Voluntary IFRS disclosures: evidence from the transition from UK GAAP to IFRSs

Abstract

Purpose -The purpose of this study is to investigate how the provision of voluntary International Financial Reporting Standard (IFRS) disclosures in the pre-adoption period has affected the IFRS transition process of UK listed firms. The study also seeks to identify the motivation of firms with financing needs to provide voluntary IFRS disclosures and determines whether the provision of voluntary IFRS disclosures in the pre-adoption period leads to more value relevant numbers. Design/methodology/approach -The study utilises logistic and linear regressions to test the hypothetical relations set up in the study. The categorisation of firms into voluntary and non-voluntary IFRS disclosers is based on the (non-mandatory) provision of material IFRS information prior to adoption about the upcoming adoption of IFRSs in 2005. Company categorization is particularly based on the construction of an index similar to the disclosure index formulated by the Center for International Financial Analysis and Research. Findings -With regard to IFRS transition, firms that provided voluntary IFRS disclosures prior to adoption display a greater positive change in equity and earnings. Non-voluntary IFRS disclosers exhibit a greater positive change in leverage and a decrease in liquidity. Voluntary IFRS disclosers exhibit higher equity and debt financing needs and tend to be audited by a big auditor and be cross-listed.Research limitations/implications -The study implies that the need to obtain financing on better terms would motivate managers to provide voluntary (IFRS) disclosures to show that they are familiar with the upcoming regulatory change and ready to implement it when it becomes effective. The provision of voluntary IFRS disclosures leads to more value relevant accounting measures, suggesting that less information asymmetry would lead to the disclosure of informative and higher quality accounting information assisting investors in making informed judgements. Originality/value -Knowing about different firms' transition experience would assist accounting standard setters in issuing explanatory IFRS guidance in order to lead to an efficient transition to IFRSs for countries that intend to adopt IFRSs or perform an accounting change. The examination of IFRS transition for firms that have experienced the change is important and would provide insight to firms considering this option. The findings further assist accounting academics and students, accountants and investors in their effort to study the motivation for providing voluntary disclosures as well as the magnitude and materiality of IFRS transition on companies' financial accounts.

The decision to present comparative financial statements in a mandatory IFRS adoption setting

“…, 2012). Cross-listed companies face more pressure to disclose information and are expected to incur fewer additional costs to fully adopt IFRS because they are more likely to be familiar with the requirements of these standards and their differences from the Chilean GAAP (Emmanuel Iatridis, 2012). Family control (FAM ) is a dummy variable frequently used in the Chilean corporate system (Jara et al.…”

“…Particularly, full adoption forced them to use IFRS financial statements in 2008 to understand the changes derived from the 2009 economic activity, while the proforma adoption allowed them to postpone that effort. In short, as prior studies suggest, a company's decision might be influenced by the costs of producing information (Emmanuel Iatridis, 2012; Langer and Lev, 1993). It might also be affected by its insights regarding third parties' ability to deal with the new accounting standards (Stent et al.…”

The Importance and Adoption of International Financial Reporting Standards (Ifrs) in Saudi Arabia

“…It discusses how implementing IFRS increases the firm's position as well as profitability. As a result, certain major financial measures, such as profitability and growth, strengthened (Emmanuel Iatridis, 2012).…”

Determinants of Voluntary International Financial Reporting Standards Application: Review from Theory to Empirical Research

“…Most factors related to internationalization have a positive impact on enhancing the voluntary adoption of IFRS. Enterprises engaged in trade with foreign markets Shi (2012a, 2012b); Emmanuel Iatridis (2012); Nguyen (2022) Cross-listing on foreign exchanges Shi (2012a, 2012b); Emmanuel Iatridis (2012) Source: Review results.…”