The International

Journal of
Accounting

Disclosure Level and Compliance with IASs: A

Comparison of Companies With and Without U.S. Listings
and Filings
Donna L. Street and Stephanie M. Bryant
James Madison University, Harrisonburg, VA, USA

Key Words: International accounting standards; Compliance with IASs; IASC; Voluntary
disclosure

Abstract: This research investigates the extent to which the disclosure requirements of the
IASC are complied with or exceeded for companies claiming to use International Accounting
Standards (IASs). Additionally, the research seeks to identify significant differences between
those companies with U.S. listings, U.S. filings, and those with no U.S. listings or filings
with regard to (1) compliance with IASC-required disclosures, and (2) level of disclosure
(including both mandatory and voluntary items). The findings reveal the overall level of
disclosure is greater for companies with U.S. listings. Additionally, greater disclosure is
associated with an accounting policies footnote that specifically states that the financial
statements are prepared in accordance with IASs and an audit opinion that states that
International Standards of Auditing (ISAs) were followed when conducting the audit. Further,
the findings indicate the extent of compliance with IASs is greater for companies with U.S.
listings or filings. A higher level of compliance is associated with an audit opinion that
states the financial statements are in accordance with IASs and that ISAs were followed
when conducting the audit.
The research highlights the significance of the enforcement issue for the International
Accounting Standard Committee (IASC) as it seeks an International Organization of Securities
Commissions (IOSCO) endorsement. The findings indicate enforcement of IASs may be less of an
issue for companies with listings and filings in the U.S. However, for companies without U.S.
listings and filings, compliance is indeed of great concern.

Currently, the International Organization of Securities Commissions (IOSCO) and its

member bodies are reviewing the International Accounting Standard Committee's (IASC)
application for endorsement of International Accounting Standards (IASs). This critical
decision will determine whether IASs may be used for cross-border offerings of securities

Direct all correspondence to: Donna L. Street, School of Accounting, James Madison University, Mail Stop Code
0203, Harrisonburg, VA 22807, USA; E-mail: streetdl@jmu.edu
The International Journal of Accounting, Vol. 35, No. 3, pp. 305 329
ISSN: 0020-7063.
All rights of reproduction in any form reserved.
Copyright # 2000 University of Illinois

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in all the world's major capital markets, including the U.S. To this end, the SEC Chief
Accountant has encouraged research to assist the Commission in its assessment of the
IASC's Core Standards and related topics. This research addresses a key question posed by
Chief Accountant Turner (SEC, 1999):
What are typical footnote disclosures by companies currently using IASC filings (a)
in non-U.S. countries, (b) in U.S. filings using reconciliation, and (c) similar U.S.
GAAP filings?

For a sample of companies claiming to use IASs, the current research investigates the
extent to which the disclosure requirements of the IASC are complied with or exceeded.
Additionally, the research seeks to identify any significant differences between those
companies with U.S. listing, U.S. filings, and those with no U.S. listings or filings with
regard to (1) compliance with IASC-required disclosures, and (2) level of disclosure
(including both mandatory and voluntary items). To the extent that such differences are not
significant, particularly with regard to compliance with IASs, the argument for accepting
IASs for cross-border listings will be supported. On the other hand, evidence to the
contrary is likely to strengthen the argument against an IOSCO endorsement of IASs for
cross-border listings.

IOSCO'S Review of IASs

As part of IOSCO's commitment to facilitate cross-border offerings and listings by
multinationals, the Commission's Technical Committee actively participated in the IASC
Core Standards Project (IASC, 1999). Following the 1999 publication of the interim
standard on financial instruments, which resulted in the IASC substantially completing all
key parts of the core standards, the IOSCO Technical Committee began an assessment of
the core standards, focusing on whether the core standards are of sufficiently high quality
to warrant permitting foreign issuers to utilize IASs to access a country's capital markets as
an alternative to domestic standards. Upon completion of its analysis, the IOSCO Working
Group will make a recommendation to the IOSCO Technical Committee. The Technical
Committee will then decide whether to recommend that members of IOSCO permit
foreign issuers to use IASs in lieu of national standards for cross-border offering and
listing purposes.
With regard to IOSCO's evaluation of IASs, the SEC (1996) has indicated that there are
three primary elements to acceptance of IASs. The standards must:
(a) Include a core set of standards that constitute a comprehensive, generally
accepted basis of accounting
(b) Be of high quality and result in comparability, transparency, and full
disclosure; and
(c) Be rigorously interpreted and applied.
This research addresses the issues of full disclosure (item b) and rigorous application of
IASs (item c).

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307

LITERATURE REVIEW AND RESEARCH ISSUES

Several studies have addressed the impact of various corporate characteristics on
annual report disclosures. These characteristics include size, listing status, leverage,
profitability, industry, type of auditor, size of the equity market, degree of economic
development, type of economy, activity on the equity market, dispersion of stock
ownership, and culture.
Studies based on capital markets in developed countries include Singhvi and Desai
(1971), Buzby (1975), Belkaoui and Kahl (1978), Firth (1979), McNally et al. (1982),
Cooke (1989a,b, 1991, 1992, 1993), Wallace and Naser (1995), Wallace et al. (1994),
Inchausti (1997), and Dumontier and Raffournier (1998). Overall, these studies indicate
that size and listing status are significantly associated with the level of disclosure.1 Cooke
(1989b) concluded that while size, as measured by total assets, sales, and number of
shareholders, is an important variable, it does not matter which of the three measures of
size is selected. Additionally, prior research consistently suggests that leverage (gearing) is
not significantly associated with level of disclosure.
Findings regarding the relationship between level of disclosure and other corporate
variables have been mixed. Singhvi and Desai (1971), Belkaoui and Kahl (1978),
Wallace and Naser (1995), and Wallace et al. (1994) provide evidence of an
association between profitability (rate of return) and level of disclosure. However,
their findings are not supported by the work of Cerf (1961), McNally et al. (1982),
Inchausti (1997), and Dumontier and Raffournier (1998). While Cooke (1991, 1992)
reports that manufacturing companies report more information than other types of
corporations, Inchausti's (1997) findings do not support an association between
industry and level of disclosure. Research by Singhvi and Desai (1971), Inchausti
(1997), and Dumontier and Raffournier (1998) suggest an association between audit
firm and level of disclosure; alternatively, Firth (1979) and McNally et al. (1982)
provide no evidence of this association.
Adhikari and Tondkar (1992) report significant variations in the overall quality and
level of detail disclosure that are required as part of the listing and filing requirements of
stock exchanges around the world. Among a total of 35 stock exchanges, the NYSE was
clearly the leader in terms of disclosure requirements, with London not far behind. The
findings revealed a significant association between size of the equity market and disclosure
requirements. However, no significant associations were identified for the degree of
economic development, type of economy, activity on the equity market, and dispersion of
stock ownership.
Accounting standards, such as IASs, set forth the minimum disclosure guidelines,
which companies are obligated to follow. However, the IASC and International Federation
of Accountants (IFAC) are concerned that some companies claiming to comply with IASs
may not in fact be complying with all of the requirements of IASs. In this regard, the
President of the IFAC has criticized auditors for asserting that financial statements comply
with IASs when the accounting policies and other notes show otherwise (Cairns, 1997).
Research by Cairns (1999) and Street et al. (1999) supports the assertions of the IASC and
IFAC by providing evidence that the degree of compliance by companies claiming to
comply with IASs is very mixed and somewhat selective. The findings of these studies
reinforce the significance of the acceptance and observance issue for the IASC. The

