for SMEs may pose a risk to international conver-
gence, as comparability and consistency would be compromised if alternative approaches
exist (Wong, 2004, p. 16). This in turn would impede investments and the development of
capital markets. The varied approaches currently utilized by countries in meeting the needs
of their SMEs (Devi, 2003) does not seem to augur well for the success of IASB SME
standards. Most of the standard setters’ argue that IASB’s proposals are relatively new and
require greater international attention and debate. The IASB’s initiative to develop an SME
Standard may also prove to be of limited relevance to Fiji, both from a domestic and interna-
tional perspective. Given the size of the Fiji economy, all reporting entities operating in the
economy may reasonably be perceived to be SME’s. Certain entities operating solely in Fiji
will have to adopt IFRSs because they operate not merely in Fiji, but have stakeholders in
the global economy. Other entities, whose operations are limited to the domestic economy
and are not reliant on overseas finance, have no international stakeholders. Reporting based
on IFRSs, or a yet to be produced IASB SME Standard (to be extracted out the current suite
of IFRSs) may not be relevant.
The foregoing arguments suggest that IFRSs in general will not meet the financial report-
ing requirements of many societies, particularly in developing economies (Briston, 1978;
Chandler, 1992; Everett, 2003; Hove, 1986, 1990; Perera, 1985, 1989a,b; Samuels and
Oliga, 1982; Sikka, 2003). In adopting the IFRSs, the public interest responsibility of
the Fiji Institute of Accountants rests in satisfying the needs of all the stakeholders in
Fiji. However, in Fiji less than 4% of equity in companies listed on South Pacific Stock
Exchange is held by individuals not directly involved in running the enterprises (Patel,
2002, p. 46). To the extent that IFRSs are drawn primarily with absentee owners’ infor-
mation needs in mind, the direction they provide is poorly focused on the needs of other
users of financial reports. If IFRSs are, at best, applicable only to the financial reporting
needs of large organizations and users in developed economies, why have IFRSs been
adopted in their totality, or with minor adaptation, in Fiji, as in a number of developing
economies, to the exclusion of nationally constructed regulations?7 A need to report to
an enterprise’s head office located in another reporting regime, or an overseas financier,
may be best met by using international reporting norms, the IFRSs. This provides no
prima facie justification for applying IFRSs for financial reporting for users in the domestic
economy.

3. The process of convergence in Fiji and the influence of public and private
interests

The accounting literature is replete with examples of private interests successfully over-
ruling public interests in the matter of accounting regulation (Rahman, 1988; Stoddart, 2000;

7 Such countries as Papua New Guinea, Nigeria, Malaysia, Pakistan and Zimbabwe, to name a few, have accorded

the IASB pronouncements the same status as local standards.

