New Zealand operating expense disclosure: The impact of international financial reporting standards on early adopters

Abstract

Purpose

The purpose of this paper is to examine compliance with operating expense disclosure provisions contained in New Zealand approved accounting standards before and after the move to New Zealand equivalents to international financial reporting standards (NZ IFRS). Prior research showed poor disclosure practices and the paper seeks to determine if this has improved under international accounting standards for those who choose to adopt NZ IFRS prior to mandatory adoption.

Design/methodology/approach

An empirical archival approach is used. While the sample size of early adopters is small, it does provide the unique ability to control for any temporal effects on disclosure practices.

Findings

Full compliance with operating expenses that are mandated such as depreciation, directors and auditor fees under both NZ financial reporting standards (NZ FRS) and NZ IFRS was found. However, unspecified operating expense disclosures are still poor for those using NZ FRS. A substantial improvement was found in unspecified disclosure levels for those companies using the New Zealand equivalent to international accounting standard 1 (NZ IAS 1). However, the results also show areas of concern, for example, 14 per cent of listed companies using NZ IAS 1 did not disclose any unspecified expense items and 27 per cent of listed companies disclosed only one item.

Practical implications

The results should be of relevance to preparers, analysts and regulators. The preliminary results were provided to the New Zealand Securities Commission. After its own analysis, it issued a statement expressing concern with the high level of unexplained expenses in financial statements.

Originality/value

Adequate disclosure is considered a crucial element to help ensure efficient capital markets. The paper provides empirical insights into operating expense disclosure based on the requirements and wording contained within NZ FRS and NZ IFRS.

Citation

Balshaw, V. and Lont, D. (2010), "New Zealand operating expense disclosure: The impact of international financial reporting standards on early adopters", Pacific Accounting Review, Vol. 22 No. 2, pp. 108-123. https://doi.org/10.1108/01140581011074502