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current research extends these previous studies by examining the factors that may be
associated with noncompliance.
In addition to the information companies are obligated to disclose (although as
previously noted some may not fully comply), in many instances, companies voluntarily
disclose information beyond that required by accounting standards and listing authorities.
Hence, this research also addresses the extent of voluntary disclosure provided by
companies claiming to follow IASs and seeks to identify the factors associated with
voluntary disclosures.
Based on this discussion and prior literature, four primary research questions are
considered in this article:
Research Question #1: For companies that claim to comply with IASs, does the
overall level of disclosure differ significantly for companies with (1) U.S. listings,
(2) U.S. filings, and (3) without U.S. listings or filings?
Research Question #2: For companies that claim to comply with IASs, does the
degree of compliance with IASC-required disclosures differ significantly for
companies with (1) U.S. listings, (2) U.S. filings, and (3) without U.S. listings
or filings?
Research Question #3: What are the factors associated with the overall level of
disclosure provided by companies that claim to comply with IASs?
Research Question #4: What are the factors associated with the degree of compliance
with IASC-required disclosures for companies that claim to comply with IASs?

HYPOTHESES AND INDEPENDENT VARIABLES

The following hypotheses, stated in alternative form, were developed to test the four
research questions.
Hypotheses Associated with Research Questions 1 and 2
As noted previously, the SEC has requested research to determine whether disclosure
levels vary for those companies utilizing IAS filings (a) in non-U.S. countries, (b) in U.S.
filings using reconciliation, and (c) similar U.S. GAAP filings. In line with this inquiry,
prior research suggests that disclosure levels are significantly different for companies
listed on major exchanges than for other companies.
Ha1:

The level of disclosure is significantly different for (1) companies with U.S.
listings, (2) U.S. filings, and (3) without U.S. listings or filings.

Ha2:

Compliance with mandatory IASC disclosures differs significantly for (1)

companies with U.S. listings, (2) U.S. filings, and (3) without U.S. listings
or filings.

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Hypotheses Associated with Research Questions 3 and 4

Prior research addressing the association between disclosure levels and corporate
characteristics has focussed primarily on companies domiciled in one country that use
domestic GAAP. For example, Cooke (1989b), Cooke (1991, 1992), and Buzby (1975)
examined Swedish, Japanese, or U.S. companies, respectively. The current research
examines a sample of companies representing many countries that claim to use IASC
GAAP. Additionally, the current research extends studies by Cairns (1999) and Street et al.
(1999) relating to noncompliance with IASs by examining factors that may be associated
with the degree of compliance with IASs.
Prior research has consistently identified company size and listing status as
positively significantly associated with level of disclosure. Cooke (1989b) concluded
that while size, as measured by total assets, sales, and number of shareholders, is an
important variable, it does not matter which of the three measures of size is selected. In
this study, the variable ASSETS is chosen to measure size, and is defined as total
assets in U.S. dollars.
To explore the questions posed by the SEC Chief Accountant, the variable listing status
(LISTING) is defined, as follows:2
.
.
.

U.S. listings: NYSE or NASDAQ listings (file form 20-F)

Companies with U.S. filings: 12g3-2(b) exempt, 144A, and OTC filings
Companies without U.S. listings or filings

The following hypotheses test the associations described above utilizing a sample of
global companies that claim to use IASs.
Ha3a:

Company size is significantly positively related to the overall level of

disclosure (including both voluntary and mandatory disclosure).

Ha4a:

Company size is significantly positively related to the degree of compliance

with IASC-required disclosures.

Ha3b:

Listing status is significantly positively related to the overall level of

disclosure (including both voluntary and mandatory disclosure).

Ha4b:

Listing status is significantly positively related to the extent of compliance

with IASC-required disclosures.

Prior research regarding the association between profitability and level of disclosure
is mixed. For example, research by Singhvi and Desai (1971), Belkaoui and Kahl
(1978), Wallace and Naser (1995), and Wallace et al. (1994) indicates a significant
association. Alternatively, Cerf (1961), McNally et al. (1982), Inchausti (1997), and
Dumontier and Raffournier (1998) provide no evidence of an association. Due to the
mixed findings from prior research, no prediction of direction of association is made in
the current study. Hence, a two-tailed test is conducted. In this research, the variable
profitability (PROFIT) is measured as the ratio of net income before tax to total
shareholder's equity.

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Ha3c:

Profitability is significantly associated with level of disclosure.

Ha4c:

Profitability is significantly associated with the extent of compliance with

IASC-required disclosures.

Prior research yields mixed results regarding the association between industry and
level of disclosure. The current research further explores the relationship between
industry and level of disclosure. The variable INDUSTRY is coded as manufacturing
or non-manufacturing.
Ha3d:

Type of industry is significantly associated with level of disclosure.

Ha4d:

Type of industry is significantly associated with the extent of compliance

with IASC-required disclosures.

The current research explores the association between compliance and/or disclosure
level and the manner in which companies refer to IASs in their accounting policies
footnote. In line with Cairns' (1999) discussion of approaches to the use of IASs and
domestic GAAP, the variable POLICY categorizes companies as follows:
.
.

Uses IASs as the primary reporting standards (i.e., makes no reference to

compliance with domestic GAAP and no exceptions are noted),
Makes reference to IAS, but not as the primary reporting standards and/or
exceptions to IAS are noted (i.e., claims financial statements prepared in
accordance with national GAAP and IAS; claims financial statements in
accordance with IAS with exceptions as noted; claims financial statements
prepared according to national GAAP and that they also comply with IAS in all
material aspects or are consistent with IAS).

Ha3e:

The manner in which companies refer to the use of IAS in the accounting
policies footnote is significantly associated with level of disclosure.

Ha4e:

The manner in which companies refer to the use of IAS in the accounting
policies footnote is significantly associated with the extent of compliance
with IASC-required disclosures.

Prior research provides some evidence that the level of disclosure may be associated
with the type of auditor. However, this variable is not considered in the current study
because, with the exception of six companies, the sample companies are audited by one of
the Big 5 + 2. However, the current research does explore the association between
compliance and/or disclosure level, and the manner in which the audit opinion addresses
(1) the type of accounting standards used by the companies and (2) the auditing standards
adhered to. The variable OPACCT categorizes companies as follows:
.
.

Audit report states financial statements in compliance with IASs.

Audit report makes reference to IASs with noted exceptions or the audit report
makes no reference to IASs.

