Using Big Four improves disclosure quality

by Richard Crump

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18 Jan 2013

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Big Four

COMPANIES THAT have a Big Four auditor are likely to provide better quality disclosures in financial statements prepared under IFRS, independent research has found.

Research from Cass Business School also found that high-quality financial reporting practices are more likely to be observed by companies operating in countries with stronger regulatory regimes.

According to the study, there is "considerable variation" across European countries in compliance with some impairment disclosure requirements, suggesting uneven application of IFRS.

Peter Pope, author of the report and director of the Centre for Financial Analysis and Reporting Research at Cass, said the research suggests the need for more effective accounting oversight.

"There is considerable scope for improvement in the application of IFRS by some European-listed companies. Until such improvements occur, the economic benefits claimed for harmonised financial reporting in this region and beyond may well remain elusive," said Pope.

The report, which looked at the financial statements of 4,474 listed companies from the EU and Switzerland, also raised concerns about the use of boilerplate language to alleviate the burden of compliance.

"The pressure on senior finance executives to support compliance with IFRS is not always prioritised as it should be," the report said. "While use of boilerplate language may be a means to fast-track the meeting of reporting requirements in the short-term, disclosures should be reviewed regularly and on a timely basis. Failure to do so can expose companies to risk which can have implications on future reporting periods and, in a worst case scenario, could impact company reputation if restatements are subsequently required."

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