Assessing Financial Reporting Quality of Listed Companies in Developing Countries: Evidence from Ghana

Abstract

The adoption of International Financial Reporting Standards (IFRS) in Ghana is expected to improve the quality of financial reporting among companies in Ghana. This paper assesses the extent to which financial reports of companies listed on the Ghana Stock Exchange (GSE) meet financial reporting quality (FRQ) dimensions of IFRS. It was a descriptive study that employed two experienced professional chartered accountants who practice as independent auditors to use FRQ criteria to assess financial reports of 20 purposively selected companies listed on GSE for 2012 and 2013. Given the high inter-rater reliability (r = .96, 95% C.I., p < .0001), the findings indicate that, overall, FRQ of the listed companies meet FRQ standards by 56.48%. Generally, the financial reports were 60.95% faithfully represented, 51.01% relevant, 50.10% understandable, 40.09% comparable and 19.75% timely audited (or 80.25% untimely). Fundamental FRQ characteristics were more prevalent than enhancing FRQ. Poorly rated FRQ areas were in the use of historical cost as measurement basis, no use of graphs and tables to clarify information, no inclusion of comprehensive glossary, ratios and index, no information on adjustment in past accounting figures for future decisions, and no comparison of current and previous accounting periods and with those of other firms. The study concludes that FRQ of the listed companies is moderate but needs considerable improvement. Implications to theory, practitioners, policy makers and industry regulators are discussed. This study fills the dearth of empirical research in FRQ in IFRS-compliance companies in Sub-Saharan Africa in general and Ghana in particular.

Assessment of Financial Reporting Quality in a Developing Country Using Nice Qualitative Characteristics Measurement

“…The study findings in table 3 imply that the financial reporting quality of Zambian listed companies can be described as average or moderate and these results are consistent with the findings from Mbawuni (2019) in Ghana. Contrary to Chen et al, (2010); Osasere and Ilaboya (2018); Mensah (2021) who found significant improvement in FRQ following IFRS adoption, the year to year mean results show no significant increase (1.1%) in the financial reporting quality over the period under review (2012 to 2018).…”

“…Listed companies mostly made no disclosures concerning the "comply or explain" application in the annual report(F5) and provided mostly no information concerning bonuses of the board of directors in the annual report(F7). Further, companies provided no glossary in the annual reports(U4) consistent with the findings by Mbawuni, (2019) in Ghana.…”

“…In line with Mbawuni (2019), the descriptors used for percentage of FRQ are as follows:  0% to 39.9 very poor,  40% to 49.99 poor,  50 to 59.99 average,  60 to 69.99 good,  70 to 79.99 very good,  80 to 89.99 excellent, and  90% to 100% outstanding. Descriptive statistics were employed in the present study and STATA 13.1 was used as a statistical package to analyse that data.…”

“…Initially the FRQ measurement tool contained 21-items but was later updated to 33-items as given in appendix A. Prior studies such as Yurisandi and Puspitasari (2015); Osasere and Ilaboya (2018); Mbawuni (2019) have employed the same financial reporting quality measurement tool. Yurisandi and Puspitasari, (2015) and Mbawuni, (2019) used the 21-items and Osasere and Ilaboya, (2018) used 33-items.…”

“…This study contributes the extant developing literature using a single country on the understanding of conceptually-based financial reporting quality assessment by empirically testing the linkages between multiple measures of financial reporting quality and the underlying qualitative characteristics of the decision usefulness of information (Beest and Braam, 2013;Yurisandi and Puspitasari, 2015;Osasere and Ilaboya, 2018;Mbawuni, 2019).…”