First time adoption of IFRS disclosure by european companies of different activity sectors and legal systems

Abstract

Brazil initiated a transition period after the Law 11.638/07 with the adoption of international accounting standards issued by International Accounting Standards Board (IASB). The observation of the experiences of countries that made that adoption can predict the expected reporting quality of Brazilian companies. This study then intends to investigate the disclosure level in financial statements of companies with different legal systems and activities that had made IFRS first time adoption. A sample composed of selected companies from the industries of construction and food that had made first time adoption on London and Madrid stock exchanges were analyzed. Three hypotheses were examined. The first was that the disclosure is not complete. We found through a Content Analysis of notes using a checklist that there are companies that fail to disclose required information. It was also observed, trough a qualitative analysis, that companies are not totally compliant with IFRS 1 requirements. The second hypothesis was that the disclosure is similar in different sectors, which was confirmed by Mann-Whitney U tests performed from disclosure data of the companies. The third hypothesis, that the disclosure is similar in different legal systems, was not verified, basically because of earlier disclosure requirements of adjustments made to previous GAAP of Madrid listed companies that did not occur in companies in the London stock exchange. This result also reveals that disclosure can be different in first time adoption due to differences in previous GAAP.