612 P. Chand, M. White / Critical Perspectives on Accounting 18 (2007) 605–622

Walker, 1987).8 The political nature of accounting standards, the opportunistic lobbying
of various stakeholders and the struggle of the accounting profession to control the regu-
latory process have long been recognized (Rahman, 1988; Stoddart, 2000; Walker, 1987;
Zeff, 1972). Some jurisdictions, notably the US and Australia, have taken the regulatory
process under the wing of a government agency, to efface or avoid its being captured by
the profession. For example, the US has taken steps through the Sarbanes-Oxley legisla-
tion to strengthen the regulator’s independence (Herz, 2002; Schipper, 2003). Similarly,
in Australia the new standard setting arrangements were introduced in 1997, including
the Financial Reporting Council to oversee the Australian Accounting Standards Board
(Haswell and McKinnon, 2003, p. 10). Such remedial measures were seen as necessary in
these countries, demonstrating that the regulatory process may have been captured. Moves
to bring Fiji’s standard financial reporting practices into line with the IASs/IFRSs are now
considered in the context of theories of regulation.
The accounting practices initially employed in Fiji were those imposed by the colo-
nial power. These have subsequently been reinforced by the trading patterns engendered
under the aegis of the Commonwealth countries. These influences were further reinforced
by the work of expatriate professional accountants and the establishment of the multina-
tional accounting firms in Fiji (Juchau, 1978; Kapadia, 1980). In particular, these expatriate
accountants were responsible for establishing the professional institute and the ethos of
the accounting profession. The accounting system in Fiji has been strongly influenced by
British and more recently by international arrangements and practices. Currently, the Insti-
tute through its Accounting and Auditing Standards Committee promulgates accounting
standards that serve as the basis for preparing the financial statements. The membership
of the Institute comprises both Fiji nationals and expatriates, who generally receive their
accounting education in Commonwealth countries. Most of the local accountants obtain
their tertiary education in Fiji, whereas the expatriate accountants attain their academic
qualifications primarily in the UK, Australia and New Zealand. Additionally, expatriate
accounting educators in Fiji have invariably been drawn from Commonwealth countries,
reinforcing the technology transfers put in place by expatriate practitioners (Juchau, 1978;
Kukreja, 1997). Consequently, the accounting practices in Fiji are aligned with the Anglo-
Saxon accounting model (see Nobes and Parker, 2004; Radebaugh and Gray, 2002).
In the earlier parts of its history the Institute issued accounting standards in exposure draft
form, inviting comments from Institute members and interested parties in society, providing
an avenue for public interests to be articulated. Comments that were sporadically submitted
invariably came from providers, rather than the users, of financial information; for example,
the Australia and New Zealand Bank commented on Fiji Accounting Standard (FAS) 30,
Additional Disclosure by Banks and Similar Financial Institutions. Such submissions can
be regarded as reflecting private rather than public interests. However, it is interesting to
note that the Institute, in undertaking a general updating of its suite of standards to bring
them into line with IFRSs, has dropped this process. Given that an apparent need to ensure

8 The three regulatory theory frameworks have been developed to provide a broad-based analysis of the eco-

nomic, social and political influences involved in the regulatory process. These three theories are public interest
theory, private interest theory and the regulatory capture theory. Because these theories are frequently used in the
accounting literature, we do not provide detailed descriptions of each dimension.
 P. Chand, M. White / Critical Perspectives on Accounting 18 (2007) 605–622 613

compliance with Fiji’s standards also ensures compliance with IASs/IFRSs, the consultation
process was considered redundant. Consequently the specific needs of domestic users have
been ignored.
In Fiji, the influence of public interest on financial reporting has, at best, never been
more than absolutely minimal. The Fiji government, aside from mandating certain report-
ing requirements on legal issues in the Companies Act, which dates back to 1983, has
had no input on the regulation of financial reporting. The Institute obtains its authority
to operate as the sole professional accounting body in Fiji by virtue of its own Act of
Parliament.9
The Institute established a by-law in 1986 in relation to formulation and promulgation
of accounting and auditing standards in Fiji. The by-law acknowledges the Institute’s obli-
gation to support standards promulgated by the IASC (as it was then) and International
Federation of Accountants (IFAC) and to use its best endeavours to ensure compliance.
However, the by-law does provide the Institute scope to adopt standards addressing issues
not covered by IFRSs and to mandate departures from them. Importantly, the by-law also
stipulates that members, who fail to apply practices mandated by the standards, render
themselves liable to disciplinary action under Section 32 of the by-law (FIA, 1986). Addi-
tionally, according to the by-law, non-members of the Institute are precluded from providing
accounting services to clients. Therefore, by establishing this by-law, the Institute under its
own authority took control of the regulatory processes of financial reporting in Fiji. The
term ‘regulatory capture’ is scarcely appropriate in Fiji as neither the Fiji government, nor
any of its agencies, showed any interest in regulating financial reporting in Fiji. The gov-
ernment, accepting the Institute to be a responsible professional body and well developed
in the context of an economy of Fiji’s size, has allowed the Institute to capture not only the
regulatory process, but also by default, its oversight. The Institute has adopted the IFRSs,
arguing that the adoption of these international standards in Fiji will improve the financial
reporting and also improve the efficiency of capital markets and facilitate capital flows into
Fiji. The adoption of IFRSs was seen as an incentive for multinationals and local enterprises
to register on the local stock market.
Howieson (1998, p. 6) on the basis of Australian example, argued that there is lack of
evidence that while investing multinational enterprises will be concerned about the standards
adopted in a particular country, they will “go where the money is”. In January 2006, the South
Pacific Stock Exchange had 16 listed companies, attracting four new listings since 2002
when the last update of standards occurred. Therefore, it is of grave concern that international
accounting standards are assessed to be suitable to the economy of Fiji, as minimal benefits
may be realized by the domestic reporting entities, including local government, not-for-
profit entities and large proprietary companies.
As an associate member of the IASB, coupled with its own 1986 by-law, the Institute is
committed to the adoption of IFRSs. The most economical way to converge is to adopt the
selected IFRSs with minor modification. As already noted, though the Institutes 1986 by-law
allows it to apply discretion in the adoption process, it is limited by its own human resources

