Accounting policies, institutional factors and firm performance: Qualitative insights in a developing country
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Badulescu, Daniel; Akhtar, Muhammad Nouman; Ahmad, Mumtaz; Abbas Soharwardi, Mariam Article Accounting policies, institutional factors and firm performance: Qualitative insights in a developing country Journal of Risk and Financial Management Provided in Cooperation with: MDPI – Multidisciplinary Digital Publishing Institute, Basel Suggested Citation: Badulescu, Daniel; Akhtar, Muhammad Nouman; Ahmad, Mumtaz; Abbas Soharwardi, Mariam (2021) : Accounting policies, institutional factors and firm performance: Qualitative insights in a developing country, Journal of Risk and Financial Management, ISSN 1911-8074, MDPI, Basel, Vol. 14, Iss. 10, pp. 1-21, https://doi.org/10.3390/jrfm14100473 This Version is available at: https://hdl.handle.net/10419/258577 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may be saved and copied for your personal and scholarly purposes. You are not to copy documents for public or commercial purposes, to exhibit the documents publicly, to make them publicly available on the internet, or to distribute or otherwise use the documents in public. If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by/4.0/
J.RiskFinancialManag.2021,14,473.https://doi.org/10.3390/jrfm14100473www.mdpi.com/journal/jrfm Article AccountingPolicies,InstitutionalFactorsandFirm Performance:QualitativeInsightsinaDevelopingCountry DanielBadulescu 1, *,MuhammadNoumanAkhtar 2 ,MumtazAhmad 2 andMariamAbbasSoharwardi 3 1 DepartmentofEconomicsandBusiness,FacultyofEconomicSciences,UniversityofOradea, 410087Oradea,Romania 2 DepartmentofCommerce,TheIslamiaUniversityofBahawalpur,Bahawalpur63100,Pakistan; [email protected](M.N.A.);[email protected](M.A.) 3 DepartmentofEconomics,TheIslamiaUniversityofBahawalpur,Bahawalpur63100,Pakistan; [email protected] *Correspondence:dbadul[email protected] Abstract:Thisstudyaimstouncoverthedeterminantsfortheformulationofaccountingpractices andtheirimpactonfirmperformanceinPakistanthroughthelensofinstitutionaltheory.Basedon apragmaticapproach,thisstudyhascollecteddatafrom455participantsand21semi‐structured interviewshavebeenconducted.Firstly,itisnotedthataccountingpracticescanbetracedbackto theMughalregime,andsubsequentlyunderwentamajordevelopmentintheBritishcolonialsys‐ tem.Secondly,ourresultsindicatethatinstitutionalfactors,namely,accountingregulatoryframe‐ work,politicalfactors,economicfactors,culturalfactors,andcountry‐specificfactorshavealso playedamajorroleinthedevelopmentofaccountingpracticesafterthecreationofPakistanasa separatestate.Finally,thisstudysuggeststhatthedevelopmentofaccountingpracticeshavea novelcontributiontowardstheperformanceoffirms.Thisresearchthusprovidesapathwayfor policymakersinthiscountytoclosingthegapsbetweenaccountingpracticesandthepoliciesofthe InternationalAccountingStandardBoard(IASB).Furthermore,firmscanenhancetheirperfor‐ mancebyimplementinginternationalaccountingstandards.ThispaperhelpsPakistan’sregulatory institutionssuchastheSECP(SecuritiesandExchangeCommissionofPakistan)andSBP(State BankofPakistan)intheprocessofdevelopingnewpolicies.Suchdecisionsarerelated,butnot limitedto:attractingforeigninvestments,economicexpansion,andinternationaltrade.Further‐ more,itprovidesapathwayforfirmstoimprovetheirperformance.Ultimately,thisresearchfills thegapasconcernsinternationalaccountingstandardsbyassessing,bothempiricallyandtheoret‐ ically,theroleofvariousdeterminantsfortheformulationofaccountingpracticesandtheirimpact ontheperformanceoffirms. Keywords:accountingpractices;institutionalfactors;companiesfinancialperformance;developing country;Pakistan 1.Introduction Accordingtointernationalaccountingresearch(IAR),eachcountryhasitscountry‐ specificinstitutionalframeworksthatdistinguishthecountry’saccountingpracticesfrom thoseofothers(CookeandWallace1990;Jizi2017).Institutionalfactorsprovidethebases fortheformulationofaccountingpractices(Touron2005;Tahatetal.2018).Al‐Htaybat (2017)hasdevelopedacompleteframeworkforthecompliancewithaccountingregula‐ tions,whichprovidesapathwayfortheimprovementofaccountingpracticesandwhich hasledthisstudytowardsorganizationalperformance.Theprincipleoforganizational behaviorhasforcedcompaniestoadoptnewstrategieswhicharenecessaryinorderto closetheperformancegap,andalsotoclosethegapsbetweenfirmsthataretryingtocope withsuchstandards.Itishardtoconvinceprofessionalsfromvariousfieldssimplyby Citation:Badulescu,Daniel, MuhammadNoumanAkhtar, MumtazAhmad,andMariamAbbas Soharwardi.2021.Accounting Policies,InstitutionalFactorsand FirmPerformance:Qualitative InsightsinaDevelopingCountry. J ournalofRiskandFinancial M anagement14:473.https://doi.org/ 10.3390/jrfm14100473 AcademicEditors:Wing‐Keung Wong,HusamRjoubandKittisak J ermsittiparsert Received:24August2021 Accepted:23September2021 Published:7October2021 Publisher’sNote:MDPIstaysneu‐ tralwithregardtojurisdictional claimsinpublishedmapsandinstitu‐ tionalaffiliations. Copyright:©2021bytheauthors.Li‐ censeeMDPI,Basel,Switzerland. Thisarticleisanopenaccessarticle distributedunderthetermsandcon‐ ditionsoftheCreativeCommonsAt‐ tribution(CCBY)license(http://crea‐ tivecommons.org/licenses/by/4.0/).
