Disclosure (discernibility) and compliance of accounting policies: Asia–Pacific evidence

Abstract

This project extends the work of Tower, Hancock and Taplin (1999) on the extent of compliance with International Accounting Standards (IAS) in six Asia Pacific countries. Sixty annual reports from companies in Australia, Hong Kong, Malaysia, Philippines, Singapore, and Thailand are analysed to create several compliance indices based on all universally applicable IAS rules at the time. The compliance ratio is computed as an aggregate value, split into measurement and disclosure categories. These ratios are also calculated on a standard–by standard basis. Moreover, a new Discernibility Index is evolved to generate insights into patterns of non–disclosure.

The results show higher levels of compliance with disclosure issues (95.5%) than measurement issues (77.7%). The lowest overall compliance rates were found for IAS 7 Cash Flow Statements, IAS 22 Business Combinations and IAS 28 Accounting for Investments in Associates. In terms of the Discernibilty Index, companies in the four Asian countries with British colonial links had lower levels of non–disclosure than Philippines or Thailand entities. The more profitable companies also tended to have a higher proportion of discernible (disclosures) items for measurement issues. The levels of non–disclosure have very distinctive standard–by–standard patterns.

The findings have important policy implications. The level of discernibility (disclosures) is low with strong country and topical trends exhibited. Therefore, de facto harmonisation is difficult to measure and country/company variances suggest that the goal of regional comparability has not been achieved. There is a need for change in the status quo level of non–disclosure of Asia–Pacific companies. In line with public theories of regulation, a call for more direct government intervention is made.