Theoretical Lens of Accounting Standards and the Process of Convergence with International Financial Reporting Standards (IFRS) in Indonesia

          Accounting standards in any country do not develop in a single point of time; instead, they evolve progressively along different periods. As such, there have been structural changes occurring in different stages of the development of accounting standards in a country (Baylin et al. 1996). The current trend towards the adoption of IFRS represents an important progression in the accounting standard development agenda in many jurisdictions.
This study focuses on the convergence process of Indonesian national accounting standards and IFRS. In the context of this study, ‘process’ is referred to as “a sequence of events or activities that describes how things change over time, or that represents an underlying pattern of cognitive transitions by an entity in dealing with an issue” (Van de Ven, 1992, p.170). In order to examine the development of accounting standards in Indonesia and to highlight the current Indonesian  IFRS convergence process, this paper uses process theory as a theoretical lens. Van de Ven and Poole (1995, pp.512, 513) define process theory as “an explanation of how and why organisational entity changes  and  develops”, and classify various theories of development and change into four basic categories: life-cycle, teleology, dialectics, and evolution theories.

          Life-cycle process theory is built on the assumption that changes in an organisational entity are driven by a set of underlying logic, rules, or programmes within the organisation. These inherent rules, logic, or programmes guide the movement of an entity from a particular point towards a predetermined final objective (Van de Ven, 1992; Van de Ven and Poole, 1995). Within life-cycle process model, changes and development evolve in a single sequence of stages in an ordered progression (“unitary”), in which qualities achieved in one stage are maintained and built upon in subsequent stages (“cumulative”), and all the stages are interrelated  in a way that they  emerge from a  single underlying  programme (“conjunctive”)(Van de Ven and Poole, 1995). This model implies that the whole process of change is viewed as cumulative development processes where every phase of the development is considered as a foundation for the ensuing phases. While an underlying inherent programme is the main reason for changes, external environmental factors may also contribute in shaping the course of the change, but these influences are always mediated by the inherent programmes or logic (Van de Ven, 1992; Van de Ven and Poole, 1995). Furthermore, because life-cycle process theory assumes that  the stages of development must unfold in a predetermined order, assessment of whether an entity is developing can be done by comparing the actual sequence of changes to the prescribed trajectory development.

          A second group of process theories is teleology process theory, which, in contrast to lifecycle theory, does not specifically require predetermined programmes or logic to lead organisational changes. Teleology theory proposes that “purpose or goal is the final cause for guiding movement of an entity” (Van de Ven and Poole, 1995, p.515). This theory is built upon the assumption that “the developing entity is purposeful  and adaptive; by itself or in interaction with others. It socially constructs an envisioned end state and selects from alternatives a course of action to reach it” (Van de Ven, 1992, p.178). This proposition implies that changes occur because of, and progress towards, a set of ultimate objectives, in which organisational entities formulate the objectives, work to attain them, and continuously monitor the process of achieving those objectives. Since an entity is adaptive to its internal and external environment,  change  process within the framework of teleology process model is seen to involve a repeated sequence of formulation, implementation,  evaluation,  and modification  of objectives  (Van de Ven and Poole, 1995). Whilst  there are no underlying programmes that act as a basis for evaluation, assessments of the change process are conducted by observing whether an organisational entity develops towards its final objectives (Van de Ven and Poole, 1995).

          The third family of process theories is labelled as dialectic process theory. This theory originated from the Hegelian assumption that an organisational entity operates in a world characterised by conflicting elements or forces, i.e. a thesis and an antithesis, which compete constantly to gain domination (Van de Ven and Poole, 1995). The competing elements may occur internally within an entity caused by factors such as conflicting life-cycle programmes and inconsistent goals, and may also occur external to the entity caused by conflicting development pathways between entities (Van de Ven, 1992). Within dialectic process theory, changes are determined by the relative balance of power between the opposing elements (the thesis and antithesis). Change occurs once these conflicting forces or elements lose their relative balance of power. When an opposing element (an antithesis) gains sufficient power to challenge the current state of affairs (the thesis), there will be a period of persistent conflict between the two forces, and the reconciliation of the conflict results in a new element, i.e. a synthesis (Van de Ven, 1992; Van de Ven and Poole, 1995; Rodrigues and Craig, 2007). As the dialectic process continues, over time this synthesis turns out to be a new thesis.Nonetheless, there is also a possibility that the conflict between these contradicting elements result in the thesis is overthrown by the antithesis. In the context of organisational development, change unfolds when a thesis is either replaced by a synthesis or simply overtaken by an antithesis (Van de Ven and Poole, 1995).

          Another group of process theories is evolutionary process theory. In the context of process theory, Van de Ven and Poole (1995) do not simply equate evolution with change, but refer to evolution as cumulative changes in the structural forms of organisational entity populations across  different  industries, communities, or societies. Van de Ven (1992) and Van de Ven and Poole (1995) posit that, within evolutionary process theory, change in the organisational context is parallel to biological evolution, in which change occurs in a constant process of variation (the creation of new forms), selection (selecting the best forms), and retention (maintaining selected organisational forms). Evolutionary process model is understood with a key metaphor “competitive survival”, in which the generating force for change may come from population scarcity, competition, and commensalism (Van de Ven and Poole, 1995). While it has often been employed to explain global changes in organisational populations, evolutionary process theory can be used in various level of organisation in understanding change processes which focus on variation, selection, and retention among organisational entities (Van de Ven and Poole, 1995).

          The appropriateness of process theory for a study of accounting convergence has been shown by Peng and van der Laan Smith (2010) who provide an examination of the convergence process in China using teleology process theory as a theoretical framework. Peng and van der Laan Smith (2010) maintain that process theory is useful in analysing the dynamics in the transition to IFRS since this theory offers a framework to understand accounting standard convergence by underlining patterns and practices that  emerge during different phases of accounting standard development. Another study that uses a theoretical framework originated from the family of process theories has been conducted by Rodrigues  and Craig (2007), although the study does not specifically use the term process theory. Rodrigues and  Craig (2007) use Hegelian dialectic, which belongs to dialectic process theory, to examine the processes and progress of international accounting convergence by identifying the support for IFRS convergence (the thesis), resistance to the global use of IFRS (the antithesis), and the reconciliation between the two conflicting views (the synthesis).

          Of the four schools of thoughts within process theory as suggested by Van de Ven and Poole (1995), the current paper employs teleology process theory to frame the analysis. This theoretical lens is chosen because teleology process theory emphasises the importance of goal in explaining change and development, and assumes that goals are constantly reformulated. It is argued in this paper that the Indonesian accounting standard setting programmes have been initiated and directed mainly by the need to achieve certain ultimate goals. These standard development programmes have proceeded along different regimes in which different set of objectives have been repetitively formulated and have substantially influenced the standard setting orientation (see Diga and Yunus, 1997; ADB, 2003; IAI, 2012b). Teleology process theory enables this study to unfold the sequence of events which represents changes in the standard setting process and objectives, and to highlight different patterns of the standard formulation over time. Furthermore, as teleology theory facilitates an assessment of whether a change process has moved towards its ultimate goals (Van de Ven, 1992; Van de Ven and Poole, 1995), using teleology theory as a theoretical framework also allows this study to capture the challenges and obstacles that have emerged particularly in the period of transition to IFRS.

post by : rony sutiyanto