J.RiskFinancialManag.2021,14,4732of21 statingthat“ithasbecomepractice”.Therefore,aneedforsystematicchangethathelps accountantstoconvinceandunderstandeachotherisnecessary(CarmonaandTrombetta 2008;Palea2013;Sandoval‐Moraetal.2019).HassanandMarston(2019)havearguedthat thedevelopmentofaccountingpracticesdependsoninstitutionalandlegitimatefactors inthecountry.Theobjectivesofthisresearcharetwo‐fold:first,toinvestigatetheroleof variouscriticalfactors(i.e.,political,economic,cultural,country‐specific,andaccounting regulatoryframework)fortheformulationofaccountingpracticesandsecond,toshow‐ casehowthesefactors,bymakinguseofinstitutionaltheory,influencetheperformance offirmsinadevelopingcountry.IntheMSCIindex,Pakistanhasmovedfromafrontier economytoanemergingmarket.Giventhechangingglobalenvironment,thisisanim‐ portantsignal,especiallyforemerginganddevelopingcountriesinanAsianContext, consideringthattheeconomicdynamismoftheworldeconomyhasgraduallyshifted fromadvancedcountriestoemergingcountriesinrecentyears.Thesenationsnowac‐ countfor80percentoftheworld’spopulationandabout65percentofglobalGDP,up fromjustunderhalfinthepreviousdecade.Althoughtheglobalrecoveryhasbeenslow, emergingmarketshavecontributedover70%ofglobalgrowthsincethecrisis(Pakistan andEmergingMarketsintheWorldEconomy2016). Pakistan,acountrywithalmost240millioninhabitants,althoughhavingaccounting practicesoriginatingintheMughalEmpire,didnotatthattimehavestandardizedac‐ countingnorms.Haider(2011)hassuggestedthattheMughalEmpirewastheoriginof accountingandbusinesspracticesinthesubcontinent.Individualsandinstitutionskept theirdatainappropriateformatsandemployedMunshi(accountants)forproperrecord keeping.Evenduringthosetimes,training,andeducationof/forclericalstaff(Munshi) andformatsforhandlingaccountingdatawerepresent,andassuch,demandedclerical education,astudywhichwasconsideredfullofwisdomandanintellectualprofession.A properchannelwasestablished,andruleswereformedtobeobeyedthroughouttheEm‐ pire.Thishasledtoaprocessoftaxcollectionforthefinancingofwaractivitiesandfor thedevelopmentofthestate.Bythattime,strongregulationsweremadeandupdated giventhatthepeoplewerewellversedregardingtheimplicationsofbasicaccountingfor‐ mats;leadingtothedevelopmentofawealthyandstrongeconomy(BoseandJalal2017). EventhoughpreviousstudiessuggestedthatIndianexportershavetransferredtheirac‐ countingsystemtoItaly,thereisnoproofofstatement;thus,theexistenceofabilateral systembetweentradingcountrieshasbeenproposed,similartothecontemporaryac‐ countingstandards(Haider2011). Inthepast,thesub‐continenthasexperiencedthreedifferentregimes,namely,the MughalDynasty(from1526to1850,andincludingtheOttomanEmpireandSafavidPer‐ sia),BritishColony(1858to1947),andpost‐Independenceregimes(1947).TheuseofIs‐ lamicbookkeepingrulesduringtheMughalEmpirewasreplacedbyaWesternmethod‐ ologyundertheBritishcolonialsystem,andeventuallyadoptedIAS(InternationalAc‐ countingStandards)afterattainingindependence.Overthepastfewdecades,Pakistan hasundergonesignificanteconomicchangesandinnovationswhichhaveinfluencedthe economyofthecountry.Thereformsincludetheformationofthecapitalmarket,thein‐ troductionofaplantoprivatizenationalinstitutions,theestablishmentofinstitutesfor professionalaccountants,andtheimplementationofIAS/IFRS(InternationalFinancialRe‐ portingStandards)inPakistan,whichrepresentsthemostimportantsuchdevelopment. ThecurrentresearchalsoaimstoreflecttheevolutionofPakistan’smodernbusinessreg‐ ulationafterindependence.Theseincludethe1913,1959,1984CompanyAct,the1999and 2001SecuritiesCommission,andExchangeActsandthe2019CodeofCorporategovern‐ ance.PakistanisoneofthefewSoutheastAsiancountriestohaveundergoneexperiments regardingitseconomicsystemsandcurrently,itseconomyisfunctioningasamixedecon‐ omyandusingvarioustacticstoimprovetheperformanceit. Drawingfromthis,changestoPakistan’sbusinessperspectivesarethevibrantmoti‐ vationsbehindourcurrentstudy,whichalsoaimstoinvestigateandexploretheemer‐ genceofaccountingpractices.Pakistanhasexperiencednumerouschallengesinthelast
J.RiskFinancialManag.2021,14,4733of21 fewdecades,includingpoliticalinstabilityanddictatorship(military)regimes(1958to 1968,1977to1988and1999to2008),whichhavehinderedforeigninvestmentandcreated manystructuralproblems,includingbutnotlimitedtothecountry’stransparencysystem. TheadoptionofIASwasastepinthedevelopmentofasystemofaccountingpractices throughouttheregionofdevelopingcountries(Judgeetal.2010).Theadoptionofac‐ countingpracticesintheregionispartlyattributabletopressurefrominternalandexter‐ nalfactorsinthecountry,leadingresearcherstoinvestigatetheevolutionofaccounting practicesinPakistan(Assenso‐Okofoetal.2011;Koningetal.2017). Inthesamemanner,thediversificationofrisks,byinvestingontothecapitalmarkets ofothercountries,hasbecomeincreasinglycommonforinternationalinvestorsandcred‐ itors.Pakistanprovidesforeigninvestorswithapromisinginvestmentopportunity.Pa‐ kistan’sstockmarketwasnamedasthehighestperformingAsianmarketin2020(Paki‐ stanStockExchangeNamedBestPerforminginAsia2020)andBloombergstudiesshow thatPakistanrankedthirdconcerningtheperformanceintheworldstockmarketindex in2016ranking(KlibiandSlama2017).Tomakerationaldecisions,however,lenders,in‐ vestors,observers,andshareholdersmustaddressthedifficultiesofrecognizingandeval‐ uatingtheircountry’sreportingsystem.Beforethisstudy,therewaslimitedempiricaland theoreticalevidenceinthecontextofdevelopingcountriessuchasPakistan(Tahatetal. 2018;Duligeetal.2019).AshrafandGhani(2005)havefocusedontracingtheemergence ofaccountingpracticesinPakistanbyusingcommonlawtheoryandhavesuggestedthat thedynamicsofPakistansupportstheinstitutionaltheory.Keepingthisinmind,thecur‐ rentstudyprovidesatwo‐foldcontributiontoexistingliterature.First,itinvestigatesthe impactofdifferentfactorssuchaseconomic,political,culture,regulatoryframeworks, andcountry‐specificworktoestablishtheaccountingpracticeswhichinturninfluence theorganization’sperformance.Second,thestudyconductssemi‐structuredinterviews inordertogetanenrichedunderstandingregardinghowthesefactorswork,soastoes‐ tablishtheaccountingpractices.Hence,thisstudyusesinstitutionaltheorytoempirically andtheoreticallyexploretheemergenceofaccountingpracticesinthecontextofPakistan. 