Abstract
Disclosure of financial information is the life blood of an informed market. The traditionally poor level of operating expense (OX) disclosure in New Zealand (NZ) annual financial reports suggests that this information need is not being adequately met. Prior literature suggests that the move from NZ based Financial Reporting Standards 9 (FRS 9) to International Financial Reporting Standard IAS 1 (IFRS IAS 1) will lead to an increase in disclosure of mandated and discretionary OX items. The present study investigates this belief through an analysis of NZ companies’ annual reports before and after the adoption of IFRS. The results show that all mandatory disclosure requirements, such as auditor and directors fees, are disclosed. A higher number of discretionary OX disclosures are found for companies reporting under IAS 1 in comparison to FRS 9. Despite these improvements, many companies still appear to take a minimalist approach when reporting discretionary OX items. The study also investigates factors that may help to understand the potential incentives or strategic decisions related to the early adoption of IFRS by NZ companies. Findings show that, in general, early adopters are larger and more often recognise goodwill than other firms. Furthermore, a slight positive relationship between Big-4 auditor and early adoption is identified and any industry-specific incentive to adoption of IFRS is found to be insignificant. The findings have implications for accounting regulators, companies and investors. Specifically, the study provides a benchmark level of OX disclosure and presents evidence that compliance is high when an item is mandated. For discretionary items it is shown that specifically identified components of OX produce higher levels of disclosure.