Compliance with IFRS 7 by financial institutions: evidence from GCC

Abstract

The purpose of this paper is to address the essential steps for constructing a compliance index. It answers the research question: 'What are the guidelines for constructing the compliance index with IFRS 7?' To conduct this study, an index is constructed based on the disclosure requirements of financial instruments (i.e. IFRS 7). The sample includes listed banks from the GCC countries that adopted IFRS mandatorily from 2011 to 2017. Further, a descriptive analysis is employed. The findings emphasise the significant role of the steps outlined in constructing the index. Despite the importance of all the steps mentioned (basic source, materiality, reliability, validity, and scoring), there are some forms that can be considered as alternatives for each other. Overall, clarifying these steps for constructing an index will no doubt increase the effectiveness of the tool used for measuring the compliance level. Consequently, future researchers can concentrate more on other types of requirement, such as measurement and presentation. They may also include non-financial sectors and give more attention to the other scoring methods mentioned in the study.The study contributes to the IASB by supporting their efforts towards improving disclosure, especially in mandatory cases. It also supports all initiatives and efforts of policy makers, government institutions, and formal associations. The study presents illustrative steps to establish an index under the basic requirements (narrative study). Moreover, it provides a new index to measure cross-country compliance with IFRS 7.

Does Governance Affect Compliance with IFRS 7?

“…This index can be self-constructed or developed based on different sources, such as previous studies or trusted entities such as the indices used in Big Four auditing companies. Since this study measures the degree of compliance with the disclosure requirements of IFRS 7 for all listed GCC banks, we use the self-constructed index of Yamani and Hussainey (2021) which built based on the standard requirements, and it consists of 76 disclosure items. These items include the latest updates of the standard in 2010 and became effective mandatorily in 2011.…”

IFRS compliance in GCC countries: Do corporate governance mechanisms make a difference?

“…The significant progress toward the convergence of accounting standards was with EU's decision that made the use of IFRS mandatory for the purpose of preparing consolidated financial statements starting from January 2005. The appropriate implementation of the disclosure requirements of IFRS is the most important challenge of achieving the desired accounting harmonization around the world (Yamani and Hussainey, 2021).…”

The impact of financial instruments disclosures on the cost of equity capital

“…As a result, this index can be either self-constructed or adopted from the previous study. We used a recently developed disclosure index by Yamani and Hussainey (2021) for measuring the levels of IFRS 7 compliance for our sample. The index consists of 76 disclosure items (Appendix 1).…”