Corporate governance, ethics, internal controls and compliance with IFRS
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Date
2018
Journal Title
Journal ISSN
Volume Title
Publisher
Journal of Financial Reporting and Accounting
Abstract
Purpose – The purpose of this paper is to establish the relationship between corporate governance, ethical
culture, Internal Controls over Financial Reporting (ICFR) and compliance with International Financial
Reporting Standards (IFRS) by microfinance institutions (MFIs).
Design/methodology/approach – This is a cross-sectional survey based on a sample of 85 MFIs in
Uganda. Hypotheses were tested using partial least squares (PLS) analysis technique. An unweighed IFRS
compliance index to capture the level of compliance with IFRS was constructed. Yet to capture corporate
governance, ethical culture and ICFR variables, the perceptions of top management of MFIs have been taken
into consideration.
Findings – Corporate governance, ethical culture and ICFR, each makes a significant contribution to
compliance with IFRS. Also both corporate governance and ethical culture are significantly associated with
ICFR. However, compliance with IFRS by MFIs is better enhanced by corporate governance and ethical
culture through ICFR.
Research limitations/implications – Results support the idea that in terms of agency and virtue ethics
theories, the board should support ICFR to minimize egocentric managers and other employees and also
inculcate an ethical culture to achieve better compliance with IFRS because corporate governance and ethical
culture are associated with sound ICFR which in turn lead to compliance with IFRS.
Practical/implications – Boards of MFIs should encourage investments that improve ICFR. At the same
time, regulators should ensure that boards are composed of members with financial expertise, with no conflict
of interest and introduce mechanisms that encourage boards to perform their roles.
Originality/value – The study contributes towards a methodological position by showing that the
behavioural perspective of corporate governance can be an alternative to the boards’ structural variables in
investigating compliance with IFRS. A direct association of ethical culture and compliance with IFRS and an
indirect association through ICFR can be envisaged.
Description
Keywords
Corporate governance, MFIs, ethical culture, ICFR, IFRS compliance
Citation
Irene Nalukenge, Stephen Korutaro Nkundabanyanga, Joseph Mpeera Ntayi, (2018) "Corporate governance, ethics, internal controls and compliance with IFRS", Journal of Financial Reporting and Accounting, Vol. 16 Issue: 4, pp.764-786, https://doi.org/10.1108/JFRA-08-2017-0064 Permanent link to this document: https://doi.org/10.1108/JFRA-08-2017-0064