A recent attempt to harmonise accounting standards internationally, through the adoption of IFRS, has raised expectations of greater similarity in reporting quality across jurisdictions. Although research shows that high-quality standards generally improve accounting quality, there is evidence that standards have a limited role in determining financial reporting quality. Rather, the conditions in which the firm operates are important determinants of financial reporting outcomes. For example, the ownership structure and the degree of business internationalisation have been found to have great influence on reporting quality.

At the country level, the quality of the legal system, the effectiveness of enforcement mechanisms, and the development of capital markets are some of the institutional factors affecting financial reporting quality. Hence, it is possible that global implementation of IFRS might not lead to the desired improvements and the similarity in financial reporting outcomes across jurisdictions because institutional factors vary across countries.

With integrating international markets, it is increasingly important to understand to what extent a variation in the institutional setting is reflected globally in the variation in the quality of financial reporting processes across firms from different countries. A related question is whether differences in financial reporting outcomes can be reduced by harmonising financial reporting standards or if these differences persist as a result of various institutional and economic factors beyond standards. For example, accounting numbers are materially affected both by what is required by standards and by reporting incentives of preparers to achieve some desired financial reporting outcomes.