The impact of conservatism and secrecy on the IFRS interpretation: the case of Tunisia and Egypt

Jihen Eljammi, Salma Damak Ayadi, Khaled Hussainey

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    Purpose: The effect of culture, through the accounting values of conservatism and secrecy, on accounting judgments is an area of research extensively studied in developed countries. However, little research has focused on this issue in developing countries, specifically Arab countries. Thus, this study tries to fill this gap by investigating the impact of the combined effect of the culture/accounting dimensions on the interpretation of the probability expressions used in the IAS/IFRSs in two North African/Arab countries: Tunisia and Egypt.

    Approach: At the first place, this study determines the Hofstede’s cultural index scores for Tunisia, ignored in his original model, and updates those related to Egypt, which provides a more relevant understanding of the cultural effect. Then, the study relies on the Hofsede/Gray cultural accounting model in order to examine the extent to which the accounting values of conservatism and secrecy may affect the recognition of the increase and the decrease of income, and the disclosure of this information in the financial statements by postgraduate accounting student in both countries.

    Findings: The results provide evidence of the generalizability of Gray's conservatism hypothesis in the North African/Arab countries (i.e., Tunisia and Egypt), at least in the context of income recognition. Moreover, the findings demonstrate that culture, through its influence on the accounting value of secrecy, affects the interpretation of probability expressions used in the IFRSs to establish disclosures.

    Implications and limitations: This study calls for more attention from the standard setters to provide further guidance related to the consistent and accurate numerical value that needs to be assigned to the probability expressions in order to reduce the ambiguity related to their interpretation. The IASB should pay greater attention to the use of vague PE in developing the IFRSs in order to promote the true comparability of financial reporting worldwide. As any research, this study implies certain limitations specifically related to the sample selection, sample size which may affect the generalizability of the results. Thus, future research may rely on a larger sample combining and cover other culture areas.

    Originality: This study might be the first one that investigates the issue of the IFRS interpretation in two Arab countries: Tunisia and Egypt. It also provides an original investigation of the cultural effect on accounting judgments based on the actualized Hofstede’s cultural indexes.
    Original languageEnglish
    JournalJournal of Financial Reporting and Accounting
    Early online date21 Dec 2020
    Publication statusEarly online - 21 Dec 2020


    • Cultural values
    • conservatism secrecy
    • probability expressions
    • IFRS interpretation
    • Tunisia
    • Egypt


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