9 The legal and regulatory framework for financial reporting in Fiji is guided by the Companies Act 1983 and the

pronouncements of the Fiji Institute of Accountants. The Government, in October 1971, enacted the Fiji Institute
of Accountants Act, which then came into force on 11 February 1972 (Chand, 2005, p. 213).
614 P. Chand, M. White / Critical Perspectives on Accounting 18 (2007) 605–622

(the FIA’s membership stands at a little over 600). Membership numbers have been static
for a number of years. Membership is also heavily skewed, where the majority of members
have no more than 3 years practical work experience. Undiscriminating adoption of the
IFRSs confers a benefit to the Institute and its members as the Fiji accounting profession
can claim to be up-to-date with global accounting processes. This in itself is important, in
light of the considerable migration rate of Fiji’s accountants: the Institute loses as many, or
more, members to migration as it inducts each year, and the adoption of IFRSs enhances this
geographical mobility. In particular, the private interests of Fiji’s accountants are reinforced
by those of the “big four” accounting firms.10
Membership of the Institute’s Accounting and Auditing Standards Committee was
reduced from nine to six in 2002, after the completion of the last drive to update Fiji’s
accounting standards. The committee then turned its attention to work on auditing stan-
dards. At that time the Institute felt that the work of the Committee was best left in the
hands of members drawn solely from the audit industry. There was no subsequent review
of the composition of the committee when it turned its attention back to financial reporting
standards in 2003. Consequently there has been a narrowing in the representation of stake-
holders in the formulation of accounting standards. Four of the members are now drawn
from the “big four” accounting firms. Essentially the Institute has followed the line of least
resistance, justifying a failure to make any attempt to regulate in line with domestic needs
on the basis of inadequate resources and accommodating the private interests of a significant
part of its membership. Opportunities for proactivity have been surrendered. The Institutes
role has essentially been reduced to a “rubber stamping” (Collett et al., 1998, p. 13) of
international requirements.
It is in the interest of the “big four” to adopt the IFRSs as the Fiji standards. The “big four”
have an incentive to apply the IFRSs and, notwithstanding the loss of skilled employees
to Fiji’s commercial sector and migration, have the ability to do so.11 The “big four”
naturally wish to retain the services of multinational clients that operate in the South Pacific
Island economies, many of which are serviced from staff located in Fiji. They can do so by
making referrals to their Fiji-based branches. These branches are supported where necessary
with senior expatriate staff. Such a strategy obviates the need to service such clients by
staff based in Australia, New Zealand or elsewhere on a fly-in-fly-out basis, keeping their
overall operating costs down. At the same time the “big four” have access to training
resources developed by the firms internationally. The expatriate expertise and internationally
generated training materials are resources the other local accounting firms may not have.
The “big four” therefore secure a competitive advantage over the smaller operations. Fiji-
based multinational operations seeking compliance with the country’s accounting standards
as well as those of the parent multinational enterprises may be offered more knowledgeable
services by the “big four”, rather than by using the services of small-scale local accounting
firms.

