An Investigation of the Level of Compliance with Financial Reporting Standards (FRS 101) by Malaysian SMEs
This study aims to investigate the association between five firm-specific characteristics and the level of mandatory compliance with Financial Reporting Standards (FRS 101), which is equivalent to International Accounting Standards (IAS) 1 by Malaysian SMEs.
A disclosure index is used to measure the extent of compliance with FRS 101. Each of the 105 sampled firms' annual reports were examined against the index for the financial year ending December 31, 2013.
The results reveal an overall compliance of 96 per cent. Regression results report that only firm size and profitability have a positive and negative significant association, respectively, with FRS 101 disclosure requirements.
This study should be particularly relevant to regulatory bodies in Malaysia for strategizing and encouraging compliance with FRS 101 by non-listed firms.
Additionally, the study contributes to financial reporting literature relating to a developing country, Malaysia. Since SMEs in Malaysia contribute significantly to the economic development in the country, it is interesting to examine how they present their financial statements to interested parties and the degree of their compliance with Financial Reporting Standards as required by the relevant authorities
Abdullah M, Sulaiman N.A., Sapiei N.S. & Minhat M. (2013) Some Observations on Mandatory Disclosure Practices of Malaysian Public Listed Companies, Middle-East Journal of Scientific Research 17 (9): 1228-1236.
Alfaraih, M. ( 2009 ), " Compliance with international financial reporting standards (IFRS) and the value relevance of accounting information in emerging stock markets: evidence from Kuwait ", Doctoral dissertation, Queensland University of Technology, Queensland .
Ali, M., Ahmed, K. and Henry, D. ( 2004 ), "Disclosure compliance with national accounting standards by listed companies in South Asia ", Accounting and Business Research, Vol. 34 No. 3, pp. 183 - 199 .
Aljifri, K., Alzarouni, A., Ng, C. and Tahir, M. ( 2014 ), " The association between firm characteristics and corporate financial disclosures: evidence from UAE companies ", The International Journal of Business and Finance Research, Vol. 8 No. 2 .
Al-Mutawa, A. ( 2010 ), " Disclosure level and compliance with IFRSs: an empirical investigation of Kuwaiti companies ", International Business & Economics Research Journal, Vol. 9 No. 5, pp. 33 - 50 .
Alsaeed, K. ( 2006 ), " The association between firm-specific characteristics and disclosure: the case of Saudi Arabia ", Managerial Auditing Journal, Vol. 21 No. 5, pp. 476 - 496 .
Al-Shammari, B. ( 2011 ), " Factors influencing the extent of mandatory compliance with international financial reporting standards: the case of Kuwaiti listed companies ", Journal of International Business and Economics, Vol. 11 No. 4 .
Al-Shammari, B., Brown, P. and Tarca, A. ( 2008 ), " An investigation of compliance with international accounting standards by listed companies in the Gulf Co-operation Council Member States ", International Journal of Accounting, Vol. 43 No. 4, pp. 425 - 447 .
Bhayani, S. ( 2012 ), " Association between firm-specific characteristics and corporate disclosure: the case of India ", International Conference on Business, Economics, Management and Behavioral Sciences, Dubai, 7-8 January.
Cairns, D. ( 1997 ), " IFAC: 20 years on ", World Accounting Report, 2 October.
Coleman, D.Y. ( 2014 ), " Malaysia 2014 country review ",Country Watch , pp. 3 - 248 .
Deloitte Touche Tohmastu (2017), IFRS in Your Pocket, 16th ed., available at: www.iasplus.com/en/publications/global/ifrs-in-your-pocket/ifrs-in-your-pocket-2017 (accessed 10 August 2018 ).
Demir, V. and Bahadir, O. ( 2014 ), " An investigation of compliance with international financial reporting standards by listed companies in Turkey ", Accounting and Management Information Systems, Vol. 13 No. 1, pp. 4 - 34 .
Farrar, D. and Glauber, R. ( 1967 ), " Multicollinearity in regression analysis: a problem revisited ", Review of Economics and Statistics, Vol. 49, pp. 92 - 107 .
Galani, D., Alexandridis, A. and Stavropoulos, A. ( 2011 ), " The association between the firm characteristics and corporate mandatory disclosure the case of Greece ", International Journal of Social, Human Science and Engineering, Vol. 5 No. 5, pp. 78 - 84 .
Gallery, G., Cooper, E. and Sweeting, J. ( 2008 ), " Corporate disclosure quality: lessons from Australian companies on the impact of adopting international financial reporting standards ", Australian Accounting Review, Vol. 18 No. 3, pp. 257 - 273 .
Glaum, M. and Street, D.L. ( 2003 ), " Compliance with disclosure requirements of Germany's new market: IAS versus US GAAP ", Journal of International Financial Management & Accounting, Vol. 14 No. 1, pp. 64 - 100 .
Hassan, O.A.G., Giogioni, G. and Romilly, P. ( 2006 ), " The extent of financial disclosure and its determinates in an emerging capital markets: the case of Egypt ", International Journal Accounting, Auditing and Performance Evaluation, Vol. 3 No. 1, pp. 41 - 67 .
Healy, P. and Palepu, K. ( 2001 ), " Information asymmetry, corporate disclosure, and the capital markets: a review of the empirical disclosure literature ", Journal of Accounting and Economics, Vol. 31 Nos 1/3, pp. 405 - 440 .
