Compliance with international financial reporting standards (IFRS) and the value relevance of accounting information in emerging stock markets : evidence from Kuwait

Since the 1960s, the value relevance of accounting information has been an important topic in accounting research. The value relevance research provides evidence as to whether accounting numbers relate to corporate value in a predicted manner (Beaver, 2002). Such research is not only important for investors but also provides useful insights into accounting reporting effectiveness for standard setters and other users. Both the quality of accounting standards used and the effectiveness associated with implementing these standards are fundamental prerequisites for high value relevance (Hellstrom, 2006). However, while the literature comprehensively documents the value relevance of accounting information in developed markets, little attention has been given to emerging markets where the quality of accounting standards and their enforcement are questionable. Moreover, there is currently no known research that explores the association between level of compliance with International Financial Reporting Standards (IFRS) and the value relevance of accounting information. Motivated by the lack of research on the value relevance of accounting information in emerging markets and the unique institutional setting in Kuwait, this study has three objectives. First, it investigates the extent of compliance with IFRS with respect to firms listed on the Kuwait Stock Exchange (KSE). Second, it examines the value relevance of accounting information produced by KSE-listed firms over the 1995 to 2006 period. The third objective links the first two and explores the association between the level of compliance with IFRS and the value relevance of accounting information to market participants. Since it is among the first countries to adopt IFRS, Kuwait provides an ideal setting in which to explore these objectives. In addition, the Kuwaiti accounting environment provides an interesting regulatory context in which each KSE-listed firm is required to appoint at least two external auditors from separate auditing firms. Based on the research objectives, five research questions (RQs) are addressed. RQ1 and RQ2 aim to determine the extent to which KSE-listed firms comply with IFRS and factors contributing to variations in compliance levels. These factors include firm attributes (firm age, leverage, size, profitability, liquidity), the number of brand name (Big-4) auditing firms auditing a firm’s financial statements, and industry categorization. RQ3 and RQ4 address the value relevance of IFRS-based financial statements to investors. RQ5 addresses whether the level of compliance with IFRS contributes to the value relevance of accounting information provided to investors. Based on the potential improvement in value relevance from adopting and complying with IFRS, it is predicted that the higher the level of compliance with IFRS, the greater the value relevance of book values and earnings. The research design of the study consists of two parts. First, in accordance with prior disclosure research, the level of compliance with mandatory IFRS is examined using a disclosure index. Second, the value relevance of financial statement information, specifically, earnings and book value, is examined empirically using two valuation models: price and returns models. The combined empirical evidence that results from the application of both models provides comprehensive insights into value relevance of accounting information in an emerging market setting. Consistent with expectations, the results show the average level of compliance with IFRS mandatory disclosures for all KSE-listed firms in 2006 was 72.6 percent; thus, indicating KSE-listed firms generally did not fully comply with all requirements. Significant variations in the extent of compliance are observed among firms and across accounting standards. As predicted, older, highly leveraged, larger, and profitable KSE-listed firms are more likely to comply with IFRS required disclosures. Interestingly, significant differences in the level of compliance are observed across the three possible auditor combinations of two Big-4, two non-Big 4, and mixed audit firm types. The results for the price and returns models provide evidence that earnings and book values are significant factors in the valuation of KSE-listed firms during the 1995 to 2006 period. However, the results show that the value relevance of earnings and book values decreased significantly during that period, suggesting that investors rely less on financial statements, possibly due to the increase in the available non-financial statement sources. Notwithstanding this decline, a significant association is observed between the level of compliance with IFRS and the value relevance of earnings and book value to KSE investors. The findings make several important contributions. First, they raise concerns about the effectiveness of the regulatory body that oversees compliance with IFRS in Kuwait. Second, they challenge the effectiveness of the two-auditor requirement in promoting compliance with regulations as well as the associated cost-benefit of this requirement for firms. Third, they provide the first known empirical evidence linking the level of IFRS compliance with the value relevance of financial statement information. Finally, the findings are relevant for standard setters and for their current review of KSE regulations. In particular, they highlight the importance of establishing and maintaining adequate monitoring and enforcement mechanisms to ensure compliance with accounting standards. In addition, the finding that stricter compliance with IFRS improves the value relevance of accounting information highlights the importance of full compliance with IFRS and not just mere adoption.

Regulatory Impact Assessment of Potential Duplication of Governance and Reporting Standards for Charities

On 25 January 2013, the Council of Australian Governments (COAG) released a Regulatory Impact Assessment (RIA) for consultation on ways to reduce regulatory duplication between the proposed Commonwealth governance and reporting standards and existing state and territory requirements.

International financial reporting standards (IFRS) as a change agent in Ukraine

This paper aims to examine the perception of key actors regarding the costs and benefits that result from adopting International Financial Reporting Standards (IFRS) in Ukraine. Authors showed that IFRS implementation impacts on internal reporting quality, the relationship with customers, creditors and shareholders, the access to international markets and external financing. They also indicated that financial managers have serious concerns about implementation costs related to the introduction of IFRS. These costs relate to training, instruction on IFRS adoption and translation of current IFRS, changes in software systems, double purpose accounting and deadlines for IFRS adoption and consulting services.

