Convergence of Romanian accounting regulations with IFRS . A longitudinal analysis

In this paper we analyse the evolution in the level of convergence of the Romanian accounting regulations with IFRS in the last decade. We focus our study on the accounting topics covered by IAS16, IAS17, IAS41 and SIC15. We find that in 2005 the regulations exhibit a good level of convergence for property, plant and equipment, a medium level of convergence for lease accounting and divergence for accounting for the agricultural activity. The overall convergence level improved over time for all the topics analysed. These results indicate that the companies with dual reporting may incur lower costs in applying IFRS. Moreover, the national regulations offer the opportunity for a higher level of comparability in Romania of the financial statements prepared under IFRS with those prepared under national regulations. However, we underline that the institutional factors (such as the tax influence over accounting) might negatively affect the convergence of practices.


Introduction
The accounting profession faced in the last two decades an increase in the spread of the International Accounting Reporting Standards (IFRS) worldwide, with consequences for preparers and auditors.More and more countries require or allow IFRS application, generally for some companies (in most cases the listed ones).Another signal of the increasing acceptance of IFRS is the convergence of many local (national or regional) accounting regulations and standards 1 with IFRS.National regulators and standard-setters might choose to converge the national accounting principles and rules with IFRS for various reasons: to signal the acceptance of IFRS, to reduce the costs of companies using both national rules and IFRS 2 , to increase the comparability between the financial statements issued by companies in the same country, to help preparers and users get accustomed to IFRS or to utilize the expertize in standard-setting of the IASB 3 .
The Romanian regulators followed a convergence plan with IAS/IFRS in Romania, visible in the accounting regulations issued after 1999 (King et al., 2001).We investigate the development of the Romanian accounting regulations over the past ten years in order to comment on the convergence level achieved with IFRS.We focus our study on the accounting topics covered by IAS 16 Property, plant and equipment, IAS 17 Leases, IAS 41 Agriculture and SIC 15 Operating leases -Incentives.
Understanding the evolution of the convergence process is useful for accountants and auditors.The differences between the Romanian accounting regulations and IFRS 1 We refer to "regulations" as being accounting principles and rules issued by a State-dominated institution (called regulator), and "standards" as being accounting principles and rules issued by a private institution (called standardsetter).Under this distinction, we use the terminology "accounting regulations" to refer to the Romanian rules included in Ministerial Orders and "accounting standards" to refer to IFRS. 2 For example, some Member States of the European Union require for listed companies the use of national rules in the separate financial statements and IFRS in the consolidated financial statements. 3Assuming that IFRS represent high quality accounting standards, the convergence process allows the improvement at a low cost of the national accounting principles and rules.
signal the difficulties in working with two sets of requirements in the case of some companies.The subsidiaries of many multinationals utilize national regulations in their statutory financial statements, but also prepare a second set on IFRS for consolidation by the parent company.Preparers have an interest in using as much as possible the same accounting policies in both sets of financial statements (Albu, Albu and Alexander, 2014).The level of convergence also signals the impediments and cost of adopting IFRS (in the case of new listings or voluntary adoption of IFRS) (Larson and Street, 2004).Moreover, the process of convergence allows the profession to evolve in an accounting environment closer to IFRS.

Convergence measurement and analysisan international and national perspective
Convergence of national regulations with IFRS represents a reality of international accounting during the last decades.For the countries with fewer resources for standard setting IFRS represent a good benchmark to update national regulations.Moreover, countries intending the development of local markets see in IFRS the international language of accounting.This regulatory reality is accompanied in accounting research by the investigation of the level of convergence.While the tendency is easily observable by the overview of regulations

Research methodology
We conduct an in-depth ten-year longitudinal study in order to analyse the level of convergence between Romanian accounting regulations and IFRS.The ten-year frame chosen is useful to show the development over time and to establish how the Romanian accounting model changed.The analysis is conducted for the accounting policies covered by IAS 16, IAS 17, IAS 41 and SIC 15.The selection of these standards is justified by the following reasons.We focus on two of the most common and used standards (IAS 16 and IAS 17), which eventually affect all the companies.We select a standard that covers more specialised activities (IAS 41), applicable to fewer companies.Moreover, we also select an interpretation of IAS 17 -SIC 15, which analyses the treatment that has to be applied by both the lessor and the lessee for an operating leasing when incentives are encountered.
The ten-year time frame could not be followed for all the chosen standards and regulations due to the fact that for some no equivalent or similar legislation was found in Romania.The requirements included in IAS 16  The score is selected considering the implications for the national regulations.The maximum score is granted either when the regulations were the same or more detailed, assuming that even further details could help in the convergence process.The score of 0.8 is attached to the incomplete regulations by taking into account that the lack of details can create difficulty in interpreting the regulations in line with the spirit of IFRS.No points are given when national regulations do not provide any information in line with IFRS or provide guidance that leads to divergence.There are cases where the Romanian regulations were changed after the standard was issued.We compute the score by using the average over time.Also, when partial convergence matters arise, we compute the total value by dividing the total score that could have been obtained with the number of options presented by the Romanian regulations and multiplied the result with the number of options similar to the ones presented in IFRS.Case c.3. is used only when a certain degree of divergence occurred and important differences were generated.Moreover, in cases where the Romanian regulations did not present a direct indication about the accounting treatment and the treatment applied was the one used for another group of assets but it was equivalent to the one described within IFRS, the attributed score is 0.8.
Finally, we compute the overall convergence score.The score obtained for all the items analysed is divided by the total score that would have been allocated in case of complete convergence.

