Mandated disclosures under IAS 36 Impairment of Assets and IAS 38 Intangible Assets: value relevance and impact on analysts’ forecasts

Abstract

Drawing on a large sample of European firms, we examine whether variant compliance levels with mandated disclosures under IAS 36 Impairment of Assets and IAS 38 Intangible Assets are value relevant and affect analysts' forecasts. Our results indicate a mean (median) compliance level of about 84% (86%) but high variation among firms; and disclosure levels regarding IAS 36 being much lower than those regarding IAS 38. In depth analysis reveals that non-compliance relates mostly to proprietary information and information that reveals managers' judgment and expectations. Furthermore, we find a positive (negative) relationship between average disclosure levels and market values (analysts' forecast dispersion). Results, however, hold more specifically for disclosures related to IAS 36, and these also improve analysts' forecast accuracy. Our findings add knowledge regarding the economic consequences of mandatory disclosures, have an appeal to regulators and financial statement preparers, and reflect on the IASB's concerns to increase the guidance and principles on presentation and disclosure.

The effect of corruption and culture on mandatory disclosure compliance levels: Goodwill reporting in Europe

“…Second, and consistent with management talent signalling hypothesis (Trueman, 1986), prior literature indicates that high levels of mandatory disclosure provided by companies are associated with lower cost of equity capital (Paugum and Ramond, 2015) and higher market values (André et al, 2017;, hence, resulting in a tangible benefit for the shareholders. In support of this, prior research contends that institutional investors and financial analysts demand greater transparency and penalise firms that have a reputation of withholding bad news by choosing not to hold or follow their stocks (Ajinkya et al, 2005).…”

Compliance with intangible assets disclosure requirements: study of Portuguese non-financial companies

“…At an international level, studies are mainly focused on voluntary disclosure of intangible assets in different settings across the globe: Australia (Guthrie & Petty, 2000;Woodrock & Whitiny, 2009); Germany (Goebel, 2015) Ireland (Brennan, 2001); Italy (Bozzolan, Favotto & Ricceri, 2003); Saudi Arabia (Razak, Mohammad & Tobiagi, 2016); South Africa (April, Boonia & Deglon, 2003); Malaysia (Goh & Lim, 2004); Sri Lanka (Abeysekera & Guthrie, 2005); Spain (Oliveras, Gowthorp, Kasperskaya & Perramon, 2008); New Zealand (Wong & Gardner, 2004;Whiting & Miller, 2008;De Silva, Stratford & Clark, 2014) and even among different countries in the European Union (André, Dionysiou & Tsalavoutas, 2017). However, even after the changes that have occurred in SNC between 2009 and 2015, there are still no research studies on the extent of mandatory disclosures based on IAS/IFRS adapted standards by unlisted companies during the transition period to a new accounting frame of reference based on IAS/IFRS.…”

Complexity is never simple: Intangible intensity and analyst accuracy

“…In relation to the impact of IAS 38, Matolcsy and Wyatt (2006) find that capitalization of intangible assets is associated with lower earnings forecast dispersion and lower absolute earnings forecast error. André et al (2018) score compliance with the mandatory disclosure requirements of IAS 36 and IAS 38 in European firms. They document that analysts make less dispersed forecasts and that their predictions are, in fact, more accurate.…”