2.TheoreticalLensesandHypothesesDevelopment 2.1.InstitutionalTheory Thisstudyusesinstitutionaltheorylensestocomprehendtheformulationofac‐ countingpracticesinPakistan.Theexistingliteraturehasindicatedthatinstitutional frameworkshelpsperceiveeffectsonbothworldwideandorganizationalstructures.It takesintoaccounttheschemes,structure,norms,andothersimilarfactorstojudgethe socialbehavior,whichinturnleadstothestudyofcreation,adoption,rise,andfallofthe elementsthatestablishauthoritativeguidelinesovertime(Bitektineetal.2018).Theword “institution”hasbeenconceptualizedasrepresentingasystemofsocialbeliefsthatlead tosociallyorganizedpracticesinanysociety.Suchpracticesconsistofeducation,rules, regulations,politics,andreligion(Scott2005).Thistheoryhasbeencategorizedatthree levels,namely,societal(globalinstitutions),governancestructure,andorganizations (Judgeetal.2010).Accountingisoftenseentobeaproductofitsenvironment,sothelegal framework,phaseofeconomicgrowth,typeofeconomy,accountancyeducation,andcul‐ turecanallaffectacountry’saccountingpractices.AccordingtoPowellandDiMaggio (1991),institutionaltheoryconsistsofthreetypesofisomorphismwhicharecoercive,nor‐ mative,andmimetic.Thesetypesideallyworkatthesametime,andtheydependonone another.Theycanonlybeseparatedifstudiedontheoreticalbases(MizruchiandFein 1999). Coerciveisomorphismreferstoanunbalancedapproachfromtheoutsideofanor‐ ganizationtofollowrulesorlawsimplementedwithinthesameorganization.Thechange isimposedbygovernmentinstitutions,stakeholders,certificationbodies,politicalpower groups,orinternationalbodiesimplementingrulesthroughouttheworld.Thischange canbeimplementedforthecollationofbodiessuchasaccountingstandardsthatshould
J.RiskFinancialManag.2021,14,4734of21 befollowedbyorganizationsallovertheworldsothatitcanbeeasyforshareholdersto decrypttheinformation;whatismore,itcanalsodestroybarriersforinvestorsofthe world.Now,thisexample(of“coerciveisomorphism”)showsthatcoerciveisomorphism canbeforthebettermentoforganizationsirrespectiveofthewaytheyareimplemented. Thesewayscanbeformalorinformal(Dillardetal.2004).Throughstructuraltheory,high financialdependenceontheglobalfinancialsystemraisesthevulnerabilityofcountries tooutsidecoercivepressures,contributingtoforeignaction. Mimeticisomorphismsindicateinnovativechangewhenitoccursandhasadeep impactonthesocialculture/organizationalculture.Thatinnovationturnsintotheformu‐ lationofanewphasewithhighuncertaintybetweenthevaliddimensionofchangeand poorperformanceofinnovation(TinglingandParent2002).Thischangeisintentionaland relatedtoonesubstanceduplicatingtheactsofanother.Mimeticisomorphismsalsoin‐ corporatesbenchmarking,byrecognizingthebestpracticesanddrivingplayersinthe field.Mimeticisomorphismoccurswhentheproceduresspurredbytheseweightsbe‐ comeorganizedsothatreplicatingcantakeplaceagainandagainduetoitsinstitutional acknowledgmentinsteadofanaggressiveneed(Hoffman2001). Normativeisomorphismsstartdevelopingoncethefirmhasreachedacertainlevel ofmaturity.Atthisstagechangesimplementedinthecoerciveisomorphismsbecomethe partoforganizationcultureandstartphasingintostandardsbytheprocessofcommuni‐ cationbetweenpeers.Furthertrainingdevelopsprofessionalizationofagatheringof membersthroughcertainpreparedsystems,exchangeaffiliations,andotherassociation systems.(Martínez‐FerreroandGarcía‐Sánchez2017). Thisstudyexaminesthedeterminantsoftheaccountingsystemthatcanbeestab‐ lishedbasedontheaccountingframework,thelinkswiththeinternationalaccounting bodies,andhowIFRSandthenationalaccountingstandardsofthecountryareapplied. Thecommonpointof21st‐centuryaccountingistheharmonizationofaccountingprac‐ tices,butmanyfactorsdistinguishcertainaccountingfactorsfromonecountrytoanother. TheadoptionofInternationalFinancialReportingStandardspromotesmultinational companiesandinvestorsfromforeigncountriesforinvestment(Siriopoulosetal.2021). Anationalaccountingframeworkforeachcountryhelpsthemlearnthemostimportant accountingrules,prepareannualfinancialstatementsinaccordancewiththelaw,andap‐ plyinternationalaccountingstandardsinallstatesofthecountry.Grenieretal.(2014)put moreemphasisonthefactorsinexplainingtheneedforthecountry’snationalaccounting system.Therearemanyotherkeyfactors,includingtaxes,inflation,financialmarkets, andchangesinaccounting.AxandGreve(2017)havealsoaddedculturaldifferencesto thislist,assomecountriesadheretothecodeofconduct,whileothersrequirecompliance. 2.2.RoleofAccountingRegulatoryFramework Murwaningsari(2019)proposedthatfinancialreportingperformancedependsonthe integrity,adequacy,andefficiencyofaccountingprofessionals.Thepowerandautonomy oftheaccountingprofessionisameasureofsuccessfulcomplianceofaccountingstand‐ ards(SellamiandGafsi2019).Theenhancedpositionofregulators,weconclude,hasthe mostpronouncedinfluenceontheaccountingpracticesofPakistan,withoutanysignifi‐ cantopportunitiesforthemaincomponentsofthefinancialprocess,includingcorporate entitiesandauditors.FromtheirworkinfourEasternAsiancountries,(JenkinsandVe‐ lury2008)concludethatnationsthattrytoimprovethequalityoffinancialreporting shouldtrytochangeincentivesforauditorsandmanagers.ExperienceinPakistanshows thatthesolewaytochangetheseincentivesistostrengthentheroleofregulatoryauthor‐ itiesintheabsenceofanyrecognizedneedsofowner‐managersoflistedcompaniesto pursueequitycapital.Forthecountry’saccountingprofession,smallauditcostshaveal‐ waysbeenaconcern.Theconditionhasworsened.In2001,theICAP(InstituteofChar‐ teredAccountantofPakistan)hadtoissueacirculardescriptionoftheminimumcharges forauditors.