Research results
We perform content analysis of the accounting policies included in the Romanian regulations and IFRS, following the methodology described above.We obtain the following results:  1 illustrates a trend in increasing the convergence between the Romanian accounting regulations and IFRS for all the analysed items.The requirements for property, plant and equipment have a good level of convergence from 2005 (75%).This might be justified by the applicability of these requirements to all companies and also by the lack of impediments in achieving good convergence (such as predominantly fair value measurement or uncommon accounting treatments).
Even if the de jure convergence becomes more and more clear, de facto convergence is less obvious in practice (Istrate, 2012).
The results indicate a good level of convergence for the lease requirements.This might be explained by the introduction of substance over form and lease accounting in Romania around 2000.The level of convergence increases over time, but after a careful analysis, we notice that the increase in the latest years is generated by the introduction of SIC15 into the national regulations.For the other lease requirements, the increase in convergence occurred when OMFP 3055 was issued.Moreover, although lease accounting is an example of another set of policies frequently used, we notice that the level of convergence is smaller than in the case of property, plant and equipment.
We can also notice that for IAS 41, which is a specialized standard, the Romanian regulations made a big step in the latest period, going from no specifications to an almost full incorporation of IFRS policies within its content.We speculate that besides the habit of a lack of specific requirements for the agricultural activity in the Romanian accounting regulations, the extended use of fair value measurement in IAS 41 represented a reason for the late convergence in this area.The profession and users needed time to adjust to fair value measurements.The increase in the convergence level with IFRS is obvious.However, we stress that these results capture the de jure convergence.This might have implications for the practices under the national regulations.However, given the rule-based approach, the strong linkage to taxation, the reduced experience with using fair value and also less active markets, accounting practices might not reflect the increasing level of convergence found in regulations.Additional research is needed in this area.

Conclusion
In this paper we analyse the evolution in the level of convergence of the Romanian accounting regulations with IFRS in the last decade.We focus our study on the accounting topics covered by IAS 16, IAS 17, IAS 41 and SIC 15.We find that in 2005 the regulations exhibit a good level of convergence for property, plant and equipment, a medium level of convergence for lease accounting, and divergence for accounting for the agricultural activity.The level of convergence improved over time, with values of about 80% or higher for the analysed topics, indicating that regulatory efforts have been made in order to improve convergence, but also that there is still room for improvements.
These results indicate that the companies with dual reporting might incur lower costs in applying IFRS.A high level of convergence has the potential not just to minimize the costs of companies with dual reporting, but also at this stage to encourage the development and opening of such companies and subsidiaries of multinationals, therefore influencing positively the Romanian economy and tax collections.Moreover, the national regulations offer the opportunity for a higher level of comparability in Romania of the financial statements prepared under IFRS and those prepared under the national regulations.However, we underline that the institutional factors (such as the tax influence over accounting) might negatively affect the convergence of practices.

Figure 1
Figure 1 presents the trend in the convergence of the national regulations with IFRS.

Figure 1 .
Figure 1.The trend in the convergence of the national regulations with IFRS

review 1.1. The evolution of the Romanian accounting regulations
1. Literature clarification to regulatory text and stipulating additional rules.Most of these changes were also in line with IFRS.Therefore, Romania follows a process of convergence with IFRS in its national accounting regulations.This process is still ongoing, since OMFP 1802/2014 was issued along the same line -conformity with the European Directives, but also with influences from IFRS.OMFP 1802/2014 (with subsequent changes) is applicable to all entities not listed on a regulated capital market.Listed entities on a regulated market are required to apply IFRS in accordance with OMFP 1286/2012.
Complete absence -no specifications about the treatment described within IFRS can be found within Romanian regulations (marked with 0) 3. Differences that can be found such as: We then determine the methodology to assess convergence.We follow prior research (Albu, Gîrbină and Cuzdriorean-Vladu, 2011; Buculescu and Velicescu, 2014) and derive the following scores to be analysed:1.Full convergence -same treatments and specifications are included in IFRS and the Romanian regulations (marked with 1) 2.