IFRS Compliance and Audit Quality in Developing Countries: The Case of Income Tax Accounting in Egypt

This paper examines compliance and enforcement of the International Financial Reporting Standards (IFRS) in developing countries and the effect of independent audit quality as a monitoring mechanism for compliance with IFRS recognition and disclosure requirements. Using a sample of listed companies in the Egyptian Stock Exchange in 2007, we examine their compliance with recognition and disclosure requirements for income tax accounting after Egypt’s full adoption of IFRS in 2006. Results show evidence of noncompliance with the IFRS requirements for income tax accounting, and that compliance with recognition and disclosure requirements is significantly related to being audited by an audit firm with international affiliation. These results validate concerns regarding the reliability and comparability of accounting information produced in different jurisdictions that proclaim to adopt IFRS. Enforcement and compliance with IFRS requirements is a function of cross-country regulatory, economic, and cultural differences.