DOI: 10.5176/2010-4804_2.4.245
Authors: A. Devalle, F. Rizzato
Abstract:
The paper presents the results of an empirical analysis on the quality of the mandatory disclosure of IFRS 3 – business combinations and IAS 36 – impairment of assets. The analysis focuses, in particular, on the determinants that influence the quality of disclosure. The aim of the paper is to verify the determinants that impact on the quality of disclosure on recognition, measurement and impairment of goodwill. The analysis was carried out on Italian listed groups belonging to the main stock exchange index (FTSE/MIB40); the groups listed on FTSE/MIB40 represent 80{6e6090cdd558c53a8bc18225ef4499fead9160abd3419ad4f137e902b483c465} of the total market capitalization of Italian listed companies as stated by the Italian Stock Exchange. The international financial crisis has lead many companies to acquire other groups or to merge together and therefore to recognize impairment losses on goodwill or to verify twice (or more) a year whether impairment losses were generated. In this context disclosure plays a key role for investors. IFRS 3 outlines the accounting when an acquirer obtains control of a business (e.g. an acquisition or merger) and groups have to disclose a great deal of information as for example. the the acquisition and the date it was acquired, the percentage of voting equity interests acquired, the primary reasons for the business combination and a description of how the acquirer obtained control of the acquire, a qualitative description of the factors that make up the goodwill recognized, such as expected synergies from combining operations of the acquiree and the acquirer, intangible assets that do not qualify for separate recognition or other factors, etc. There is a total number of forty key items in the IFRS 3 disclosure. IAS 36 defines that companies shall disclose, among others, the carrying amount of goodwill allocated to the cash generating unit (CGU), the basis on which the unit’s recoverable amount has been determined, the discount rate applied to the cash flow projections, etc.
We analysed a total number of eight key pieces of information with reference to IAS 36.are eight. Many studies have been conducted on the quality of voluntary disclosure and the results show that the disclosure index is very low. Thus, our paper aims at verifying if, first of all, the mandatory disclosure is shown in the notes of the consolidated financial statement with reference to IFRS 3 and IAS 36 by using the Dscore according to Cooke [1]. Secondly, the aim of the paper is to analyze the determinants that influence the quality of the Dscore by means of multiple regression models. We defined the Dscore as an independent variable and several dependent variables (as Revenues, total assets, etc.) according to previous studies. Results show that not all the groups disclosed the items required by the international accounting standards examined. Furthermore, Leverage, Revenues, Market Values and ROS are the main determinants that influence the quality of disclosure.
Keywords: Determinants, IFRS 3, IAS 36, quality of disclosure
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