Compliance with IFRS 3 and IAS 12 Disclosure Requirements: An Empirical Analysis of Listed Companies in Denmark and England

Emrah Neziri

Student thesis: Master thesis


In this thesis, I examine compliance with disclosures required by IFRS 3 Business Combinations and IAS 12 Income Taxes, for a sample of Danish and English listed firms mandatorily applying international reporting standards. First, I account for IASB’s Framework and the current rules of business combinations and income taxes, as set out in IFRS 3 and IAS 12, indicating that these areas of accounting can be complex. Furthermore, a description of the principal-agent theory is introduced, with the purpose of illustrating the conflict of interest, that may arise between the management and the shareholders, which eventually leads to non-compliance. Next, I review the literature addressing studies on the determinants of disclosure level and compliance, and the effects of national institutions on financial reporting. Previous studies indicate that compliance levels are determined jointly by company- and country level variables, providing a total number of 13 control variables in this analysis. I subsequently describe the empirical model, methodology and explain the chosen variables and their expected influences on the basis of the literature review. The empirical analysis is based on a descriptive statistical analysis and a regression analysis. Based on the descriptive statistics, the average level of disclosure is 83% for IFRS 3 and 75% for IAS 12. For both reporting standards, companies audited by Deloitte and belonging to the financials or consumer service industry represent the lowest disclosure levels. On the other hand, companies audited by KPMG and belonging to the manufacturing industry typically represents the highest disclosure levels. Finally, a regression analysis is undertaken with the purpose of investigating the companyand country level determinants influencing the disclosure level. I find significant correlation between company specific determinants and the disclosure level. For IFRS 3, the disclosure level is influenced significantly and positively by the issuance of equity shares or bonds in the reporting period. Furthermore, I find a significant and negative influence by a great number of audit committee meetings during the reporting period, and a negative influence by a dominant ownership structure. For IAS 12, the disclosure level is influenced significantly and positively by having shares listed on the American market and being audited by KPMG. Against expectations based on previous literature, I find a negative correlation with the size of the firms. Furthermore, a negative correlation is found between the financial industry and the disclosure level. Finally, country specific variables have no influence on the level of compliance for both reporting standards, mainly due to their high mutual correlation. The results indicate that company-specific determinants continue to play a role in explaining compliance with international reporting standards. Overholdelse af oplysningskravene i IFRS 3 o

EducationsMSc in Auditing, (Graduate Programme) Final Thesis
Publication date2016
Number of pages133