J.RiskFinancialManag.2021,14,4735of21 Furthermore,improvingtheeducationqualityoftheprofessionalbodiesresponsible forthetrainingofaccountantsalsohassignificantimportance(Apostolouetal.2018).In Pakistanwehavealackofqualityandadvancedcurriculaforaccountingandauditing. Moreover,thecurriculaarepoorlydevelopedandmanystudentsavoidthefieldofcom‐ merceduetotheseissues.Furthermore,professionalbodiesstillfollowtheoldsyllabus andteachingtechniques,comparedtoworldtopdevelopedcountries.TheICAPandIC‐ MAPneedtofollowthetrainingguidelinesfortheirmembersaccordingtointernational standards.Regardingthissituation,accountingbackground,history,andtrainingses‐ sionsbasedondevelopedcountriessuchastheUKandUSAcanbefollowedasguide‐ lines. Anotherindicatorofthecountry’slackofknowledgeoftheaccountingprofession wastheomissionoftheauditor’sreportontheannualfinancialreports.Notuntil1984 didPakistaniauditorsmakeuseoftheterm“trueandcorrect”fortheircleanfinancial statementstoexpresstheiropinions.Theterm“trueandfair”wasintroducedinthe1956 IndianCorporationAct,whichincludedaframeworkforauditors’judgement.Theterm probablyemergedfromtheCompaniesActof1913,sincetheauditorsgenerallyassumed atthispointthatthefinancialstatementswereaccurate(“trueandright”).Thistermwas thenchangedacrossglobalaccountingclassesfrom“trueandcorrect”to“trueandfair”. Itseemsthatthenewlybuiltaccountingprofession(whichhasbecometheUKinwrap), hasnotbeensufficientlydeveloped(inspecificways)torecognizethelocalusers’unique accountingrequirementsofdataandestablishlocallybasedaccountingstandards.InPa‐ kistan,itwasonlyin1984thatthebusinessregulationmandatedauditortomakethe changeto“trueandfair”. Thestandardisomorphismislargelydrawnfromtheoccupations.Inthisrespect, organizationaltensionneedstonormalizesocialpractice(suchasaccounting)between differentinstitutionsoperatinginthesamesector.Thiscanbeexperiencedthroughtech‐ nicalandeducationalprogramsmandatedbythelawofuniversityteachingandprofes‐ sionalorganizations.Forexample,professionaltrainingprograms,whichwilleventually producequalifiedmembers,influencethelearningofpotentialmembers.Asitisnoted thatfewofthedevelopingcountrieshaveasignificantroleintheaccountingregulatory frameworkinthedevelopmentofaccountingpracticesintheircountries.Besidesthis,the Pakistaniaccountingpracticedevelopmentshavetakenonseveralinitiativestopromote betteraccountingpracticesandthePakistanipublicaccountingbodies(includingICAP) havelegallyendorsedtheimplementationbygovernmentorganizationsoftheIAS/IFRS. Asregulatoryframeworkplaysavitalroleinthedevelopmentofaccountingpractices, weproposethefollowinghypothesis: Hypothesis1(H1).Theregulatoryframeworkforaccountingpracticeshasasignificantrolein thedevelopmentofaccountingpracticesinPakistan. 2.3.PoliticalFactors Siddiqui(2019)hasarguedthatapoliticalsystemisanexternalstakeholderfora businessindustryhavingagreatimpactonthelegislatureandspecificeffectonaccount‐ ingpracticesdevelopment.Fromthispointofview,itshouldbekeptinmindthatPaki‐ stanhashadaviolentpoliticalhistory,andthatfromindependencetothe1971separation ofEastandWestPakistanandthecreationofanewcountry,therehasbeenlittlepolitical stability.Fromthestart,theproblemoftheformulationoftheconstitutionwascom‐ mendedbytheMilitaryGovernment.FromthecreationofPakistanupuntilnow,political stabilityhasnotbeenachieved,andthishasadverselyaffectedtheeconomyofthecoun‐ try,businessesaswellasindustry. Duringthe1970s,thegovernmenttookstepstofosterindustrializationfortheman‐ ufacturingoftheproductswhichwereuntilthenimported.Duringthistime,thetextile industrywasestablished,withimportantgovernmentsupportintheformoftaxcredits tolocalmanufacturersonmachineryandotherequipmentusedinproduction(Rajputand
J.RiskFinancialManag.2021,14,4736of21 Marwat2019).Foreigninvestmentandloanspeakedinthelast15years;thisparticular timeinthehistoryofthiscountrywasknownasadecadeofdevelopment.Atremendous increaseinproductionwasnoticedinthateraandthathasimpactedtheincreaseinthe numberofcompanies.However,previousstudieshavehighlightedanunfavorableside tothisdevelopment,namely,anegativeinfluenceonthenaturalenvironment. ThecontractsoftheAsianDevelopmentBankpushtheeconomiststofollowtherules andregulationsadvisedbytheAsianDevelopmentBankwhichincludestheformationof thePakistanStockExchangeCommission(SECP)inthecountryin1999underthelawsof securityandexchangeactpassedbythenationalassemblyin1997(Ahmadetal.2018). ThemainaimofSECPwastomonitorthecapitalandcorporatemarketsofthecountry andtheroleofthekeyplayerinvolvedinthesemarkets.IntheAct,thefollowingduties ofSECPwerenominated: o Toregulatebusinessinthestockexchangemarketandothersecuritiesmarketsinthe country. o Tosupervisetheclearinghousesinthecountryanddepositories. o Toregisterthenewbrokersinthestockexchangeandtheirsub‐brokers. o Tomonitorthefundsinthemarketandschemesrelatedtothem. o Tomonitorandpreventanyfraudulentactivityinthestockexchange.(“TheCompa‐ niesAct2017”). BeforetheformationofSecuritiesandExchangeCommissionPakistan,theCoreLaw Authoritywasworkingtoregulateandimplementthecorelawsinthecountryrelating tobusinessactivities.Themainproblemintheoldsystemwasitsaffiliationwiththefi‐ nanceministrythatcausedalackofflexibilitytoformulatearegulatoryframeworkfor therapidbusinessgrowthwithinthecountry(SalmanandSiddiqui2013).Duetothetyp‐ icalbureaucraticsystempresentinCLA(CorporateLawAuthority),transparency,au‐ thenticity,anddisclosureweredifficulttopursuewhichwasthemainhurdleintheup‐ rightofthefinancialsectorinthecountry. Drawingfromtheabove,itcanbeconcludedthat: Hypothesis2(H2).Thepoliticalfactorssignificantlycontributetothedevelopmentofaccounting practicesinPakistan. 