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.

The role of the health surveillance program in the Queensland coal mining industry

The Queensland Coal Industry Employees Health Scheme was implemented in 1993 to provide health surveillance for all Queensland coal industry workers. Tt1e government, mining employers and mining unions agreed that the scheme should operate for seven years. At the expiry of the scheme, an assessment of the contribution of health surveillance to meet coal industry needs would be an essential part of determining a future health surveillance program. This research project has analysed the data made available between 1993 and 1998. All current coal industry employees have had at least one health assessment. The project examined how the centralised nature of the Health Scheme benefits industry by identi~)jng key health issues and exploring their dimensions on a scale not possible by corporate based health surveillance programs. There is a body of evidence that indicates that health awareness - on the scale of the individual, the work group and the industry is not a part of the mining industry culture. There is also growing evidence that there is a need for this culture to change and that some change is in progress. One element of this changing culture is a growth in the interest by the individual and the community in information on health status and benchmarks that are reasonably attainable. This interest opens the way for health education which contains personal, community and occupational elements. An important element of such education is the data on mine site health status. This project examined the role of health surveillance in the coal mining industry as a tool for generating the necessary information to promote an interest in health awareness. The Health Scheme Database provides the material for the bulk of the analysis of this project. After a preliminary scan of the data set, more detailed analysis was undertaken on key health and related safety issues that include respiratory disorders, hearing loss and high blood pressure. The data set facilitates control for confounding factors such as age and smoking status. Mines can be benchmarked to identify those mines with effective health management and those with particular challenges. While the study has confirmed the very low prevalence of restrictive airway disease such as pneu"moconiosis, it has demonstrated a need to examine in detail the emergence of obstructive airway disease such as bronchitis and emphysema which may be a consequence of the increasing use of high dust longwall technology. The power of the Health Database's electronic data management is demonstrated by linking the health data to other data sets such as injury data that is collected by the Department of l\1mes and Energy. The analysis examines serious strain -sprain injuries and has identified a marked difference between the underground and open cut sectors of the industry. The analysis also considers productivity and OHS data to examine the extent to which there is correlation between any pairs ofJpese and previously analysed health parameters. This project has demonstrated that the current structure of the Coal Industry Employees Health Scheme has largely delivered to mines and effective health screening process. At the same time, the centralised nature of data collection and analysis has provided to the mines, the unions and the government substantial statistical cross-sectional data upon which strategies to more effectively manage health and relates safety issues can be based.