10 In Fiji, the “big four” accounting firms comprise Deloitte Touche Tohmatsu, KPMG, PriceWaterhouse/Coopers,

and Ernst and Young.

11 The “big four” may well benefit globally from the migration, since they can encourage staff determined to

migrate to take employment with a branch of the firm overseas. This, of course, is not an option that the domestic
firms can offer their staff.
 P. Chand, M. White / Critical Perspectives on Accounting 18 (2007) 605–622 615

In adopting the IFRSs the Institute has ignored country specific issues such as the nature of
industry, size of business enterprises and sophistication of the capital markets. Additionally,
the Institute has primarily ignored the needs of the local users of accounting information. For
example, the indigenous Fijian population holds ownership of virtually all of land and the
economic resources found from coastal waters. A regulation requiring specific disclosure
of rents paid for the use of these resources, which are collected and administered not by the
landowners themselves but the Native Lands Trust Board, would enable the landlords to
compare returns with those secured by other factors of production. Such disclosure would
allow for better informed decisions between stakeholders in a reporting entity and hopefully
more equitable and timely resolution of disputes. Unfortunately no such regulation has been
developed. In Fiji, the users of financial reports fall into three groups, namely, financial
institutions, individuals as principals and individuals as equity holders.

3.1. The financial institutions

The first of these groups, the financial institutions and in particular the commercial banks,
dominate Fiji’s capital markets. It is on these institutions that almost all of Fiji’s domesti-
cally controlled business enterprises rely for financing. Two commercial banks control 75%
of the banking market and exercise duopoly powers (Ministry of Finance, 1999).12 Many
business enterprises therefore need to provide financial reports to their banks, they being
their prime financiers. Banks in Fiji, as in other jurisdictions, are concerned with assess-
ing the financial stability and security that can be offered by prospective borrowers and
compliance with loan covenant agreements by established clients. They typically require
their borrowers to adopt a conservative approach to asset valuation and gearing measures,
inter alia, as a bonding exercise (Watts, 2003). Banks seek reports from their clients that
conform to a particular framework and a set of rules that the banks themselves impose. The
banks operating in a non-competitive environment are able to require clients to reconstruct
their financial reports on terms determined by the banks in order both to secure and retain
financing. The banks acquire the accounting information the way they need it, without hav-
ing to lobby the regulator to set reporting standards that address those needs. Kanaenabogi
(2003) provides evidence that bank’s in Fiji typically take a conservative view of asset
valuations offered as security in assessing loan applications. Banks use asset valuations,
which are determined by applying conservative assumptions, taking these as proxies for
orderly liquidation values, where formal independent valuations have not been secured.
Accounting values determined by applying Fiji’s current reporting regulations and IFRSs
are not accepted in assessing entities’ capacities to repay loans. Therefore, Kanaenabogi
argues that complying with two sets of audited financial statements imposes an unneces-
sary financial burden on business enterprises. Consequently, the more conservative finan-
cial reporting models applied by France, Germany and Japan (Briston, 1978; Radebaugh
and Gray, 2002) may be more appropriate for Fiji’s domestic economy than the IASB
model.