2.4.InfluenceofCulture Previousstudiessuggestthatthedevelopmentandimprovementsoftheaccounting systemarekeyfactorsinsociety(HaniffaandCooke2002).Theycontendthatonlywhen improvementsaremadetotheunderlyinglegalregulationsand/or,andmorecritically, strongerenforcementoftherulesbyactivemonitoringbyregulatoryauthoritiesofcorpo‐ rationswereaccomplished,didthemajorchangestothefinancialreportingprocessof corporationsinPakistanhappen.Cultureappearstrivialevenifithasaroletoplay throughouttheprocessofchange.Ourobservationismoreinlinewiththefindingby (Jaggietal.2016)thatculturalvaluesdonotpredictthelevelofdisclosureoncethelegal originistakenintoconsideration.However,itwasassumedthatacountry’scolonialhis‐ toryisacrucialexplicativefactorthatneedstobespecificallyincludedinanytemplate evaluatingculture‐financialreportingsystemspartnership.Oneofthemaininstitutional factorsiscultureandhencethecaseisrepresentedas: Hypothesis3(H3).Theculturalfactorsinfluencesignificantlyinthedevelopmentofaccounting practicesinPakistan. 2.5.EconomicFactors Naseretal.(2002)havearguedthatacountry’saccountingpracticescanbeaffected bythestageofeconomicdevelopment,typeofeconomy,andeconomicgrowthpattern. Koo(2016)suggeststhatthestageofdevelopmentinfluencesacountry’stypeofbusiness
J.RiskFinancialManag.2021,14,4737of21 transactionsanddefineswhichtransactionsaremorewidespreadinthenatureofthe economy.ThiscanrelatetheevolutionofPakistan’saccountingpracticesonsimilarcon‐ ceptuallinestothreeperiodsofeconomicdevelopment:privatesectordriveneconomic development,nationalization,andde‐regulation/privatization.Interestingly,nochanges havebeennoticedinthefinancialreportingobligationsofthecompanyinthe1960s (whichiswellknownasthedecadeofdevelopmentsinPakistan).TheCompanyAct, 1913,hasbeenfairlyprimitivethroughoutthisperiod,althoughtherehasbeenatripling inthelastdecadeofthenumberofcompaniesincorporated(i.e.,from3500to9500,as mentionedearlier).Itwasnotuntil1972thatthepromulgationofthe1971Securitiesand ExchangeAuthorityRulesestablishedasignificantincreaseindisclosuresbyincorpo‐ ratedcompanies.Thenewrulesondisclosureoftransactionsbetweenassociatedcompa‐ niescertainlyappeartobeinresponsetotheearlieridentifiedriskofsuchperceivedprac‐ tice. PakistanStockExchangelistingrulesintroducedaclause(underthenewguidelines) specifyingthatifacompanyfailstopaydividendsforfiveconsecutiveyears,itsshares willbelistedinblackandsuspendedfromtrading.Thisamendmentwasinreactionto thegrowingconcernbyminorityshareholdersfromthe1960sthatthemanagementof highlyprofitablefamilybusinessesrefusedtopaylong‐termdividends.Forthenexttwo decades,theminorityshareholdershavenoticedlittleimprovements,ifany.Finally,a changewasmadetotheIncomeTaxOrdinance1978passedin1979throughthe1997fiscal budget,wherebyifacompany’sretainedearningssurpassmorethan50%ofthepaid‐up income,thesurplusbalancewillbeconsideredtobethecompany’searningsforthefiscal yearandwillbetaxedaccordingly. Hypothesis4(H4).Theeconomicfactorssignificantlyinfluencethedevelopmentofaccounting practicesinPakistan. 2.6.Country‐SpecificFactorsandGovernmentInfluence PakistanisahierarchicalsocietywithIslamicidealsthathasencouragedprivacy, choosingtobecloselysociallyconnected(KamlaandAlsoufi2015).Thetribalrootsof Pakistanwerefoundtobeaninclinationtowardssecrecy(Enemark2011),particularlyin relationtodisclosurerequirements.Forthefirstquarterofthe20thcentury,ontheother hand,PakistanwasaBritishColonyuntilthemiddleof1947(Zaid2004).Therefore,Paki‐ stanandtheUnitedKingdomhavestrongbusinessandeconomicrelations,andonecan findextensiveliteratureonthistopic.Interesthavebeendiscussedinrespectofmany aspectsinIslamandarenotallowedastheyarenotbesttofitaccountabilitystandards accordingtoIslamicstudies(MohammedSareaandHanefah2013).MostIslamicinstitu‐ tionsintheworldevendonotfollowinternationalaccountingstandardsastheyfollow thestandardsofIslamicorganizationspresentforspecialstandardsaccordingtoIslamic laws.Lewis(2001),however,arguesthatIslamicandinternationalaccountingstandards arealmostofthesamenatureandhavelittleconflictsintheimplementationandmeas‐ urementsoffinancialpositions. Evenso,accordingtoAl‐Akraetal.(2009),religionisaculturalinputandhasagreat influenceontheeconomyandtraditionsofthecountry.ResearchofTahatetal.(2018) showsthatculturalimpactonaccountingstandardsdependsonsocialandpoliticalfac‐ torsoftheindividualandotherfactorsareignoredbytheindividualswhilemakingdeci‐ sions.Hamidetal.(1993)inparticularproposedthataccountingandbusinessimpactcan‐ notbemeasuredinthesenseofreligiousperspectiveasitisasocialvariableandisirrel‐ evantinthisaspect.ThereligiousrolecanbeseeninIslamicbankingwhichiswellestab‐ lishedworldwideasoneoftheaspectsofregionalinvolvementinthebusinessandwhere thereistheinvolvementofbusiness,automaticallyaccountingstandardsaretobefol‐ lowed.AsIslamisthewell‐knownPakistanifaithandreligion,ithasnomajorimpacton business.DuetothesolideconomictiesthathavebeendevelopedbetweenPakistanand
J.RiskFinancialManag.2021,14,4738of21 someWesterncountriessince1921,accountingpracticesinPakistanhavebeenheavily basedonWesternaccountingpractices(forexample,ChinaandtheUK).However,the PakistanilegallawgoverningaccountingactivitydoesnotfolloworconformtotheIs‐ lamicprinciplesandlawsofaccountingprocedure. Hypothesis5(H5).Thecountry‐specificfactorspositivelyinfluencethedevelopmentofaccount‐ ingpracticesinPakistan. 2.7.AccountingPracticesandFirmsPerformance Thisstudyexplainsthefactthatfirmperformanceisusedtoidentifythesuccessof thecompany’sstrategicplan,whichleadstobuildacompetitiveadvantage.Whilecorpo‐ ratetrainingisconsideredtobeoneofthemaindriversofcompetitiveadvantageinbusi‐ nessplanning,itisbelievedtobetheonlycompetitiveadvantagethatcanberealizedif youknowitmoreeasilythanyourcompetitors.Thereisnodifferenceintheassertionthat theleveloflearningofindividualsandorganizations,particularlyininformation‐inten‐ siveindustries,couldbetheonlylastingcompetitiveadvantage.Theimplementationof IASstandardsallowscompaniestolearnandimprovefirmperformancebecause,inthe‐ ory,therelationshipbetweenorganizationallearningandbusinessperformanceisbuilt intothedefinitionsoforganizationallearning.Accordingtotheperformancegaptheory, precisioncanbeintroducedintothefollowingaccountingpracticestoreducethegapbe‐ tweenwhatanorganizationdoesandwhatitcanachieveintermsofinstitutionalfactors. Additionally,theprincipleoforganizationalbehaviorforcedcompaniestoadoptnew strategiestocloseaperformancegap,whileitwouldincreasetheefficiencyofthebusi‐ ness,accountingpracticesbecomingdangerousandcostly(Akhtaretal.2020). Thishasbeendefinedintheliteratureinmanywaysandtherearemanymethodsfor themeasuringthereofthatarealsopresentintheliterature.WhileHartnelletal.