First Name: Esther
Department Dept of Accounting and Corporate Governance
Supervisor(s): Associate Professor Elaine Evans , Associate Professor Sue Wright
Readability of Notes to the financial statements and the Adoption of IFRS
Financial reports should present clear and easily comprehensible information to investors, yet there are uncertainties regarding the impact of financial report readability after the adoption of IFRS. Therefore, this study examines the association between readability, firm performance and IFRS in Australia by assessing: (1) the impact of the adoption of IFRS on readability of Notes to the financial statements in an Australian context, and (2) the interaction effect between IFRS and firm performance on readability.
This study extends the financial report readability literature by examining the effect of adopting IFRS on readability of financial reports. It also contributes to understanding the issues associated with effective communication, and therefore, extends to the global discussion on the economic consequences of adopting IFRS.
Key literature/theoretical perspective
Li (2008) / management obfuscation hypothesis
This paper measure financial reports readability separately based on two components, namely, complexity of financial reports (Fog index), and number of words (Length).
Results show that financial reports are evidently lengthier, yet are more readable in the post-IFRS period. However, we do not observe any association between performance and readability in either pre- or post-IFRS periods. The results indicate that the management obfuscation hypothesis documented in prior U.S. studies is not evident in our Australian study.
A limitation of this study is that it was conducted in the Australian context, the results may not be generalisable insofar as an IFRS adopting country's accounting standards may contain different verbiage to Australian GAAP.
Practical and Social implications
This study is important to both preparers and users of financial reports.
Readability; Complexity and length of financial reports; Notes to the financial statement; IFRS