Firms' compliance with the disclosure requirements of IFRS for goodwill impairment testing: Effect of the global financial crisis and other firm characteristics

Md Khokan Bepari, Sheikh F. Rahman, Abu MOLLIK

    Research output: Contribution to journalArticle

    10 Citations (Scopus)

    Abstract

    Purpose - This study aims to examine the impact of the 2008-2009 global financial crisis (GFC) on Australian firms' compliance with IFRS 36/AASB 136 for goodwill impairment testing. It also examines the factors associated with the cross-sectional variations in the compliance levels. Design/methodology/approach - Based on a survey of disclosure notes in companies' annual reports, firm-level compliance scores were developed and further analysed applying quantitative statistical methods. Findings - The findings suggest that firms' compliance has increased during the GFC compared to the PCP. There was no significant intra-period change in the compliance levels during the PCP. Firms belonging to goodwill intensive industries show greater compliance levels than firms in other industries. Audit quality is also a significant determinant of firms' compliance with IFRS for goodwill impairment testing. Goodwill intensity is a significant determinant of firms' compliance level during the GFC but not during the PCP. Firm size is associated with the compliance levels when the industry effects are not controlled for. When the industry effects are controlled for, the effect of size on firms' compliance levels disappears. Profitability is also associated with firms' compliance with IFRS for goodwill impairment testing. However, firms' leverage ratio is not significantly associated with compliance levels. Originality/value - This is the first known study to examine the issue of compliance with IFRS for goodwill impairment testing in the context of the GFC and the PCP.

    Original languageEnglish
    Pages (from-to)116-149
    Number of pages34
    JournalJournal of Accounting Organizational Change
    Volume10
    Issue number1
    DOIs
    Publication statusPublished - 2014

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    Testing
    Global financial crisis
    Firm characteristics
    Impairment
    International Financial Reporting Standards
    Goodwill
    Disclosure requirements
    Industry
    Industry effects
    Audit quality
    Statistical methods
    Firm size
    Design methodology
    Disclosure
    Leverage ratio
    Annual reports
    Profitability
    Factors

    Cite this

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    abstract = "Purpose - This study aims to examine the impact of the 2008-2009 global financial crisis (GFC) on Australian firms' compliance with IFRS 36/AASB 136 for goodwill impairment testing. It also examines the factors associated with the cross-sectional variations in the compliance levels. Design/methodology/approach - Based on a survey of disclosure notes in companies' annual reports, firm-level compliance scores were developed and further analysed applying quantitative statistical methods. Findings - The findings suggest that firms' compliance has increased during the GFC compared to the PCP. There was no significant intra-period change in the compliance levels during the PCP. Firms belonging to goodwill intensive industries show greater compliance levels than firms in other industries. Audit quality is also a significant determinant of firms' compliance with IFRS for goodwill impairment testing. Goodwill intensity is a significant determinant of firms' compliance level during the GFC but not during the PCP. Firm size is associated with the compliance levels when the industry effects are not controlled for. When the industry effects are controlled for, the effect of size on firms' compliance levels disappears. Profitability is also associated with firms' compliance with IFRS for goodwill impairment testing. However, firms' leverage ratio is not significantly associated with compliance levels. Originality/value - This is the first known study to examine the issue of compliance with IFRS for goodwill impairment testing in the context of the GFC and the PCP.",
    keywords = "Accounting and organizational change, Australia, Compliance score, Financial reporting, Global financial crisis, Goodwill impairment, IFRS/AASB 136",
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    AU - Bepari, Md Khokan

    AU - Rahman, Sheikh F.

    AU - MOLLIK, Abu

    PY - 2014

    Y1 - 2014

    N2 - Purpose - This study aims to examine the impact of the 2008-2009 global financial crisis (GFC) on Australian firms' compliance with IFRS 36/AASB 136 for goodwill impairment testing. It also examines the factors associated with the cross-sectional variations in the compliance levels. Design/methodology/approach - Based on a survey of disclosure notes in companies' annual reports, firm-level compliance scores were developed and further analysed applying quantitative statistical methods. Findings - The findings suggest that firms' compliance has increased during the GFC compared to the PCP. There was no significant intra-period change in the compliance levels during the PCP. Firms belonging to goodwill intensive industries show greater compliance levels than firms in other industries. Audit quality is also a significant determinant of firms' compliance with IFRS for goodwill impairment testing. Goodwill intensity is a significant determinant of firms' compliance level during the GFC but not during the PCP. Firm size is associated with the compliance levels when the industry effects are not controlled for. When the industry effects are controlled for, the effect of size on firms' compliance levels disappears. Profitability is also associated with firms' compliance with IFRS for goodwill impairment testing. However, firms' leverage ratio is not significantly associated with compliance levels. Originality/value - This is the first known study to examine the issue of compliance with IFRS for goodwill impairment testing in the context of the GFC and the PCP.

    AB - Purpose - This study aims to examine the impact of the 2008-2009 global financial crisis (GFC) on Australian firms' compliance with IFRS 36/AASB 136 for goodwill impairment testing. It also examines the factors associated with the cross-sectional variations in the compliance levels. Design/methodology/approach - Based on a survey of disclosure notes in companies' annual reports, firm-level compliance scores were developed and further analysed applying quantitative statistical methods. Findings - The findings suggest that firms' compliance has increased during the GFC compared to the PCP. There was no significant intra-period change in the compliance levels during the PCP. Firms belonging to goodwill intensive industries show greater compliance levels than firms in other industries. Audit quality is also a significant determinant of firms' compliance with IFRS for goodwill impairment testing. Goodwill intensity is a significant determinant of firms' compliance level during the GFC but not during the PCP. Firm size is associated with the compliance levels when the industry effects are not controlled for. When the industry effects are controlled for, the effect of size on firms' compliance levels disappears. Profitability is also associated with firms' compliance with IFRS for goodwill impairment testing. However, firms' leverage ratio is not significantly associated with compliance levels. Originality/value - This is the first known study to examine the issue of compliance with IFRS for goodwill impairment testing in the context of the GFC and the PCP.

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    KW - Australia

    KW - Compliance score

    KW - Financial reporting

    KW - Global financial crisis

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