(2011) discussedfirmperformanceasdimensionsofcustomerlearningandfinancialgrowthper‐ spective,DyerandReeves(1995)definesitasanimprovementinfinancialperformance, capitalmarketsresult.Themostcommonthingobservedfromthesestudiesisthemethod ofobservingperformancethatcanbeeitherafinancialperspectiveoranon‐financialper‐ spective. Inrecentyears,severalperformancedimensionshavebeenidentifiedbythere‐ searcherswhilemanytheoriesdirectlyemphasizethecontributiontowardstheoverall organizationalperformance.Inthisstudy,wehaveemphasizedthetheorygoalsettingin anorganization,theHarvardpolicy‐makingmodel,andsynopticplanningtheory.The Harvardpolicy‐makingmodeldescribesthatorganizationsuccesscanbeobtainedbythe bestfitoftheenvironmentoftheorganization.Theseenvironmentalfitscanbeachieved throughtheSWOTanalysisandbyfollowingthestandardsforbestresultsintheorgani‐ zation’sdevelopment.Therefore,theHarvardpolicymodelcanbeusedtodeterminethe institutionalfactorsspecificallyrelatedtothedevelopmentofaccountingpracticeswith themainfocustochecktheorganization’sperformance. Furthermore,financialperformanceistheresultantofoutcomesfromthehumanre‐ sourcemanagement,policiesofandforstrategicplanningoftheorganizations,andcapi‐ talemployedtechniques.Onlyinthecaseofasimplebusinessmodelwherethemain workislendingandborrowingofmoney,financialperformanceisalwaysadeepand criticalwaytobemeasuredincomplexbusinesses.AnwarandHasnu(2016)showedin theirstudythatfirmperformancecanbemeasuredthroughfourmajorvalues.Thesefour valuesarerationalexcellence,leadershipinproduct,customersatisfaction,andoverall excellenceofthebusinessprocesses.Thepotentialreasontomeasureoneofthemainval‐ uesisbusinessprocessesimprovementthroughtheimplementationofaccountingstand‐ ards. Hypothesis6(H6).Thedevelopmentofaccountingpracticessignificantlycontributestofirm performance.
J.RiskFinancialManag.2021,14,47315of21 Table10.SummaryofHypothesesResults. HypothesesResults H1:Theregulatoryframeworkforaccountingpracticeshavesignificantroleinthedevelopmentof accountingpracticesinPakistan.Supported H2:Thepoliticalfactorsinfluencesignificantlyinthedevelopmentofaccountingpracticesin Pakistan.Supported H3:Theeconomicfactorsinfluencesignificantlyinthedevelopmentofaccountingpracticesin Pakistan.Supported H4:Theculturalfactorsinfluencesignificantlyinthedevelopmentofaccountingpracticesin Pakistan.Supported H5:Thecountry‐specificfactorsinfluencepositivelyinthedevelopmentofaccountingpracticesin Pakistan.Supported H6:Thedevelopmentofaccountingpracticeshaspositiveimpactontheorganizational performance.Supported 5.DiscussionofStudyBasedonInterviewsSurvey 5.1.InfluenceofAccountingRegulatoryFrameworkinDevelopmentofAccountingPractices Thispartoftheinterviewsexaminestheimpactoftheaccountingframeworkonthe developmentofaccountingpracticesinPakistan,basedonrespondents’opinions. Themajorityofrespondents(12outof21)saidthatthedevelopmentofPakistan’s accountingpracticestookplaceinthreephases:theBritisheraanditscolonialimpact, post‐independencepractices,andtheadoptionofIASstandards.Forexample,theR1re‐ spondentnumberthree(ProfessorofAccounting)explainedthat: “Originally,Pakistan’saccountingpracticeswereappliedduringtheMughal eraandpracticescontinueduntilthetimeoftheBritishcolonialsystem,inwhich BritishstatesandotherWesternstatesreportedpracticesbeganfollowingthe creationofsomeforeigncompaniesinthesubcontinent.Afterindependencein 1947,acertainchangewasobservedinthedevelopmentofaccountingpractices inPakistanandtheirimplicationwhenthegovernmentstartedtoestablishthe InstituteofChartedAccountantsofPakistan,andsimilarlytheintroductionof amendmentsinthecommerciallawsofthecountry.” However,13respondentspointedoutthatinPakistan,theintroductionofcommer‐ ciallawsandtheamendmentsinthelawshaveplayedasignificantroleinthedevelop‐ mentofaccountingpractices.However,thepowerofenforcementhasalwaysaproblem inPakistan.Rulesareneededtodevelopbusinesspractices.TheaccountingrulesinPaki‐ stanarewellestablished,structured,andenforceable.Forexample,corporatelaws,secu‐ ritiestaxes,andgovernancehavebeenintroducedsoastocoveravarietyofaccounting standardsandsanctionsforbreaches. 5.2.RoleofPoliticalFactorsinDevelopmentofAccountingPractices Inthissection,politicalandinstitutionalfactorsareexaminedbasedoninterviews conductedbytheresearchers.Particularly,therespondent’sopiniononthepoliticaland institutionalinfluenceonthedevelopmentofaccountingpracticesisdiscussed.Mostpar‐ ticipantssuggestedthatthedevelopmentofaccountingpracticesbylocalorforeignau‐ thoritieshadnationalandinternationalinfluences,thelatterhavingagreaterimpact.We alsonotethatthispressurehascontributedtotheadoptionofIAS/IFRS.Forexample,re‐ spondentNo.5(seniorauditor)arguedthat: “Politicalinfluencesalwaysplayanimportantrole.Pakistanhasnaturalre‐ sourcesandasaresult,alargeforeignbodytriestoresistexternalpressuresthat areworkinginPakistan,especiallythosethatareworkingforgrowthandassis‐ tanceinthisperspective,whileothersthatsupporttheeconomyatthemacro