Disclosure Level and Compliance with IASs

Ha3f:

The type of accounting standards used by the company, as stated in the audit
report, is significantly associated with level of disclosure.

Ha4f:

The type of accounting standards used by the company, as stated in the audit
report, is significantly associated with the extent of compliance with IASCrequired disclosures.

311

The variable OPAUDIT categorizes companies as follows:

.
.

Audit report states International Standards of Auditing (ISAs) were followed

Audit report makes no reference to ISAs.

Ha3g:

The audit standards adhered to, as stated in the audit report, is significantly
associated with the level of disclosure.

Ha4g:

The audit standards adhered to, as stated in the audit report, is

significantly associated with the extent of compliance with IASCrequired disclosures.

METHODOLOGY
Sample Selection
Companies claiming to comply with IASs that have U.S. listings or filings were
identified by comparing The ADR Investor (issued by the Bank of New York, 2000)
list of companies selling U.S. ADRs to the IASC's (2000) Companies Referring To
Their Use of IAS. The ADR Investor specifies listings as NYSE or NASDAQ and
filings as 144A or OTC. Additionally, 12g3-2(b) companies were identified by
comparing the SEC's (2000) list of 12g3-2b companies with the IASC's Companies
Referring To Their Use of IAS. For all IAS companies identified with U.S. listings or
filings, 1998 annual reports were obtained. Inclusion in the sample was contingent on
the accounting policies note indicating that the financial statements were in accordance with IASs or consistent with IASs and/or the audit opinion indicating the
financial statements were prepared in accordance with IASs. Companies were
excluded from the sample if they operated in the finance industry, the natural
resource industry, or a regulated industry.
A group of IAS companies that does not have listings or filings in the U.S. was
selected from the remaining companies on the IASC's Companies Referring To Their
Use of IAS. Selection was based on matching to the companies with U.S. listings or
filings based on country and to the extent possible industry.3 For all companies included
in the group without U.S. listings or filings, the accounting policies note and/or audit
opinion referred to the use of IAS as described above. A list of sample companies is
provided in Table 1.

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Table 1. Sample Companies

Company

Country

Panel A: U.S. listed companies (20-F) that claim to comply with IASs, n = 11
Aramax
Bejing Yanhua Petrochemical
Gucci Group NV
Hoechst
Jilin Chemical
New Holland
Nokia
Scania
Shanghai Petrochemical
Sulzer Medica
Usinor Sacilor-18

Jordan
China
Netherlands
Germany
China
Netherlands
Finland
Sweden
China
Switzerland
France

Panel B: U.S. filing (12g3-2(b) exempt) companies that claim to comply with IASs (n = 12)
ABB AG
BoehlerUddeholm
Dairy Farm Int'l
Holderbank Financiere Glarus AG
Jardine Matheson Holdings
Lafarge SA
Mandarin Oriental
Nestle
Novartis
Puma
Technip
Vtech Holdings 16

Switzerland
Austria
Hong Kong
Switzerland
Hong Kong
France
Hong Kong
Switzerland
Switzerland
Germany
France
Hong Kong

Panel C: U.S. filing (OTC/144A) companies that claim to comply with IASs, n = 18
AdidasSalomon
AECI Ltd.
Bayer AG
Borsod
Canal +
Esselte AB
Fotex
Henkel
Kemira
Lagardere SCA
Merck KGAA
C.P. Pokphand Co.
Renault SA
Richemont
Roche Holding AG
Toray Industries
Torkett Summer
Yizheng Chemical

Germany
South Africa
Germany
Hungary
France
Sweden
Hungary
Germany
Finland
France
Germany
Hong Kong
France
Switzerland
Switzerland
Japan
Germany
China
(continued on next page)

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313

Table 1. (Continued )
Company
Panel D: Non-U.S. listing or filing companies that claim to comply with IASs, n = 41
Algroup
Anhui Conch Cement
Ares Serono Group
Articon
BB Med Tech
Beijing Orient Electronics
Bongrain
Calida
Cementia Holding
China Motor Telecom
Christian Dalloz
Danisco
Danubius
Dyckerhoff
Essilor
Gintian
Heidelberger Druckmaschinen
Heidelberger Zement
Jardine International Motor Holding
Lectra
MB Software
Metra
Moevenpick Holding
Moulinex SA
Oriflame
Perstorp AB
Phoenix Mecano
Pliva
Saint Gobain
Schering AG
Shanghai Dajiang
Sherzhen Textile
Shijiazhuang Baoshi
Sihl
Technotrans
Tiszai Vegyi Kombinat
Trelleborg
Voest-Alpine Stahl
Weiju Fuel Injection
Zimbabwe Sun Limited
Zwach Unicum

Country
Switzerland
China
Switzerland
Germany
Switzerland
China
France
Switzerland
Switzerland
China
France
Denmark
Hungary
Germany
France
China
Germany
Germany
Hong Kong
France
Germany
Finland
Switzerland
France
Belgium
Sweden
Switzerland
Croatia
France
Germany
China
China
China
Switzerland
Germany
Hungary
Sweden
Austria
China
Africa
Hungary

In order to test Ha1 and Ha2, analysis of variance (ANOVA) was used. This procedure
tests overall group differences between U.S. listed companies, companies with U.S.
filings, and companies with no U.S. listings or filings with respect to (1) overall level of
disclosure and (2) compliance with IASs. The results of each ANOVA were then used to
determine model specifications for testing of the remaining hypotheses related to company

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characteristics. Stepwise regression was first used to determine which factors are
associated with the overall level of disclosure, with follow-up ordinary least squares
(OLS) regression based on the results of the stepwise regression. The regression equation
for the overall level of disclosure is specified as:
INDEXj b 0 b1 ASSETS b2 PROFIT D1 OPAUDIT D2 OPACCT D3 POLICY
D4 INDUSTRY D5 LISTING ej
Where:

INDEX = jth observation of disclosure index by company;

b0 =constant;
b1 =size as measured by total assets in U.S. dollars;
b2 =profit, as measured by rate of return (Net income before tax/total
stockholders' equity);
D1 = dummy variable
1 if audit opinion indicates company follows international standards
of audit,
0 if otherwise;
D2 = dummy variable
1 if audit opinion indicates company's financial statements are prepared in
accordance with international accounting standards (IASs),
0 if otherwise;
D3 = dummy variable
1 if accounting policy footnote indicates IASs are the basis for the
financial statements,
0 if otherwise;
D4 = dummy variable
1 if company is a manufacturing company,
0 otherwise;
D5 = dummy variable4
1 if company is a 20-F company,
0 if otherwise;
ej = stochastic error term;
b =parameter.

For the compliance tests, the same regression equation was estimated, with the
following change for LISTING:4
D5 = dummy variable (1 if company is a U.S.-listed or U.S. filing company, 0
if otherwise).

Dependent Variable
A checklist for IASC-required disclosures was developed for IASs 1 through 38.5 For
IASs that have been revised, but were not yet mandatory for fiscal year 1998, the

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315

disclosure list included the original disclosures and the additional disclosures included in
the recent revision of the IAS. To tap voluntary disclosures, items were added to capture
disclosures as follows:
.
.

