Disclosure Requirements in IAS 36 Paragraph 134. A Study of Company Characteristics Explaining Swedish Companies' Compliance with Disclosure Requirements on Goodwill Impairment Testing

Type of thesis: Degree Project in Business Administration for Master of Science in Business and Economics, 30.0 credits University: University of Gothenburg, School of economics, business and law Semester: Spring 2013 Authors: Lyubov Fallström and Oksana Henriksson Tutor: Andreas Hagberg Title: Disclosure requirements in IAS 36 paragraph 134 – A study of company characteristics explaining Swedish companies’ degree of compliance with disclosure requirements on goodwill impairment testing Background and Discussion: The adoption of the IFRS by Swedish companies was an arduous task which required a lot of resources and time. The regulations that the IFRS contain are more complex and require more extensive disclosures than Swedish companies are used to. It can be a difficult task for companies to comply with IAS 36 disclosure requirements and at the same time not to disclose too much of a company’s specific information. The importance of disclosure should not be underestimated, as more disclosures lead to lower cost of capital. Recent studies show that disclosures about goodwill impairment testing provided by companies are too general and not sufficient to enable users of financial statements to assess the reliability of goodwill impairment testing. Research Question: The research question of this thesis is to what extent company characteristics may explain the degree of compliance with disclosure requirements in paragraph 134 of IAS 36. In order to measure the degree of compliance, the examination of goodwill impairment accounting practices has been conducted. Methodology: The research question has been addressed using an empirical approach with an emphasis on note-form disclosures in the 2011 and 2011/2012 consolidated financial statements of Swedish firms listed on NASDAQ OMX Stockholm. This study has examined relationships between company-specific, institutional and goodwill-related company characteristics and degree of compliance with disclosure requirements in paragraph 134 of IAS 36 with the help of multiple regression analysis. The degree of compliance in this study is measured by a self-constructed index. Results and conclusions: The study has shown that a combination of examined company characteristics explain only about 9 % of the degree of compliance with disclosure requirements in paragraph 134 of IAS 36. Regarding company-specific characteristics, this study has indicated that company size has a significant impact of the degree of compliance with disclosure requirements as larger companies seem to have a higher degree of compliance. No significant relationships between company performance and degree of compliance as well as between financial needs and degree of compliance have been found in this study. The study has further indicated that degree of compliance with disclosure requirements regarding goodwill impairment tests varies across industries and auditor firms. Finally, the results of this study show that goodwill-related characteristics do not seem to have a significant impact on the degree of compliance with disclosure requirements, as no significant relationships between the degree of compliance and the amount of goodwill on the balance sheet of the company and the degree of compliance and the goodwill impairment rate were found.