12 Australia and New Zealand Banking Group Ltd. holding 47% and Westpac Banking Group holding 28% of

the market share. The balance of the market is made up of Colonial National Bank, Bank of Baroda and Habib
Bank (Ministry of Finance, 1999).
616 P. Chand, M. White / Critical Perspectives on Accounting 18 (2007) 605–622

3.2. Individuals as principals

For these individuals, the IASB suite of standards is also inappropriate from a cultural
perspective. Hofstede’s (1980) approach to analyzing cultural influences on financial report-
ing needs has come under criticism (see Baskerville, 2003). However, the major criticism
relates to the tendency to equate cultural groups with countries. The analysis itself has not
been discredited. Fiji is a society that is dominated by two ethnic groups—indigenous Fijians
and Indo-Fijians. Both groups exhibit cultural characteristics of uncertainly avoidance and a
preference for a society that adheres to rules as opposed to one that expects the individual to
act appropriately by personal initiative and professional judgment (see Chand, 2005). Fijian
society is also characterized by the presence of a strong power distance between leaders in
all capacities and their constituents. A number of entities have been established in Fiji with
a stated remit to foster the indigenous population’s participation in the economy. Educated
and articulate principals who have the temerity to question financial reports are typically
reminded that Fijian society does not tolerate such challenges. The adoption of IFRSs leads
to principles-based financial reports that require the exercise of professional judgment and
introduces ambiguity in the reporting process, thus clouding rather than enhancing account-
ability (Davie, 1999, 2000). Managers of such entities drawn from the Fijian elite caste,
as many are, who are beyond the challenge by non-elites, may ‘request’ the accountant to
exercise judgment in such a way that the entity reports a stronger financial position than eco-
nomic reality. Cultural values would require a Fijian accountant, to accede to the ‘request’.
Rule-based standards would protect the accountant from such ‘requests’. In Fiji, rule-based
standards may reduce the potential relevance of financial reports, but should improve their
transparency and the confidence that principals will place in them.

3.3. Individuals as equity holders

Although only a small number of individuals, as absentee owners, have a direct holding
in equities, as noted earlier, their holdings are not material (4% of issued share capital in
quoted companies). Tentative evidence suggests that they do seek to use financial reporting
for investment decision making purposes, but it is not clear as to how they want financial
reports constructed (Mala, 2004; Patel, 2002). Responses from both studies were diffuse.
While this provides no direct evidence that individual as equity holders do not want financial
reports based on IFRSs, it does imply that this user group does not constitute a well informed
cadre of users. Therefore, a system of financial reporting which minimizes the need for
both the provider and reader to exercise judgments may be of most use at this stage of
development in Fiji’s capital market. The complexity of IFRSs that render financial reports
incomprehensible (Accountancy Age, 2006, p. 1) strongly suggests that IFRS based financial
reports will be of little help to individual investors in Fiji.
In Fiji the costs of adopting the fair value model of accounting are significant. Fair values
are not readily observable in Fiji’s thin markets, both for investments and non-current assets.
Given Fiji’s thin capital markets the adoption of fair value accounting will lead to the radical
rewriting of balance sheets of entities operating, especially in the finance sector. This could
lead to unnecessary and severe economic consequences. For example, the Fiji National
Provident Fund, Fiji’s compulsory pension scheme, is required by law to hold a minimum
 P. Chand, M. White / Critical Perspectives on Accounting 18 (2007) 605–622 617

of 50% of its investment portfolio in government securities. These securities are marketable
and reported on a ‘held to maturity’ basis at something in excess of $US1.15 billion (Fiji
National Provident Fund, 2004; White, 2005). Fiji’s gross domestic product for 2004 stood
at $FJD4.1 billion ($US 2.5 billion) (Reserve Bank of Fiji, 2005). Clearly the market could
not absorb the entire holding at anything other than a small fraction of its “held to maturity
value”. On the adoption of IAS 26, Accounting and Reporting by Defined Benefit Plans, the
Fiji National Provident Fund will be obliged to write down the value of these investments
drastically, even though the future cash flows they represent will not be affected. However, to
meet the legal requirement that the fund holds 50% of its portfolio in government securities it
will be required to sell off other securities. Sales will inevitably have to be made at distress
prices, impairing the fund’s capacity to make pension payments. As only the wealthiest
segment of Fiji’s population will be in a position to buy the investments the Fiji National
Provident Fund will release, the resultant redistribution of wealth may be regressive. The
fair value model will also impose material costs on reporting entities in general.
Additionally, the requirement in the 2004 edition of IAS 16, Property, Plant and Equip-
ment, for all entities to revalue property, plant and equipment will in itself impose severe
costs.13 The Fiji Institute of Valuers, with fewer than 70 members does not have the capacity
to carry out the informed independent valuations required by IAS 16. Additionally, Valuers’
fees would also prove onerous to many entities operating in Fiji.14 Therefore, the current
suite of IFRSs is not only something the reporting entities and society in Fiji do not want,
it is something they cannot afford and will experience great difficulty in applying.

