An Empirical Investigation into Compliance by Australian Firms with the Disclosure Requirements of International Financial Reporting Standards

Abstract

International Financial Reporting Standards (IFRS) are widely recognized as having higher quality than most national accounting standards. Commentators have suggested that the information provided under IFRS not only improves the reliability and understandability of financial information, but also allows financial statement users to make better comparisons across companies and countries. Those benefits of IFRS can only be fully achieved if all companies comply with the requirements of IFRS. However, on the matter of disclosure requirements, prior literature indicates that compliance with IFRS is not complete in many countries. Australia adopted IFRS on 1 January 2005. This dissertation examines Australian practice under the Australian version of IFRS by measuring compliance with the requirements of eight Standards. The study focuses on data drawn from the consolidated financial statements of a sample of the top 200 Australian listed corporations. To enables a time-series analysis of the impact of IFRS over time, this study examines three of the reporting years from 2006 to 2014. The purpose of this examination is to gain insights and investigate the level of compliance by Australian companies with the disclosure requirements of these Standards and the factors associated with the levels of compliance. This research has identified material non-compliance among Australian firms, all of which were mandatorily adopting IFRS. To a large extent, the disclosure requirements examined in this thesis were those expected to apply to the selected companies, thereby providing some confidence that all sample companies should have items to disclose. This dissertation finds that non-compliance varies by size of company, by year, by sector, by auditor and by which standards are examined. It finds that some disclosure items appear to be neglected by companies in their financial statements, such as some of the requirements of AASB137 Provisions and AASB119 Employee Benefits. Non-compliance is particularly apparent where IFRS requirements were new to Australian companies, and it is associated with particular sectors, sizes of company and types of auditor. The non-compliance problem raises questions about accounting quality in Australia. It may suggest poor regulatory oversight. Audit is one part of this. Despite the continuing non-compliance found in this study, not a single auditor of the sample companies identified non-compliance with the standards. If auditors do not fulfil their obligations to provide an accurate opinion on whether the financial statements comply with disclosure requirements, and if there is a lack of enforcement from the regulatory body, this leads to doubt about the integrity of reporting in Australia and the quality of decisions made by those financial statement users.