Team Play for Stretching IFRS in the European Enforcement System

Quagli Alberto, Ramassa Paola, Avallone Francesco

There is a consensus that the quality of IFRS enforcement mechanisms in scrutinizing financial reporting varies across European member countries (Ball, 2016). Against this background, this paper investigates whether the IFRS enforcement system at a supra-national level can prevent opportunistic behaviors at a national level that conflict with the objectives of accounting harmonization. Through the theoretical lens of new institutional accounting (Wysocki, 2011), the paper presents the case study of the Bank of Italy share revaluation within the European enforcement system. The case illustrates how the complex interactions among key actors – at company, industry, national and supra-national level – can lead to a failure of the enforcement system. Findings indicate that opportunistic behaviors can occur in interstices between formal institutions under given circumstances, such as interpretation uncertainties of IFRS, cooperation between formal and informal institutions (at a national level), and weaknesses of accounting enforcement (at a supra-national level). The paper analyses those opportunistic behaviors identifying a new type of earnings management, new institutional earnings management, based on inter-firm cooperation arising in the interstices between formal institutions’ scopes. As a result, it stresses the need of a vigorous enforcement at a supra-national level, with relevant policy implications for European institutions.

Key-Words: Politiche di bilancio, IFRS, enforcement, new institutional accounting, earnings management