How prepared was Australia for international financial reporting standards? The case of listed firms

We measure the preparedness of listed firms for international financial reporting standards (IFRS) by changes in explanations from Australian GAAP to IFRS between the half-year and annual accounts. About one-third of sample firms changed their explanations for earnings, cashflows or equity by averages of about −7%, 67% and 3% respectively. Most changes are less than 5% for earnings and equity, and tax is the item most commonly revised. More profitable firms and firms with more reconciling items are most likely to change an explanation. In a telephone survey of chief financial officers, 70% revealed that the change followed an incorrect application of an accounting rule in the half-year accounts.

Comparing the strength of auditing and reporting standards and investigating their predictors in Europe and Asia

The World Economic Forum conducted an opinion survey to determine the strength of auditing and reporting standards (SARS) in 133 countries. It then assigned a score for SARS to each country as one of its global competitive indices. This is a unique dataset on SARS at country level. Using this dataset, this paper compares SARS scores for 72 countries (41 European and 31 Asian). A multi-phase regression analysis is employed to empirically investigate the predictors of SARS using five sub-models. Findings from the study support existing theory and add new findings to the auditing and reporting literature at a regional level. It suggests that there are nine predictors of SARS which are similar for both Europe and Asia but with different magnitude. In Asia the efficiency of the legal framework and the size of the foreign export market are also significant predictors of SARS compared to Europe.

Compliance com os requisitos de divulgação do IFRS - International Financial Reporting Standards e sua relação com o erro de previsão dos analistas de mercado

O objetivo deste estudo é fazer uma análise da relação entre o erro de previsão dos analistas de mercado quanto à rentabilidade das empresas listadas na BM&FBOVESPA S.A. (Bovespa) e os requerimentos de divulgação do International Financial Reporting Standards (IFRS). Isto foi feito através da regressão do erro de previsão dos analistas, utilizando a metodologia de dados em painel no ano de implantação do IFRS no Brasil, 2010, e, complementarmente em 2012, para referenciamento desses dados. Partindo desse pressuposto, foi determinado o erro de previsão das empresas listadas na Bovespa através de dados de rentabilidade (índice de lucro por ação/earnings per share) previstos e realizados, disponíveis nas bases de dados I/B/E/S Earnings Consensus Information, providos pela plataforma Thomson ONE Investment Banking e Economática Pro®, respectivamente. Os resultados obtidos indicam uma relação negativa entre o erro de previsão e o cumprimento dos requisitos de divulgação do IFRS, ou seja, quanto maior a qualidade nas informações divulgadas, menor o erro de previsão dos analistas. Portanto, esses resultados sustentam a perspectiva de que o grau de cumprimento das normas contábeis é tão ou mais importante do que as próprias normas. Adicionalmente, foi verificado que quando a empresa listada na BM&FBOVESPA é vinculada a Agência Reguladora, seu erro de previsão não é alterado. Por fim, esses resultados sugerem que é importante que haja o aprimoramento dos mecanismos de auditoria das firmas quanto ao cumprimento dos requerimentos normativos de divulgação, tais como: penalidades pela não observância da norma (enforcement), estruturas de governança corporativa e auditorias interna e externa.

A call for uniform reporting standards in studies assessing endovascular treatment for chronic ischaemia of lower limb arteries

Endovascular therapy is a rapidly evolving field for the treatment of patients with peripheral arterial disease, and a magnitude of studies reporting on various modern revascularization concepts have been recently published. Thus, studies assessing the efficacy of endovascular therapy of peripheral arteries do not operate with uniformly defined endpoints, rendering a direct comparison of studies difficult. The purpose of this consensus statement is to highlight differences in the terminology used in the current literature and to propose some standardized criteria that must be considered when reporting results of endovascular revascularization for chronic ischaemia of lower limb arteries.

Peripheral endovascular revascularization trials: high noon for uniform reporting standards

In the era of evidence based medicine, proof of clinical benefits and cost-effectiveness need to be firmly based on transparent comparisons between various therapeutic alternatives. Standards for reports are a prerequisite for comparisons across reports and should reflect the patient's perspective. According standards have been successfully introduced in many fields of modern medicine, but not yet for peripheral endovascular interventions. Given the overwhelmingly increasing importance of endovascular revascularization in patients with chronic lower limb ischemia, this report provides an updated outline of the heterogeneity of current reporting practice and highlights the need for uniform reporting standards.

Reporting standards for studies of diagnostic test accuracy in dementia: The STARDdem Initiative.

OBJECTIVE To provide guidance on standards for reporting studies of diagnostic test accuracy for dementia disorders. METHODS An international consensus process on reporting standards in dementia and cognitive impairment (STARDdem) was established, focusing on studies presenting data from which sensitivity and specificity were reported or could be derived. A working group led the initiative through 4 rounds of consensus work, using a modified Delphi process and culminating in a face-to-face consensus meeting in October 2012. The aim of this process was to agree on how best to supplement the generic standards of the STARD statement to enhance their utility and encourage their use in dementia research. RESULTS More than 200 comments were received during the wider consultation rounds. The areas at most risk of inadequate reporting were identified and a set of dementia-specific recommendations to supplement the STARD guidance were developed, including better reporting of patient selection, the reference standard used, avoidance of circularity, and reporting of test-retest reliability. CONCLUSION STARDdem is an implementation of the STARD statement in which the original checklist is elaborated and supplemented with guidance pertinent to studies of cognitive disorders. Its adoption is expected to increase transparency, enable more effective evaluation of diagnostic tests in Alzheimer disease and dementia, contribute to greater adherence to methodologic standards, and advance the development of Alzheimer biomarkers.