Required by U.S. GAAP but not by IASC GAAP,

Cited in previous literature as items frequently provided by companies seeking the
benefits associated with full disclosure.

The disclosure checklist focused on items disclosed in the financial statements and
footnotes. Items disclosed elsewhere in the annual report were not considered. The only
exception was the items referred to in IAS 1 that may be disclosed in the financial
statements, footnotes, or elsewhere (i.e., dividend per share and number of employees).
Based on a review of the company's complete annual report, each disclosure item was
coded as disclosed, not disclosed, or not applicable, following Cooke (1989b):
Disclosed TD

m
X

di

i1

Where

d = 1 if the item di is disclosed;

0 if the item di is not disclosed, and
m  n (see below).

A review of the complete annual report minimized the possibility that companies
would be penalized for disclosures that were not applicable or immaterial. Failure to
adopt such an approach would have resulted in larger, more diversified companies
being more likely to disclose more information (See Buzby, 1975; Cooke, 1989b,
1991, 1992). The overall disclosure index (INDEX) for each company was calculated
by dividing the total number of mandatory and voluntary disclosures provided by the
number of applicable disclosures. Adjustments were made to the data set so that
disclosures noted in more than one IAS were not double-counted (i.e., research and
development charged to expense is required by both IAS 9 and IAS 38).
Total Applicable M

n
X

di

i1

Where

d = expected item of disclosure;

n = the number of items which the company is expected to disclose.

The disclosure index for compliance (INDEX) for each company was measured by
the number of mandatory disclosures provided divided by the number of applicable
mandatory disclosures.
INDEX

TD
M

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Table 2. Analysis of Variance on Overall Level of Disclosure and Compliance

Source

MS

Prob>F

Panel A: Overall level of disclosure, test of Ha1

Group
2
1.08033403
Error
2,037
196.61548414
Total
2,039
197.69581817

0.54016702
0.09652208

5.60

0.0038

Panel B: Compliance, test of Ha2

Group
2
Error
1,792
Total
1,794

1.15137568
0.08874783

12.97

0.0001

df

SS

2.30275136
159.03610736
161.33885871

With respect to mandatory disclosures, for those IASs that had been revised but were
not yet effective for fiscal year 1998, the number of applicable mandatory disclosures
was based on the original version of the IAS unless the company specifically indicated
early adoption of the standard. For early adoptors of recently revised or new IASs, the
expanded disclosure requirements were treated as mandatory.6,7

RESULTS
Level of Disclosure Ha1
ANOVA allows for an examination of differences between (1) the U.S. listings group (20F), (2) the U.S. filings group, and (3) the group with no U.S. listings or filings.8 The null of no
significant difference in group means is rejected (F = 5.60, p<0.004, See Panel A, Table 2).
Follow-up multiple comparisons using Duncan's Multiple Range Test of differences in
cell means indicates that the overall level of disclosure is not significantly different for
companies with U.S. filings and those companies without U.S. listings or filings.
However, at a= 0.05, the overall level of disclosure for the U.S. filings group and the
group without U.S. listings or filings combined (74.9 %) is less than the level of overall
disclosure for the U.S. listing (20-F) group (81.3 %) (See Table 3).
The results of the ANOVA indicate how to best group the data in the stepwise
regression. Hence, in the stepwise regression examining factors associated with overall
level of disclosure, listing status is coded as U.S. listed (20-F) versus not U.S. listed (U.S.
filings and no U.S. listings or filings).
Compliance Ha2
ANOVA was used to examine any differences in compliance between (1) the U.S.
listings group (20-F), (2) the U.S. filings group, and (3) the group without U.S. listings or
filings.8 The null of no significant difference is rejected at p<0.0001 (F = 12.97) (See Panel
B, Table 2). Follow-up multiple comparisons using Duncan's Multiple Range Test of
differences in cell means indicates compliance with IASC mandatory disclosures is not

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317

Table 3. Mean Disclosure Index by Group

Group

Mean disclosure index

Panel A: Overall level of disclosure

U.S. listings
No U.S. listings (includes U.S. filings and No U.S. listings of filings)

0.813
0.749

Panel B: Compliance
U.S. listings and U.S. filings
No U.S. listings or filings

0.843
0.774

significantly different for 20-F companies and companies with U.S. filings. However, at a =
0.05, compliance for the U.S. listings and filings groups combined (84.3%) is significantly
greater than compliance for the group with no U.S. listings or filings (77.4 %) (See Table 3).
Thus, in the stepwise regression that examines factors associated with the degree of
compliance with IASs, listing status is coded as U.S. listings or filings versus no U.S.
listings or filings.
Level of Disclosure Ha3
Stepwise regression (See Table 4) was utilized to determine the factors associated with
overall level of disclosure. Examination of Pearson correlation coefficients suggests no
problems associated with multicollinearity.9 Additionally, variance inflation factors (VIFs)
were run to measure ``how much the variances of the estimated regression coefficients are
inflated as compared to when the independent variables are not linearly related'' (Neter
et al., 1989). The larger the VIF, the greater the difference between the coefficient
estimated in the regression equation and the true coefficient. A VIF greater than 10
indicates a serious multicollinearity problem (Neter et al., 1989). The largest VIF noted
was for OPAUDIT at 1.516. Thus, there appears to be no serious problems with
multicollinearity in the data. Based on a significance level of 0.15, stepwise regression
selected the variables POLICY, LISTING, and OPAUDIT (See Panel A, Table 4). These
three variables were then input into an OLS regression model. The OLS regression
confirms that the best model includes the variables LISTING (Ha3b), POLICY (Ha3e),
and OPAUDIT (Ha3g) (F =14.492, p<0.0001, See Panel B, Table 4). The model explains
approximately 34 percent of the variance attributable to the independent variables. Panel
C of Table 4 shows the parameter estimates and t-statistics for the OLS model. Thus, the
null hypothesis for Ha3b, Ha3e, and Ha3g is rejected.
The results of the regression do not support a size (Ha3a), profitability (Ha3c), industry
(Ha3d), or audit opinion stating that IASs were followed (Ha3f) effect. Thus, the null
hypotheses for Ha3a, Ha3c, Ha3d, and Ha3f cannot be rejected.
Compliance Ha4
Stepwise regression (see Table 5) was utilized to determine the factors associated with
compliance. Pearson correlation coefficients suggest no problems associated with multi-

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Table 4. Regression Models Estimated Factors Associated with Overall Level of Disclosure (Tests
of Ha3)
Panel A: Stepwise regression on level of disclosure
Step
1
2
3
4
5

