Narrative Reporting and adoption of IFRS

What is it about?

Research on the quality of the narrative portion of the annual report has long been hampered by a lack of tools that permit an objective analysis of qualitative disclosure. This study is the first piece of accounting disclosure quality research which proposes a comprehensive index that uses Key Performance Indicators (KPIs) to enhance understanding of the quality of narrative information disclosure in a very important transitional period of 2002 to 2007. Our results show that after the adoption of IFRS, the level of narrative disclosure compliance with the IASB’s Management Commentary Framework (MCF) is medium, ranging from 8% to 75%, averaging 53% and this shows that there is much room for improvement with respect to the financial statements.

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Why is it important?

We found out that firms in region enforced to comply with mandatory requirements (e.g. the US) do not provide greater amount of disclosure information in their reporting than firms located in regions with no demands to adhere with mandatory requirements in disclosure guidelines (eg, Western Europe and Northern Europe).

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