J.RiskFinancialManag.2021,14,47316of21 levelareIMFandWorldBank.Thegovernmentalsohasintervenedinmany casesbyintroducingcertainrulesthatpavedthewayfortheimplementationof internationalstandards.However,theydon’thavemuchsuccessinhistory.” 5.3.RoleofCultureFactorsinDevelopmentofAccountingPractices ThissectionexamineswhetherPakistaniculturehascontributedsignificantlytothe developmentofaccountingstandards.Thevastnumberofrespondentsstatedthatculture playsanimportantroleininfluencingbusinessesandaccountingpracticesingeneral. SomerespondentssaidthatPakistanisopen‐mindedandwillingtochange.Respondent No.4(ChartedAccountant)explainedthat: “Theconceptofcultureisveryimportantinthebusinesspracticesofallcom‐ munities.IamveryconfidentthattheculturesofpeopleinPakistan,asanAsian andIslamiccommunity,haveagreaterinfluenceonaccountingpracticesinthe countryasaneyeofbeliefsandhabits.InPakistan,speciallytrainedpeopleare awareoftheimportanceofaccountingpractices.Therefore,theyacceptchanges toimprovethecircumstancesandevolutionofaccountingaccordingto IAS/IFRS,ratherthanIslamicprecedents.Whilemanyofthemcouldnoteven understandtheneedforaccountingpracticesbecauseofthetaxavalancheand lowerliteracyrates.” Somerespondents,15outof21,emphasizethateducationalsoplaysasignificantrole inthedevelopmentofaccountingpracticesinPakistanandmostofthemwereprofessors andaccountantswhograduatedfromoverseasuniversitiesandarenowworkinginPa‐ kistan. 5.4.RoleofEconomicFactorsinDevelopmentofAccountingPractices ThissectionofresearchexploreswhetherPakistan’seconomicdevelopmenthasan impactonaccountingpractices.Mostrespondents(13)indicatedthatPakistan’seconomic ambitionhascausedmanychangesinaccountingandreportingpractices.Accordingto RespondentNo.9(ExecutiveManagerProduction): “Majortradeorganizations,includingtheWorldTradeOrganizationandthe supportingorganizationlikeIMFandWorldBank,needPakistantoconsider openmarkettradethatwillhelpinimprovingaccountingstandardsIAS/IFRS. Theseconditionsarethemainrequirementsoftheseorganizationsfortheap‐ provaloffundsthatleadtoanincreaseinexports.” 5.5.RoleofCountry‐SpecificFactorsintheDevelopmentofAccountingPractices Thissectiondiscussestheinterviewee’sviewonthecountry‐specificfactorsinthe developmentofaccountingpractices.ThemajorityofrespondentsprovidingIslamic bankingservicesoraffiliatedwithIslamicbanksaremoreinterestedinleasingandinter‐ estratesstandards.RespondentNo.4apolicymakerarguedthat: “IAS/IFRSdealingwithinterestandleasingshouldbechangedaccordingtoIs‐ lamicteachings,butunfortunately,theyremainunchangedandhavenoinflu‐ enceofreligionontheadoptionofIAS/IFRS. Thisstatementoftherespondentshowshisincomprehensionormaybepartialcom‐ prehension. FourteenrespondentsarguedthatPakistanhadnorealimpactonaccountingprac‐ ticesbecauseofcountry‐specificfactors.However,theyexplainedthatsuchpractices couldhavemarginaleffects,suchastherecommendationsofaccountantsandmultina‐ tionals.
J.RiskFinancialManag.2021,14,47317of21 5.6.RoleofInstitutionsinAdoptingIAS/IFRS Inthissection,theroleoftheinstitutionsinthedevelopmentofaccountingpractices isdiscussed.Thisstudyexaminesthatingeneral,respondentsindicatedthattheGovern‐ mentofPakistanmanagestheadoptionofIAS/IFRSstandardsbyitsvariousdepart‐ ments.Somerespondents(4outof21)foundthatthisprocessinvolvedprofessionalor‐ ganizationsandinstitutions.Therespondent(CFO)explained,forexample: “Severalpublicandprivateorganizations,includingtheMinistryofIndustry andCommerce(minutes),theSecuritiesActs,thePakistaniSecuritiesCommis‐ sion,andthePakistanStateBankplayedanimportantrole.IFRS,apublicregu‐ lator,whichhasreceivedgovernmentfunding.Otherwise,thisobjectivecould notbeachievedbecausethereisnospecificregulatorybodyforprofessionalas‐ sociations.” MorethanninerespondentsindicatedthattherecommendationsofICAPandIC‐ MAPhavedrawnthepublic’sattentiontotheadoptionandapplicationoftheseprinciples topromotetheaccountingprofession.Forexample,respondentnumber11(costandman‐ agementaccountant)explained: “ICMAPhasplayedanimportantroleintrainingstudentswhohaveplayedan importantroleinimplementingIAS/IFRSintheindustry.Developastrategy, developplanning,andimplementgrowthstrategies.Theyhavethestrongbusi‐ nessknowledgeandentrepreneurialskills.Intermsofleadership,accountants areamanagementteamthatcreateasustainablemodelandguaranteesthelong‐ termsustainabilityofbusinesses.” Accountantsareresponsibleforcorporateleadershiprolesandtheeffectivemanage‐ mentoftheirorganizationsbasedontheirexperienceintheareasofmanagement,busi‐ ness,finance,accounting,businessrelations,law,GIS,andothersrelatedareasThis demonstratesthebroadunderstandingoftheauditorwhohasbeeninvolvedintheim‐ plementationofIAS/IFRSstandardsintheindustryingeneral. 5.7.BarriersinImplementationofAccountingPractices ThissectionexplainsthemainobstaclesthatpreventcompliancewithIAS/IFRS standards.SeveralrespondentsidentifiedmanyIAS/IFRScompliancechallenges,includ‐ ingsecrecy,lackofresearch,andownershipoffamilybusinessesintheprivatesector. RespondentNo.3(AssociateProfessorofAccounting)statedforexample:“Lackoffocus onaccountingeducationandtrainingofaccountantsisthekeyproblemintheimplemen‐ tationofaccountingpracticesinPakistan.Economicandfinancialissuesoforganizations andgovernmentisabarrierintheimplementationofstandards.” Anotherrespondent,Interviewee20(aninvestor)arguedthat:“Thebusinesscom‐ munityinPakistandoesnotrecognizethelong‐termeffectsofdisclosingcompletefinan‐ cialinformation.Therefore,itmaynotbenecessarytoconsultapublishedbrochureon thistopic.” 5.8.DevelopmentofAccountingPracticesandOrganizationalPerformance Inthissection,intervieweeswereaskedquestionsrelatedtothedevelopmentofac‐ countingpracticesandfirmperformance.Thebasicintentoftheresearcherswastofind theimpactofthedevelopmentofaccountingstandardsonfirmperformance,especially thefinancialperformance.Itwasfoundbytheanalysisofinterviewsthatasignificant positiveimpactispresentbetweenthesetwovariables.RespondentNo.7(CFO)stated forexample:“AsfarasmyjobdutiesandthethingsIhavenoticed,ifanaccountantwill followtheaccountingstandard,thenobviously,itwillhaveabetterreportingsystemin theorganization,anduser‐friendlyfiguresarealsopresent,andtheyareeasilyunder‐ standable.So,themorethepeoplecaneasilyinterprettheaccountingtermsandtheir meaningitimprovesourcompanyfinancialperformance.”