Variable entered
POLICY
OPACCT
LISTING
OPAUDIT

Removed

Model R2

OPACCT

0.2682
0.3149
0.3358
0.3768
0.3639

F
28.5873
5.2505
2.3875
4.9359
1.5538

Prob>F
0.0001
0.0247
0.1265
0.0293
0.2165

Panel B: Analysis of variance on stepwise model

Source
Model
Error
Total
Adjusted
R2 = 0.3388

df
3
76
79

SS
0.31197
0.54536
0.85733

MS
0.10399
0.00718

Prob>F

14.492

0.0001

Panel C: OLS regression model

Variable
INTERCEPT
LISTING
OPAUDIT
POLICY

df

Parameter
estimate

Standard
error

T for HO:
Parameter = 0

Prob>T

1
1
1
1

0.657838
0.075764
0.070530
0.072056

0.01777449
0.02957955
0.02380615
0.02350550

37.010
2.561
2.963
3.066

0.0001
0.0124
0.0041
0.0030

Model: INDEXj = b0 + b1ASSETS + b2PROFIT + D1OPAUDIT + D2OPACCT + D3POLICY + D4INDUSTRY + D5LISTING + ej.

collinearity.10 VIFs were examined as a formal test of multicollinearity. The highest VIF
was noted to be OPACCT, with a VIF of 2.27. Again, since the VIFs are not 10 or above,
we conclude that there is no significant problem with multicollinearity.
Based on a significance level of 0.15, stepwise regression selected the variables
OPACCT, LISTING, OPAUDIT, and POLICY (See Panel A, Table 5).
A second OLS regression model was run with the variables OPACCT, LISTING,
and OPAUDIT. POLICY was excluded in the reduced model as it was only marginally significant in the stepwise regression model (p<0.0704). Based on the OLS
regressions, the best model includes the variables OPACCT (Ha4f ), LISTING (Ha4b),
and OPAUDIT (Ha4g) (F = 19.461, p<0.0001, See Panel B, Table 5). This model
explains approximately 41 percent of the variance attributable to the independent
variables. Panel C of Table 5 shows the parameter estimates and t-statistics for the
OLS model. Thus, the null hypothesis of no effect for Ha4f, Ha4b, and Ha4g is
rejected. No evidence is provided for a size (Ha4a), profitability (Ha4c), industry
(Ha4d), or policy (Ha4e) effect. Thus, the null hypothesis for Ha4a, Ha4c, Ha4d, and
Ha4e cannot be rejected. A summary of the findings for Ha3aHa3g and Ha4aHa4g is
reported in Table 6.

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319

Table 5. Regression Models Estimated Factors Associated with Compliance with IASs (Tests
of Ha4)
Panel A: Stepwise regression on compliance
Step
1
2
3
4

Variable entered

Removed

OPACCT
LISTING
OPAUDIT
POLICY

Model R2
0.2955
0.3783
0.4345
0.4588

F
32.7193
10.2462
7.5533
3.3702

Prob>F
0.0001
0.0020
0.0075
0.0704

Panel B: Analysis of variance on stepwise reduced model (excludes POLICY variable)

Source
Model
Error
Total
Adjusted
R2 = 0.4121

df

SS

MS

3
76
79

0.51833
0.67472
1.19304

0.17278
0.00888

Prob>F

19.461

0.0001

Panel C: OLS regression model on reduced model

Variable
INTERCEPT
LISTING
OPAUDIT
OPACCT

df

Parameter
estimate

Standard
error

T for HO:
Parameter = 0

Prob>T

1
1
1
1

0.663141
0.078411
0.073110
0.098599

0.02223488
0.02128964
0.02660163
0.02709670

29.824
3.683
2.748
3.639

0.0001
0.0004
0.0075
0.0005

Model: INDEXj = b0 + b1ASSETS + b2PROFIT + D1OPAUDIT + D2OPACCT + D3POLICY + D4INDUSTRY + D5LISTING + ej.

DISCUSSION OF FINDINGS
For a sample of companies referring to the use of IASs, this research addresses four
primary research questions. In response to an inquiry by the SEC Chief Accountant,
research questions #1 and #2 explore the extent to which U.S. listing or filing status is
associated with the overall level of disclosure provided and the extent of compliance with
IASC-required disclosures. Research questions #3 and #4 address the factors associated
with the overall level of disclosure provided by companies and the extent of compliance
with IASC-required disclosures.
An analysis of research questions #1 and #2 provides a response to an inquiry by
the SEC Chief Accountant. The findings reveal that the overall level of disclosure
provided by companies that file Form 20-F (81%), in association with a listing on the
NYSE or NASDAQ, significantly exceeds the disclosures provided by companies
with U.S. filings or with no U.S. listings or filings (75%). This finding is in line
with previous research that consistently suggests an association between listing status
and the overall level of disclosure.
A series of protected t-tests identifies any significant differences in the overall levels of
disclosure for each IAS.11 These indicate that 20-F companies provide significantly more
disclosure (See Panel A, Table 7) with respect to IAS 9 (Research and Development Cost),

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Table 6. Summary of Findings for Factors Related to Overall Level of Disclosure and Compliance
Variable name
Panel A: Level of disclosure
ASSETS
LISTING
PROFIT
INDUSTRY
POLICY
OPACCT

OPAUDIT

Panel B: Compliance
ASSETS
LISTING
PROFIT
INDUSTRY
POLICY
OPACCT

OPAUDIT

Definition

Hypothesis

Finding

Total assets in U.S. dollars

1 if U.S. filing
0 otherwise
NI before tax/Total SE
1 if manufacturing
0 otherwise
1 if accounting policy footnote indicates
IASs are the basis for the financials
0 otherwise
1 if audit opinion indicates company's
financials are prepared in accordance
with IASs
0 otherwise
1 if audit opinion indicates company
follows international standards of audit
0 otherwise

Ha3a
Ha3b

Not supported
Supported

Ha3c
Ha3d

Not supported
Not supported

Ha3e

Supported

Ha3f

Not supported

Ha3g

Supported

Total assets in U.S. dollars

1 if U.S. listing or U.S. filing
0 otherwise
NI before tax/Total SE
1 if Manufacturing
0 otherwise
1 if accounting policy footnote indicates
IASs are the basis for the financials
0 otherwise
1 if audit opinion indicates company's
financials are prepared in accordance
with IASs
0 otherwise
1 if audit opinion indicates company
follows international standards of audit
0 otherwise

Ha4a
Ha4b

Not supported
Supported

Ha4c
Ha4d

Not supported
Not supported

Ha4e

Not supported

Ha4f

Supported

Ha4g

Supported

IAS 12 (Income Taxes), IAS 19 (Employee Benefits), IAS 33 (Earnings Per Share), and
IAS 37 (Provisions, Contingent Liabilities, and Contingent Assets).
For IAS 19, the disclosure checklist includes items required by the version effective for
1998 financial statements, items where disclosure is encouraged but not required, and the
additional disclosures required by the 1998 revision of the IAS. 20-F companies supplied
80 percent of the employee benefit disclosures while the other companies provided only
54 percent. This difference is linked to 20-F companies exhibiting higher levels of
compliance with IAS 19 (discussed in more detail under research question #2), and
voluntarily supplying some of the additional disclosures that will be required by the 1998
revision (effective for periods beginning on or after January 1, 1999). For example,
USINOR early-adopted IAS 19, thereby considerably increasing the company's overall
level of disclosure in association with IAS 19.

