FRS36 and post‐transition compliance quality among Singapore firms

Abstract

Purpose -The purpose of this paper is to contemplate the degree to which Singaporean firms comply with the highly technical disclosure requirements required under International Accounting Standards (IAS) IAS 36 specific to goodwill impairment testing. Design/methodology/approach -The adoption of IAS in Singapore from 1 July 2004 introduced a highly technical standard (financial reporting standards -FRS 36) which has challenged many preparers. While it is generally accepted that accounting compliance may be suboptimal in transition periods as preparers accommodate change, it is assumed compliance quality improves with the passage of time. This study examines compliance of the largest 168 Singaporean goodwill-intensive firms over a three year period, 2005-2007, to interrogate compliance quality post-transition. Findings -The paper reports distinctly poor compliance systemically over the three years across many facets of goodwill impairment testing disclosures including cash-generating unit (CGU) definition and goodwill allocation, and key input variables used in estimating CGU recoverable amounts. Practical implications -The results raise questions about the quality of accounting information among goodwill-intensive firms in Singapore and the robustness of regulatory oversight institutions operating within Singapore. Originality/value -The paper illustrates a novel approach to examining the issue of accounting quality under IFRS by examining compliance quality through large sample time-series analysis focusing on note-form disclosures.

IFRS Disclosure Compliance in Malaysia: Insights from a Small‐sample Analytical Study

“…Carlin et al. () examine the application of the intent of requirements for firms to annually apply complex impairment tests to assess and disclose the erosion in value of goodwill. In the event of impairment, the income statement is charged with the computed impairment loss to highlight the performance of poorly performing business units.…”

“…As outlined in Figure , Carlin et al. () present the test for impairment in IAS 36 as a process wherein the recoverable amount of the relevant cash‐generating units (CGUs) is calculated on the basis of the higher of fair value less costs or to sell and the value in use compared to the carrying amount. The CGU impairment testing process is technically complex, resulting in the need for firms to make detailed supporting disclosures regarding the nature of the annual impairment testing undertaken to fulfil the requirements of the standard.…”

“…‘The second layer of the methodology looks beyond the distribution of disclosures into the basic comply and non‐comply categories and recognises that within the “comply” category an additional element of the methodology requires the construction of multi‐category disclosure quality taxonomies which provide a more nuanced perspective on disclosure practice’ (Carlin et al. : 226). This additional level of analysis investigates the extent to which firms provide the information required to enable users ‘to fully comprehend how goodwill is distributed across a business, where it is concentrated, and what types of underlying business activities it is principally associated with’ (Carlin et al.…”

“…The eight standards have been selected because they are known to be relevant to the firms (Carlin et al. ; Akhtaruddin and Haron ), thereby providing some level of confidence that all surveyed companies should have items to disclose. We have further reduced potential bias by devising a classification and scoring system influenced by Cooke (), Tower et al.…”

“…Drawing on Carlin et al. (), we also recognise additional sub‐categories of compliance/non‐compliance. Accordingly, our research approach enables us to drill down into annual report data to provide explanations and analysis of compliance/non‐compliance on a standard‐by‐standard, ownership, industry and auditor basis.…”