International Accounting Standards Board ( 2001 ), International Accounting Standards Board: Framework for the Preparation and Presentation of Financial Statements, IASB, London .
International Monetary Fund (2018), " Report for Malaysia ", available at: www.imf.org/en/Publications/CR/Issues/2018/03/07/Malaysia-2018-Article-IV-Consultation-Press-Release-Staff-Report-and-Statement-by-the-45677 (accessed 7 August 2018).
Jensen, M.C. and Meckling, W.H. ( 1976 ), " Theory of the firm: managerial behavior, agency costs and ownership structure ", Journal of Financial Economics, Vol. 3 No. 4, pp. 305 - 360 .
Joshi, P.L. and Al-Mudhahki, J. ( 2013 ), " Empirical study of compliance with international accounting standards (IAS-1) by stock exchange listed companies in Bahrain ", Journal of Financial Management and Analysis, Vol. 14 No. 2, pp. 43 - 54 .
Judge, G.G., Griffiths, W.E., Hill, R.C., Lutkepohl, H. and Lee, T. ( 1985 ), The Theory and Practice of Econometrics, 2nd ed., John Wiley and Sons, New York, NY .
Juhmani, O.I.H. ( 2012 ), " Factors influencing the extent of corporate compliance with IFRSs.: evidence from companies listed in bahrain stock exchange ", Journal of International Business and Economics, Vol. 12 No. 2, pp. 67 - 79 .
Latifah, I.N., Asfadillah, C. and Sukmana, R. ( 2012 ), " History and development of IFRS and AAOIFI and their future challenge ", Cambridge Business & Economics Conference, Cambridge, MA, 27-28 June.
Marston, C.L. and Shrives, P.J. ( 1996 ), " A review of the development and use of explanatory models in financial disclosure studies ", paper presented at the 19th Annual European Accounting Association Congress, Oslo .
Naser, K., Al-Khatib, K. and Karbhari, Y. ( 2002 ), " Empirical evidence on the depth of corporate information disclosure in developing countries: the case of Jordan ", Advances in International Accounting, Vol. 13, pp. 99 - 118, available at: www.iasplus.com/en/standards/ias/ias1 (accessed 10 May 2015 ).
Owusu-Ansah, S. ( 1998 ), " The impact of corporate attributes on the extent of mandatory disclosure and reporting by listed companies in Zimbabwe ", The International Journal of Accounting, Vol. 33 No. 5, pp. 605 - 631 .
Patton, J. and Zelenka, I. ( 1997 ), " An empirical analysis of the determinants of the extent of disclosure in annual reports of joint stock companies in the Czech Republic ", European Accounting Review, Vol. 6 No. 4, pp. 605 - 626 .
Rahman, A. A. and Hamdan, M. D. (2017), â€˜The extent of compliance with FRS 101 standard: Malaysian evidenceâ€™, Journal of Applied Accounting Research, Vol. 18 No.1, pp. 87 â€“ 115.
SME Corp Malaysia. (2012b). SME master plan 2012-2020. Retrieved from http://www.
Street, D.L. and Bryant, S.M. ( 2000 ), " Disclosure level and compliance with IASs: a comparison of compliance with and without US listings and filings ", International Journal of Accounting, Vol. 35 No. 3, pp. 305 - 332 .
Street, D.L. and Gray, S.J. ( 2001 ), Observance of International Accounting Standards: Factors Explaining Non-Compliance by Companies Referring to the Use of IAS, ACCA Research Monograph No. 74, London .
Street, D.L., Gray, S.J. and Bryant, S.M. ( 1999 ), " Acceptance and observance of international accounting standards: an empirical study of companies claiming to comply with IASs ", International Journal of Accounting, Vol. 34 No. 1, pp. 11 - 48 .
Tai, B.Y.K., Au-Yueng, P.K., Kwok, M.G.M. and Lau, L.W.G. ( 1990 ), " Non-compliance with disclosure requirements in financial statements: the case of Hong Kong companies ", International Journal of Accounting, Vol. 25 No. 2, pp. 99 - 112 .
The Central Bank of Bahrain Rule Book ( 2013 ), available at: www.cbb.gov.bh/assets/Consultations/Vol%205_Financing%20Companies_PD_2013.pdf (accessed 10 March 2015 ).
Tower, G., Hancock, P. and Taplin, R. ( 1999 ), " A regional study of listed companies' compliance with international accounting standards ", Accounting Forum, Vol. 3 No. 1, pp. 293 - 305 .
Tsalavoutas, I. ( 2009 ), " The adoption of IFRS by Greek listed companies: financial statement effects, level of compliance and value relevance ", Doctoral dissertation, The University of Edinburgh, Edinburgh .
Wallace, R.S.O., Naser, K. and Mora, A. ( 1994 ), " The relationship between the comprehensiveness of corporate annual reports and firm characteristics in Spain ", Accounting and Business Research, Vol. 25 No. 97, pp. 41 - 53 .
Yiadom, E. and Atsunyo, W. ( 2014 ), " Compliance with international financial reporting standards by listed companies in Ghana ," International Journal of Business and Management, Vol. 9 No. 10 .
Copyright (c) 2019 Journal of Economic Info
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.