Disclosure Level and Compliance with IASs

321

Table 7. Mean Disclosure Index by Standard

IAS number

Subject of Standard

Panel A: Overall level of disclosure

1
Accounting policies
2
Inventories
7
Cash flow statement
8
Net profit/loss, errors, and changes in policy
9
Research and development
10
Subsequent events
12
Income taxes
13
Presentation of current assets and current liab
14(a)
Segment reporting (geographic)
14(b)
Segment reporting (line of business)
16
Property, plant, and equipment
17
Leases
18
Revenue
19
Employee benefits
20
Government grants and government assistance
21
Foreign exchange rates
22
Business combinations
23
Borrowing costs
24
Related party disclosures
25
Accounting for investments
27
Consolidated financial and inv. in subsidiaries
28
Investments in associates
29
Hyperinflationary economies
31
Interests in joint ventures
32
Financial instruments: Disclosure and presentation
33
Earnings per share
34
Interim financial reporting
35
Discontinuing operations
36
Impairment of assets
37
Provisions, contingent liabilities and assets
38
Intangible assets
Panel B: Compliance
1
Accounting policies
2
Inventories
7
Cash flow statement
8
Net profit/loss, errors, and changes in policy
9
Research and development
10
Subsequent events
12
Income taxes
13
Presentation of current assets and current liab
14(a)
Segment reporting (geographic)
14(b)
Segment reporting (line of business)
16
Property, plant, and equipment
17
Leases
18
Revenue
19
Emloyee benefits
20
Government grants and government assistance
21
Foreign exchange rates

Pr>F

0.22
0.29
0.19
1.61
4.44
2.33
6.69
0.52
0.23
0.05
2.09
0.27
1.15
9.21
1.41
0.64
0.16
0.52
0.01
1.26
2.38
0.35
4.79
2.65
0.55
8.37
0.53
0.01
0.69
7.67
0.14

0.6402
0.5931
0.6620
0.2044
0.0353*
0.1275
0.0098**
0.4697
0.6343
0.8152
0.1489
0.6010
0.2828
0.0024**
0.2351
0.4235
0.6916
0.4704
0.9047
0.2611
0.1234
0.5514
0.0287*
0.1038
0.4572
0.0038**
0.4678
0.9301
0.4065
0.0056**
0.7103

0.6825
0.8758
0.7528
5.5966
0.5669
1.1897
11.3374
2.2738
1.0641
1.8921
2.2685
12.2944
0.8792
7.2755
0.0855
0.1116

0.4089
0.3495
0.3857
0.0181*
0.4516
0.2755
0.0008***
0.1318
0.3024
0.1691
0.1322
0.0005***
0.3486
0.0071**
0.7700
0.7384

(continued on next page)

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Table 7. (Continued )
IAS number

Subject of Standard

Panel B: Compliance
22
Business combinations
23
Borrowing costs
24
Related party disclosures
25
Accounting for investments
27
Consolidated financials and Inv. in subsidiaries
28
Investments in associates
29
Hyperinflationary economies
31
Interests in joint ventures
32
Financial instruments: Disclosure and presentation
33
Earnings per share
35
Discontinuing operations
36
Impairment of assets
37
Provisions, contingent liabilities and assets
38
Intangible assets

F
0.0001
4.0513
0.0000
2.2136
0.8494
0.3590
0.0000
1.0928
3.1332
5.1078
3.1583
0.9870
0.7167
0.4797

Pr>F
0.9940
0.0443*
1.0000
0.1370
0.3569
0.5491
1.0000
0.2960
0.0769
0.0239*
0.0757
0.3206
0.3973
0.4887

* p < 0.05.
** p < 0.01.
*** p < 0.001.

Some of the significant differences in the overall level of disclosure are solely
associated with higher levels of noncompliance for companies without U.S. listings.
The disclosure checklist included only IASC-required disclosures for IASs 12 and 33.
While 20-F companies exhibit relatively high levels of compliance with IAS 12 (96%), the
level of compliance is only 74 percent for the other companies. IAS 12 Revised became
mandatory for 1998 financial statements and was not well-received by several sample
companies, particularly those without U.S. listings. For example, in the accounting
policies notes, Bongrain (French), China Motion Telecom (Chinese), Lafarge (French),
and Lectra (French), acknowledged noncompliance with IAS 12. None of these companies
have NYSE or NASDAQ listings. Additionally, for companies utilizing the liability
method required by IAS 12 Revised, several companies with U.S. filings or without U.S.
listings or filings omitted disclosures, such as:
.
.

The expiration date of deductible temporary differences,

The amount of deferred tax income/expense in respect of each type of temporary difference.

Our analysis reveals that 20-F companies provided 89 percent of the disclosures
required by IAS 9, but other companies provided only 70 percent of the IASC-required
disclosures. For IAS 33, 20-F companies provided 94 percent of the disclosures while
other companies provided only 70 percent. Examples of disclosures omitted more
frequently by companies that do not file Form 20-F include:
.

IAS 9: amount of R&D charged as expense; for those capitalizing some

development cost, the useful lives of assets used in R&D activities or the
amortization rates used;

Disclosure Level and Compliance with IASs

323

IAS 33: amounts used in the numerators and denominators for basic and diluted
EPS; a few did not disclose EPS.

IAS 37 becomes effective for periods beginning on or after July 1, 1999. Therefore, the
companies were not required to provide these disclosures in their 1998 financial
statements, but the 20-F companies voluntarily provided 82 percent of the disclosures.
For example, USINOR early-adopted the standard and provided all the required disclosures. The other companies without a U.S. listing voluntarily provided only 59 percent
of the disclosures. IAS 37 will require disclosures such as a reconciliation of the beginning
and ending balance for each class of provision and an indication of the uncertainties about
the amount and timing of cash flow associated with provisions.
The findings associated with research question #2 address noncompliance with IASs,
which is an area of great concern to the IASC, IFAC, and securities market regulators such
as the SEC. In line with Cairns (1999) and Street et al. (1999), the findings indicate that
compliance with IASs is very mixed and somewhat selective.
The findings reveal that compliance with IASC-required disclosures for companies
with U.S. listings or filings (84%) significantly exceeds the extent of compliance exhibited
by companies without U.S. listings or filings (76%). A series of protected t-tests identifies
significant differences in the compliance measures for each IAS.11 The t-tests indicate
significant differences associated with (See Panel B, Table 7):
.
.
.
.
.
.

IAS
IAS
IAS
IAS
IAS
IAS

8 (net profit or loss for the period; 84% vs. 65%),

12 (income taxes; 87% vs. 66%),
17 (leases; 82% vs. 59%),
19 (employee benefits; 77% vs. 60%),
23 (borrowing costs; 60% vs. 46%), and
33 (earnings per share; 80% vs. 66%).

