Are IFRS Disclosure Requirements Excessive? Australian Evidence

• In Event: Economic Consequences of IFRS Adoption
  In Paper Session: Economic Consequences of IFRS Adoption I

Abstract

Despite the positive effects of the adoption of International Financial Reporting Standards (IFRS) noted in the literature, standard-setters have recently issued reports suggesting that the required disclosures in IFRS have become too burdensome and should be reduced. One such report, “Losing the Excess Baggage” (2011; also referred to as “Excess Baggage”), was issued by professional accounting bodies from Scotland and New Zealand and classifies current IFRS disclosure requirements into three categories: retain; delete; and disclose only if the item is material. These recommendations have not yet been implemented, so all IFRS disclosure items remain mandatory. My paper examines whether items falling into the three disclosure categories were disclosed in the 2012 annual reports of 100 Australian companies listed on the ASX200. From each of the eight IFRS examined, three disclosure items were selected: one item Excess Baggage wants retained, one recommended for deletion, and one recommended for disclosure only if material. This study reviews whether the 24 items are disclosed differently across companies, whether this differential disclosure is linked to companies’ economic characteristics and whether the disclosures are value relevant. Significant non-compliance with IFRS disclosures exists; overall, 26.13% of the sample did not adhere to one or more mandatory disclosures. Items recommended for deletion are disclosed significantly less often than others. Disclosures recommended for retention are significantly positively associated with companies’ profitability and leverage in some models. Items recommended for deletion are not associated with company characteristics except for dispersed share ownership, which is only present in the best four disclosing standards. Items recommended for disclosure only if material are associated with US cross-listing in some models. With one exception, all three categories of disclosure are not value relevant. My findings lend limited support to the Excess Baggage recommendations.

Author

• Amitav Saha, The University of Notre Dame Australia