New Zealand Operating Expense Disclosure: The Impact of International Financial Reporting Standards on Early Adopters

Abstract

Purpose – This purpose of this paper is to examine compliance with operating expense disclosure provisions contained in New Zealand approved accounting standards before and after the move to New Zealand Equivalents to International Financial Reporting Standards (NZ IFRS). Prior research [Lont 2002] showed poor disclosure practices and we seek to determine if this has improved under international accounting standards for those who choose to adopt NZ IFRS prior to mandatory adoption.

Design/methodology/approach – We use an empirical archival approach. While our sample size of early adopters is small, it does provide us with the unique ability to control for any temporal effects on disclosure practices.

Findings – We find full compliance with operating expenses that are mandated such as depreciation, directors and auditor fees under both NZ Financial Reporting Standards (NZ FRS) and NZ IFRS. However, unspecified operating expense disclosures are still poor for those using NZ FRS. We also find a substantial improvement in unspecified disclosure levels for those companies using the New Zealand Equivalent to International Accounting Standard 1 (NZ IAS 1). However, our results also show areas of concern, for example, 14% of listed companies using NZ IAS 1 did not disclose any unspecified expense items and 27% of listed companies disclosed only one item.

Practical Implications – Our results should be of relevance to preparers, analysts and regulators. Our preliminary results were provided to the New Zealand Securities Commission which led it to issuing a statement expressing concern with such behaviour.

Originality/value – Adequate disclosure is considered a crucial element to help ensure efficient capital markets. The paper provides empirical insights into operating expense disclosure based on the requirements and wording contained within NZ FRS and NZ IFRS.