While the extent of noncompliance with IASs 8, 17, 19, and 23 is more pronounced for
companies without U.S. listings or filings, it is problematic for the entire sample and is
accordingly discussed below.
As noted in the discussion of research question #1, some companies acknowledged
noncompliance with IAS 12 Revised. Three of the four (Bongrain, Lectra, and China
Motion Telecom) have no U.S. listings or filings. Additionally, for companies utilizing the
liability method required by IAS 12 Revised, companies without U.S. listings or filings
more frequently omitted disclosures such as those noted above.
As noted in the discussion of research question #1, some companies without U.S.
listings or filings did not disclose the amount used in the numerator to calculate basic and
diluted EPS or the weighted average number of shares used as the denominator in
calculating basic and diluted EPS. Additionally, some companies without U.S. listings or
filings simply did not disclose EPS.
A review of the average level of compliance with IASs for the entire sample indicates
several standards where compliance is less than 75 percent. These include:
IAS 8 (net profit or loss for the period; 75%),
IAS 14 in regard to geographic disclosures (segment reporting; 60%),

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IAS
IAS
IAS
IAS
IAS

17
19
23
29
31

Vol. 35, No. 3, 2000

(leases; 71%),
(employee benefits; 69%),
(borrowing costs; 53%),
(financial reporting in hyperinflationary economies; 56%),
(joint ventures; 57%).

While the degree of compliance with IAS 29 gives reason for concern, it is important to
note that the standard was not applicable for the majority of sample companies. Of the nine
companies for which IAS 29 is applicable, only one (a 20-F company) provided all the
required IAS disclosures.
With respect to IAS 8, several companies, particularly those without U.S. listings or
filings, failed to provide the disclosures required for a change in accounting policy that
should have been provided in association with the adoption of IAS 12 Revised. For example,
several did not provide the amount of the adjustment related to each period presented.
With respect to IAS 14, noncompliance was particularly evident with regard to
geographic disclosures. For example, several companies provided only sales data by
geographic region as required by the European Union Directives although information
contained elsewhere in the annual report strongly suggested additional disclosures such as
operating profit and assets by geographic region were warranted.
Among the companies that disclosed material amounts of assets subject to finance
leases, several failed to provide other IAS 17-required disclosures such as commitments
for minimum leases payments. In association with operating leases, some companies
reported rental expense for the period and indicated continuing commitments for several
years; however, several of these companies did not disclose the amounts of these future
commitments as required by IAS 17. Further, several companies claimed to early-adopt the
standard, but failed to provide relevant new disclosures.
A troubling number of companies with defined benefit pension plans failed to provide
all the disclosures required by IAS 19. Compliance was particularly low in regard to
disclosure of the fair value of the plan assets, the actuarial present value of the promised
benefits, and a description of the principle actuarial assumptions used in determining the
cost of retirement benefits.
With the exception of some Chinese companies, most companies utilizing the IAS 23
allowed alternative did not disclose the capitalization rate used to determine the amount of
borrowing costs eligible for capitalization. Some utilizing the allowed alternative also
failed to disclose the amount of borrowing costs capitalized for the period. A few
companies with significant amounts reported under construction in progress failed to
even disclose the accounting policy for borrowing costs.
For several companies with material interests in joint ventures, compliance with IAS
31-required disclosures is limited or nonexistent. Most, but not all, provided a list of the
significant joint ventures. However, many of the companies failed to disclose the
aggregate amounts of current assets, current liabilities, long-term assets, income, and
expenses related to these joint ventures.
The findings associated with research question #3 indicate the overall level of
disclosure is significantly associated with:
.

Listing status,

Disclosure Level and Compliance with IASs

.
.

325

The type of auditing standards adhered to as stated in the audit opinion, and
The manner in which the accounting policies footnote makes reference to the use
of IASs.

Specifically, the overall level of disclosure provided by companies with U.S. listings
(20-F companies) exceeds the overall level of disclosure provided by companies with
U.S. filings and companies with no U.S. listings or filings. Additionally, more
disclosure is associated with an accounting policies footnote stating that IASs are
the primary reporting standards used by the company and where no exceptions to the
use of IASs are noted. Alternatively, lower disclosure is associated with an accounting
policies footnote that refers to IASs in another manner. For example, the company
may note compliance with domestic GAAP and IAS, note exceptions to compliance
with IASs, or claim the financial statements are based on domestic GAAP but that
they also comply with IAS in all material aspects or are consistent with IAS. More
disclosure is also associated with an audit opinion that makes a specific reference to
the utilization of ISAs issued by IFAC. Alternatively, lower disclosure is associated
with an audit opinion that makes reference to the use of domestic auditing standards,
professional standards, generally accepted auditing standards, or principles of proper
annual account audit.
These findings are consistent with prior research that indicates a significant
association between listing status and overall level of disclosure. While prior studies
also indicate that variables including size and profitability may be associated with
overall level of disclosure, our results suggest a different scenario for companies that
refer to the use of IASs. In addition to listing status, our findings indicate that the
accounting policies footnote and the audit opinion provide a better indication of the
overall level of disclosure.
Extending prior research by Cairns (1999) and Street et al. (1999), the findings
associated with research question #4 indicate the degree of compliance with IASs is
significantly associated with:
.
.
.

Listing status,
The manner in which the audit opinion addresses the type of accounting standards
used by the company, and
The manner in which the audit opinion addresses the auditing standards adhered to.

Specifically, compliance with IASs for companies that file Form 20-F to achieve a
NYSE or NASDAQ listing or with U.S. filings exceeds compliance for those companies
with no U.S. listings or filings. Greater compliance is also associated with an audit
opinion that specifically states that the financials are prepared in accordance with IAS.
Alternatively, lower compliance is associated with an audit opinion that either makes
reference to IASs with noted exceptions or makes no reference to IASs. Greater
compliance is also associated with an audit opinion that makes a specific reference to
the utilization of ISAs as issued by IFAC. Alternatively, lower compliance is associated
with an audit opinion that makes reference to the use of domestic auditing standards,
professional standards, generally accepted auditing standards, or principles of proper
annual account audit.