J.RiskFinancialManag.2021,14,47318of21 6.ConclusionsandImplications Thisstudyclearlyshowsthatinstitutionalfactorshaveplayedasignificantrolein thedevelopmentofaccountingpracticesinPakistan.Individually,eachfactorhasasig‐ nificantimpactonthedevelopmentofaccountingpractices.Institutionalfactorsfurther leadtotheimprovementoforganizationalfinancialperformance.Thiscanbeamajorcon‐ tributiontothespecialtybecausethisimpacthasnotbeenpreviouslystudied.Organiza‐ tionalfinancialperformancecanalsobeoneofthefactorsthatcanconvinceorganizations tofollowinternationalaccountingstandardsforbetterresults.Ithasbeenconcludedthat inordertogetaccesstoinvestmentfundsforthedevelopmentoftheeconomybyinter‐ nationalagencies,suchastheWorldBankandIMF,asignificantimpactontheadoption ofaccountingpracticesinthecountryisplayedpreciselybysuchagencies,whichistoa certainextentauseofcoercivepowersbysuchagencies.Thisfindingalsoreflectstherole ofIMFandtheWorldBankinthedevelopmentofaccountingpracticesearlierinJordan andUAEinthestudyofIrvine,2015.Furthermore,thechoicetodevelopandadopt IAS/IFRSaccountswasduetopressuresrelatedtotheneedtoattractmultinationalfirms tothecapitalmarkets,toattractforeigndirectinvestment,andtobringdomestic,private foreignpartners. Thisresearchprovidesapathwaytopolicymakersinthecountry,academics,people, orusersofaccountingpracticesandpractitionersduetoitsvaluableimplicationsandles‐ sons.ThisstudyisausefultoolforSECPtoimproveitspoliciesregardingtheimplemen‐ tationofIFRSandtheregulationofcompanieslawinPakistan.Forinstance,problems highlightedinthedevelopmentofaccountingpracticesinPakistanduetoculturalissues canbeovercomebythedecision‐makersofthecountrythroughthedevelopmentofreg‐ ulationsinthatarea.Besidesthis,ICAPandHEC(HigherEducationCommission)can collaboratethroughaccountingpractitionersanduniversityacademicstoimprovetheac‐ countingcurriculum.Thiswillleadtotheclosingofthegapbetweenaccountingpractices andthepoliciesofIASB.Furthermore,thesepracticesintheindustrycanalsoenhancethe financialperformanceoforganizations.Thisalsoindirectlymotivatesorganizationstoim‐ proveaccountingstandardstoimprovetheirprofitsandfinancialperformance.Through this,oneofthemainobjectivesofthestudywillalsobefulfilled. AlthoughthestudyisconductedinPakistan,theresultsareexpectedtobesimilar forthedevelopingcountriesandmorespecificallyinSub‐Continentalcountrieswhichare facingsimilarphasesinthedevelopmentofaccountingpracticesandadoptionofinterna‐ tionalaccountingstandardsandtheirimpactonorganizationalperformance.Theout‐ comesofthisstudycanhelpgovernmentsofothercountriestomakebetterdecisionsin theireconomicandregulatorydevelopmentpolicies.Thisway,theywillbebetterin‐ formed,whichcanhelpthemtofollowandenhancethefinancialreportingoftheirbusi‐ nessentities.Whatismore,theresultsoftheresearchcanbeusedbyIASBintheiren‐ deavorfortheawarenessoftheimpactofaccountingpracticesonorganizationalfinancial performance,inordertofacilitatetheorganizationintheadoptionofaccountingpractices indifferentcountrieswithdifferentinstitutionalbackgrounds. TheempiricalfindingsofAhmedetal.(2021)showthatforcessuchasglobalization andinternationalpressurehavealsoaffectedthedevelopmentofaccountingpractices, whichhasultimatelyledtotheadoptionofaccountingpractices.Furtherresearchcanbe conductedontheexaminationoftheinteractionbetweenPakistaniInstitutionsandglobal influencesandtheirimpactonaccountingpracticesinPakistan.Currentresearchiscon‐ ductedbyusingdatafromPakistan;therefore,cross‐countryresearchinadeveloping countryisneededinordertocomparetheresultsoffactorsaffectingthedevelopmentof accountingpractices.Additionally,inthisresearch,institutionaltheoryisusedasalens tostudythefactorsinthedevelopmentofaccountingpractices;thus,futureresearchers canuseothertheoreticalframeworks,e.g.,legitimacytheorytoobtaindeeperinsightsinto thefactorsthatareplayingpartindevelopmentofaccountingpractices.Finally,thisre‐ searchhasusedasmallerinterviewersize,whichlimitsthegeneralizationoftheresults
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