4. A review of policy options, conclusions and implications for future research

International convergence of financial reporting primarily serves the interests of the

nations represented on the IASB, their multinational enterprises and the international
accounting firms. This paper has illustrated the ways in which these organizations and
the accounting standards they employ serve to create and sustain the asymmetries and
imbalances within and between countries. IFRSs, therefore, are implicated in the creation
of and in sustaining these power imbalances and uneven distribution of wealth (Cooper
et al., 2003; Graham and Neu, 2003). Therefore, the net effect of convergence is likely
to satisfy the needs of a few dominant stakeholders. The principal argument in this paper
is that the professional accounting bodies and large multinational accounting firms prefer
accounting standards to be determined according to the process of convergence. It was the
multinational accounting firms who had culminated and been influential in establishing the
IASC in the early 1970s (Rahman et al., 2002, p. 73) and our analysis demonstrates that
they are still one of the main supporters of the convergence process. In Fiji, while the use
of IFRSs may be beneficial for reporting entities engaged in the global economy, the prime

13 While the University of the South Pacific, the regional university located in Fiji, constitutes an extreme case

it serves to illustrate the problem. The University has accumulated significant property, plant and equipment
through aid funding and has been given a quotation of $US3.6 million for a comprehensive valuation exercise.
The University’s recurrent budget is $US39 million (University of the South Pacific, 2004).
14 Comment made by the President of the Fiji Institute of Valuers to the authors.
618 P. Chand, M. White / Critical Perspectives on Accounting 18 (2007) 605–622

beneficiaries of the use of IFRSs for all enterprises are the accounting profession in general
and the “big four” accounting firms in particular.
Fiji’s accounting profession claims that global forces effectively determine Fiji’s account-
ing regulatory processes and the Institute is obliged to acknowledge these forces. Our study
demonstrates, as do other studies (for example, Brown, 2006; Brown and Shardlow, 2005;
Sikka, 2003) that the notion of public interest responsibilities is a subject of narrow concern
for developing country accounting systems, where the ultimate aim is to keep up with struc-
tures of the developed countries. The public interest responsibilities of the Institute rest in
satisfying the needs of all the stakeholders in Fiji rather than the selected few, but this is
not explicated in financial reports drawn up employing IFRSs. Importantly, in adopting the
IFRSs, it has been overlooked that the Institute as the national regulator has been subject to
capture by the IASB.
Events elsewhere in the world have shown that where the financial reporting standard
setting process is taken away from the accounting profession, the profession often suc-
ceeds in capturing the regulation. However, it is abundantly clear that the public interest
will definitely not be served by retaining the status quo. The Asian Development Bank,
an agency favouring the global application of IFRSs, has already recommended that the
Fiji Government set up an independent oversight body to review financial reports to ensure
compliance with accounting standards (Asian Development Bank, 2002). Implementing
this recommendation would undoubtedly be a step in the right direction. Given the account-
ing profession’s preference for IFRS-based regulation this paper draws the conclusion that
the government should also set up an independent agency to establish appropriate finan-
cial reporting standards to be applied within Fiji. A two-tier system of regulation would
seem to be appropriate. Certain reporting entities would continue to be required to compile
financial reports that are IFRS compliant, which at a minimum would include subsidiaries
of overseas companies. The South Pacific Stock Exchange, a regional as opposed to a
national entity though located in Fiji, may continue to require financial reporting that is
IFRS compliant for listed companies. Other reporting entities, for example those that have
significant international financial dealings, may choose to prepare IFRS compliant financial
reports.
These cases aside, other reporting entities would prepare financial reports on a basis of
domestic as opposed to international relevance. Such a proposal obviates the issue of cost.
The Institute in compiling a set of standards for Fiji has never considered the possibility
of generating standards domestically, on the grounds that it does not have the resources to
do so. The government, with its resource constraints and other more prominent agendas
to serve, is also sensitive to the issue of cost and has shown no indication to take this
role. However, development costs need not be substantial. The Institute solved the problem
of developing standards by adoption of the IFRSs with minor modifications. The same
approach can be adopted for the domestic tier of standards, but selection can be made
from a far wider range of ready-made standards. This would include standards produced
by national accounting bodies around the world, particularly those operating in cultural
circumstances similar to Fiji’s. The suite of IASs generated under the internationalization
process initiated in 1987 may well provide a valuable source of reference. Statements from
that generation of standards typically prescribed benchmark and alternative treatments,
rather than requiring the exercise of professional judgments. Such standards are more likely
 P. Chand, M. White / Critical Perspectives on Accounting 18 (2007) 605–622 619

