Compliance with IFRS 3 and IAS 12 Across Listed Companies in Denmark & England: An Investigation of the Factors that Influence Compliance Levels with Required Disclosures of IAS/IFRS

Mahmoud Abdallah Wehbe & Qasim Rashid

Student thesis: Master thesis


In this thesis, we investigate compliance across listed companies in Denmark and England mandatorily applying International Financial Reporting Standards (IFRS). Our emphasis is on disclosures required by IFRS 3 ‘Business Combinations’ and International Accounting Standard 12 ‘Income taxes’. First, we account for the latest rules of the accounting treatment of business combinations and income taxes as described in IFRS 3 and IAS 12. The performance of a business combination as well as income taxes involves significant accounting estimates and can be challenging for preparers. By performing a descriptive statistical analysis, we achieve substantial understanding regarding the characteristics of the listed companies in Denmark and England associated with compliance required by IFRS 3 and IAS 12. The ‘manufacturing’ industry represents the highest compliance level of 86% and 77% respectively with IFRS 3 and IAS 12. The absolute lowest compliance level is disclosed by the industry ‘financial’ with 70% of compliance with IAS 12. The audit company KPMG achieves the highest level of compliance of 87% and 79% respectively with IFRS 3 and IAS 12. Meanwhile Deloitte achieves the lowest level of compliance at 80% with IFRS 3 and 72% with IAS 12. Furthermore, we find no relationship between companies that achieves high level of compliance with IFRS 3 compared to IAS 12. Finally, we identify a positive association between company size and compliance with IAS 12, while no remarkable relation identifies with IFRS 3. This can supposedly be explained by the complexity of IFRS 3. We investigate the factors that influence the compliance levels with IFRS 3 and IAS 12 by performing and OLS regression analysis. As a result, company-specific factors continue to play a significant role in explaining compliance. Our findings indicate that a selection of these factors continue to influence the level of compliance despite the use of the worldwide accounting convergence based on IFRS. At the company level regarding compliance of IFRS 3, we identify the importance of the issuance of equity shares or bonds in the reporting period or in the subsequent period and ownership structure as influential factors. At the company level regarding compliance of IAS 12, we identify the importance of being cross-listed in the USA, the size of a company and being audited by KPMG as influential factors. At the country level, none of the studied variables (the degree of enforcement, the size and activity level of national stock markets, dimension of national culture) has a significant influence on compliance of IFRS 3 or IAS 12. Conclusively, the result can most likely be explained by the fact that the country variables are perfectly correlated with each other and thereby under the influence of multicollinearity. This is allegedly caused by the fact that the study involves around two countries.

EducationsMSc in Auditing, (Graduate Programme) Final Thesis
Publication date2016
Number of pages157