Institutional pressures and the role of the state in designing the financial accounting and reporting model in Estonia

Abstract Purpose The chapter shows how globalization and the IFRSs have affected the development of financial accounting and reporting in Estonia. This is interpreted through institutional theory. Design/methodology/approach The theoretical framework takes into account the prior papers published using institutional theory for defining pressures affecting the development of financial reporting model. The discussion part is presented in three sub-sections. Coercive institutional pressure is analyzed using Estonian accounting legislation from 1990–2012 and normative pressure by focusing on the impact of Big 4 audit companies in the Estonian context. The authors also give an overview of mimetic institutional pressures. As a methodological technique literature review and document analysis are used. Findings In the context of coercive institutional pressure the development of accounting legislation in Estonia has been mostly influenced by the IFRSs and European Union. In the light of recent events it seems that Estonia has the opportunity to follow its own way deciding which accounting principles should be applied to SMEs. Mimetic institutional pressure affecting Estonian accounting system is International Accounting Standards Board (IASB), which practices Estonian Accounting Standards Board (EASB) copies. Normative institutional pressures influencing the development of the Estonian accounting system are the Big 4 audit firms. Originality/value Although using institutional theory to interpret the development of financial reporting framework is not new its application is underexplored in the context of post-Soviet countries such as Estonia. The chapter potentially contributes to the accounting reforms evidence in emerging economies.