to be attuned to cultural values found in Fiji. The development programme may go so far
as to eliminate or reduce alternative treatments that appear in the original text.
This paper has argued for the need to inject a degree of conservatism into Fiji’s financial
reporting system. Currently financial reporting processes in Fiji are anything but conserva-
tive, where accounting standards have provided reporting entities with options on accounting
practices to be applied, the option that reports the desirable financial outcome is invari-
ably employed (Pathik, 2000; White, 2005). In eliminating alternatives a simple rule can
be adopted, namely to approve the most conservative option. Particular needs could also
be pursued. For example, in Fiji’s small domestic economy, related parties situations are
widespread. It is possible that in this instance IAS 24, Related Party Disclosures, does not
require sufficient information to meet domestic user needs. Information on directors’ per-
sonal financial affairs may have to be developed, for example. This could readily be done by
adopting for wider application the South Pacific Stock Exchange listing rules in regard to
the disclosure of directors’ interests. As already noted, contractual arrangements between
reporting entities and indigenous landowners have been subject to misinterpretation from
time to time. The correct legal interpretation may have a material impact on an entity’s
financial position. Standard disclosure of such arrangements may serve to prevent misun-
derstandings among stakeholders and the economic dislocations they are apt to generate.
It must be borne in mind that in general, compliance and oversight costs of this simpler
alternative system of financial reporting will be lower than those incurred at present. Pub-
lic interest can therefore be pursued at no greater public cost. In the limited cases where
additional disclosures may be deemed relevant, the appropriate research will need to be
undertaken to ensure that the benefits from disclosure outweigh the associated costs.
This paper argues that application of the fair value model of accounting is impractical,
at least in the domestic sector, in Fiji’s economy. In establishing the domestic regulatory
framework it will be necessary to determine the capabilities of the accounting profession.
Also needed is further research on the ways in which standard setting bodies have been
captured, and the development of strategies to forestall this happening in the future. This
paper has demonstrated that the nature and consequences of adopting IFRSs is crucial to
critical studies. With the process of convergence the standardization of accounting standards
across international boundaries serves to decontextualize wealth accumulation practices on a
global basis, where local communities that fail to comply face the wrath of the capital market
(Saravanamuthu, 2004, p. 300). Having explored notions of globalization and relevance
of accounting convergence, from the vantage point of accounting research, the ways in
which the developing countries’ needs could be fulfilled become critical for future research.
Additionally, accounting researchers can consider in various jurisdictions whether IFRSs
serve to promote flows of capital that mitigate international differences in power, or those
flows that preserves the status quo (Graham and Neu, 2003, p. 456).

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