Empirical Study of Compliance with International Accounting Standards (Ias-1) by Stock Exchange Listed Companies in Bahrain

Introduction Since, 1973, the International Accounting Standards Committee (IASC) has issued 39 definite accounting standards in an attempt towards achieving international harmonization of accounting standards. However, in certain quarters, mixed opinions are expressed that IASC's standards are far from acceptance (Schweikart, et al.,1). Evidence is provided showing that there continues to be significant differences in the accounting standards of different countries (Zarezski1) and compliance to IASC standards has been low. For example, the reports prepared by the seven largest accounting firms in a survey (which spanned 53 countries) reveals that national accounting rules are significantly different from each other's treatment of global accounting standards and they differ greatly from country to country (AIA, 2001). On the other hand, a few empirical studies have found an increased compliance to IASC standards. Street and Bryant2 found that the overall disclosure was greater for companies with U.S. listings and claiming to comply with IASC standards. Likewise, many countries have endorsed IASs as their own, either without amendment or else with minor addition or deletions. Furthermore, important developments have taken place in the last two years in the European Union, Austria, Belgium, France, Germany, Italy, and Spain have passed laws allowing certain companies to use IASC's standards for domestic reporting purposes, subject to certain conditions. Accounting standards issued by IASC set forth the minimum disclosure guidelines, which companies are obligated to follow. However, IASC, and International Federation of Accountants (IFAC) have been very much concerned that certain companies claiming, to comply with IASs, may not, in fact, be complying with all the requirements of IASs. Prior research by Cairns3, Street et al.4 and Saleem5 support the concerns of IASC and IFAC by providing evidence that the degree of compliance by companies claiming to comply with IASs is very mixed and somewhat selective. These claims and evidence motivated the researchers to examine the degree of compliance to IAS-1 by companies in Bahrain. Since companies in Bahrain have been claiming to follow IASC's standards, the present study was undertaken to investigate the extent to which the disclosure requirements of International Accounting Standard (IAS-1) are complied with by the companies listed with Bahrain Stock Exchange (BSE), in respect of ten disclosure items. Prelude The International Organization for Securities Commissions (IOSCO), the IASC, the World Bank, the International Federation of Stock Exchanges (ISSE) and Tetley6 believe that the adoption of IASs is appropriate for developing countries. The most often cited reasons were: improving their level of accounting, reducing the setup cost and production costs of their accounting standards, and joining the international harmonization drive (see, Wyatt7; Samuels and Piper8). In addition, a country also adopts IASs to attract inward investment. Furthermore, Nobes and Parkar9, Roussey10 posit that globalization of capital markets have increased interest in the harmonization needs of investors. There is also widespread support for the IASC's harmonization efforts as it is believed that it facilitates development of the world equity market and promotes economic growth (see, El-- Gazzar, et al.11; Larsen and Kenny12; Cooper and Lybrand13). Some evidence is available on the adoption of International Accounting Standards in selected countries, for example, Dumontier and Raffournier14 for Switzerland, Murphy15 for Switzerland, Leuz and Verrechia 16 for Germany, EL-Gazzar, et al.11 for the world, Ucieda17 for Spain, and Maria and Ana for Europe. A limited number of studies were attempted in the Arabian Gulf countries on the applications of IAS. Al-Bastaki18 and Joshi and Al-Bastaki19 found that certain listed companies were complying with the IAS. These studies found that size, auditors' reputation, percentage of foreign sales, levels of foreign activity, listing, and profitability were the main determinants for the compliance with IASs. …