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CONCLUSION
For companies that make reference to the use of IASs, this research reveals that the overall
level of disclosure is greater for companies with U.S. listings. Additionally, greater
disclosure is associated with an accounting policies footnote that specifically states the
financial statements are prepared in accordance with IASs and an audit opinion that states
that ISAs were followed when conducting the audit.
The findings also indicate that the extent of compliance with IASs is greater for
companies with U.S. listings or filings. Additionally, a higher level of compliance is
associated with an audit opinion, which states that the financial statements are in
accordance with IASs and that ISAs were followed when conducting the audit. These
findings highlight the significance of the enforcement issue for the IASC as it seeks an
IOSCO endorsement. Our findings indicate enforcement of IASs may be less of an issue
for companies with listings and filings in the U.S. However, for companies without U.S.
listings and filings, compliance is indeed of great concern. In light of this problem, the
IFAC has criticized auditors for asserting that financial statements comply with IASs when
the accounting policies and other notes show otherwise.
For companies making reference to IASs, the findings suggest that auditors have not
addressed this issue directly. Instead of insisting that companies remove any reference
to IASs unless the statements are indeed in full compliance with IASs, auditors
indirectly signal the extent of compliance via wording in the audit opinion. The
findings suggest that the financial statement user should question compliance with
IASs unless the audit opinion specifically says the statements are prepared in
accordance with IASs and the audit was conducted in accordance with ISAs. However,
this situation needs to change.
Recently, the Big 5 + 2 international accounting firms joined forces to address
accounting and auditing issues associated with globalization of business and capital
markets, chaos in financial reporting, and the Asian Financial Crisis (Blanchet, 2000). A
report by the United Nations Conference on Trade and Development noted that an analysis
of the causes of the financial crisis that affected East Asia raises serious questions about
transparency, disclosure, and the role of accounting and reporting in producing reliable and
relevant information. The UN report clearly stated that inadequate disclosure was a
contributing factor to the depth and breadth of the crisis. Additionally, the UN report stated
that the local member firms of the Big 5 were involved in auditing most of the large
corporations and banks in the East Asian countries. Many of the East Asian companies that
received a clean bill of health from their auditors proved to be ``not a going concern''
within a few months from the completion of the audit.
According to Muis (Vice President and Controller of the World Bank), the World Bank
has asked the Big 5 to make sure they do not confuse the world by associating their
international good name with financial statements prepared and/or audited far below
international standards. The World Bank argues it is in the long-term interest of the Big 5
in terms of quality brand naming, and at the same time, useful for the clarity of the less
initiated financial statement users that these problems be addressed.
In response to concerns expressed by not only the UN and World Bank, but also the
SEC, the Big 5+ 2 have agreed to address the issues of noncompliance and limited
disclosure of accounting information. Indeed, the findings of this research reveal that the

Disclosure Level and Compliance with IASs

327

problem is widespread and not limited to Asia. The Big 5 +2 plan is revolutionary as it
encompasses all countries, all companies, and all auditors (Blanchet, 2000). The plan
focuses on strengthening the accounting profession's international organizations and
further developing international accounting standards and international standards of
auditing. The goal is to prepare all financial information following a single worldwide
framework, with common measurement and fair and comprehensive disclosure, which
provides a transparent representation of the economics of transactions, and is consistently
applied. To achieve this goal, the Big 5+ 2 will continue to work towards the development
of high quality IASs, promote the IASC as the international accounting standards setter,
and work to raise auditing standards and practices in all countries to common high
standards with ISA as the benchmark.
If successfully implemented, the Big 5+ 2 plan should greatly assist in addressing
several of the problems highlighted by the current research. Our findings suggest that
raising the quality of auditing standards internationally is of the utmost importance. As
all the sample companies made reference to IASs, and most were audited by Big 5 +2
firms, it is reasonable for users to assume that at a minimum, the financial statements
provide all IASC-required disclosures. However, the findings reveal numerous troubling
instances of noncompliance particularly for companies with no U.S. listings or filings.
The findings also indicate that voluntary disclosures tend to be limited unless the
company has a U.S. listing.
With the issuance of 1999 financial statements, companies should no longer refer to the
use of IAS unless they comply with each and every IAS (via a recent revision of IAS 1).
The Big 5 + 2 must insist on compliance with IAS 1 Revised and refuse to sign clean audit
opinions unless the financials statements are indeed in total compliance with all IASs and
provide all IASC-required disclosures. The Big 5+ 2 have suggested this can be achieved
by having companies that utilize standards that are ``similar'' to IASs provide legends in
the accounting footnotes. A legend verbally describes significant differences with IAS. A
legend would replace companies stating in the accounting policies footnote that the
financial statements are ``in compliance with IAS with noted exceptions'' or ``are
consistent with IASs in all material aspects.''
Given the rapid growth in cross-border listings and U.S. holdings of foreign
securities, it is crucial that the Big 5 +2 raise audit quality to a commonly high standard
throughout the world and promote the enforcement of IASs. An IOSCO endorsement of
IASs could further stimulate cross-border listings in the world's major capital markets.
Additionally, acceptance of one set of high quality global accounting standards would
greatly enhance the understandability of financial statements for analysts and other
users. However, an IOSCO endorsement of IASs is unlikely to occur in the foreseeable
future if the limited disclosure and noncompliance with IASC-required disclosures
revealed by this research continue to be the norm. Enforcement and acceptance of IASs
on a global basis is likely contingent on the successful and timely implementation of the
Big 5 +2 vision.
Acknowledgment: The authors wish to thank Barry Moser for his guidance regarding the use of
HOLM's step-down analysis.
Editors Note: The editor invited this paper for publication in The International Journal of Accounting.

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THE INTERNATIONAL JOURNAL OF ACCOUNTING

Vol. 35, No. 3, 2000

NOTES
1.

2.

3.
4.
5.

6.
7.
8.
9.
10.
11.

In line with Cerf (1961), Buzby (1975) reported that the extent of disclosure was not
significantly associated with listing status. Buzby defined listed companies as those with
common stock traded on the NYSE or AMEX. Unlisted companies included those with stock
traded in the U.S. OTC market.
While the findings of Adhikari and Tondkar (1992) suggest that a London listing may be
associated with greater levels of disclosure, our analysis indicates that the levels of disclosure
and compliance with IASs for London-listed companies are not in line with those provided by
companies with U.S. listings or filings. Thus, companies with London listings (that do not also
have a U.S. listing or filing) are included in the group with no U.S. listings or filings, but no
further analysis is reported for these companies.
For four companies it was not possible to match on country. In these instances, the match was
selected from a country with a similar culture.
It was not known until the ANOVA results were obtained from testing Ha1 and Ha2 how to
identify the grouping for the LISTING variable for the regression equation.
IAS 11 (Construction Contracts), IAS 15 (Information Reflecting Effects of Changing Prices),
IAS 26 (Accounting and Reporting by Retirement Benefit Plans), and IAS 30 (Disclosures in
the Financial Statements of Banks and Similar Financial Institutions) were excluded as these
standards are not applicable for the sample companies. IAS 3 (Superseded by IAS 27 and 28),
IAS 5 (Superseded by IAS 1), and IAS 6 were excluded in that they have been superseded by
newer IASs.
These included IAS 1 (Presentation of Financial Statements), IAS 14 (Segment Reporting),
IAS 17 (Leases), IAS 19 (Retirement Benefits), and IAS 22 (Business Combinations).
These included IAS 35 (Discontinued Operations), IAS 36 (Impairment of Long-Lived Assets),
IAS 37 (Provisions, Contingent Liabilities, and Contingent Assets), IAS 38 (Intangible Assets).
SAS's PROC GLM procedure was used due to the unbalanced design.
A major (in excess of 0.90) correlation coefficient is generally indicative of a multicollinearity
problem. The highest correlation coefficient was 0.70, between POLICY and OPACCT.
The highest correlation coefficient was again 0.70 between POLICY and OPACCT.
SAS's PROC MULTTEST using HOLM's step-down method was used to adjust for
multiplicity in testing.

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