Journal of Law and Financial Management - Volume 7 (2) December 2008
IFRS Adoption and Organisational Change - Evidence from Malaysia
By NurHidayah Laili
The adoption of IFRS in Malaysia has not changed all aspects of financial accounting and reporting. However, in regards to goodwill, the new accounting treatment represents one of the biggest challenges to Malaysian reporting entities as no such standard existed pre-IFRS adoption. The new standard requires more rigorous techniques and disclosure of goodwill impairment testing and significantly expanded disclosure requirements. The purpose of this paper is to examine the extent to which organisational responses to the new reporting regime may have changed over time. This is done by analysing the quality and technical accuracy of the goodwill disclosures reported by these organisations together with an assessment of evidence of variation. The sample consists of 249 listed firms listed on Bursa Malaysia that disclosed the existence of goodwill in each of the first two years of Malaysia’s new financial reporting regime. This examination of the response of firms to the new reporting regime provides significant insights for firms, auditors, financial analysts and regulators.
Operational Risk - Opportunities for Accounting Research
By Patrick J McConnell
In January 2008, the so-called Basel II regulations came into force for banks in the major industrial economies. Developed over many years, these new regulations are, at the highest level, designed to improve risk management in individual financial institutions and across the industry, through a regulatory regime based on minimum capital requirements. While the main thrust of Basel II focuses on Credit Risk, the concept of ‘Operational Risk Capital’ was introduced, requiring banks to retain specific capital to cover operational losses. Much debate has taken place in the industry as to how this new capital requirement should be calculated but, during these deliberations, accounting perspectives on control and reporting have rarely been to the fore. Since Operational Risk Capital must be reported to shareholders and the public from 2008, this is a deficiency that should be remedied. This paper first describes Basel II and the specific requirements for Operational Risk Capital. It then discusses some of the practical issues of implementation, highlighting areas where an accounting perspective could add value before, finally, identifying potential areas where useful research could be undertaken.
A Case-Based Analysis of Impairment Decision-Making
By Nigel Finch
The adoption of IFRS based reporting in Australia for all reporting periods commencing 1 January 2005 onwards resulted in substantial variations to prior accepted reporting practices. One area in which change was particularly profound was in the shift to an impairment testing based regime for goodwill accounting and reporting. The IFRS framework requires substantially greater levels of disclosure about the assumptions brought to bear in sustaining a valuation for goodwill. At face value, this should have resulted in improved transparency and the availability of higher levels of decision useful information. However, a review of disclosures relating to goodwill and its impairment by a sample of large Australian reporting entities in the first year after the transition to IFRS suggests substantial room for improvement. In particular, required disclosures were frequently omitted, or suggested that the technical requirements of the IFRS goodwill impairment testing process had not been complied with. Consequently, it is concluded that at present, it is in exceptional cases rather than a matter of generality that IFRS compliant disclosures sustain improved insights and support better decision making by financial statement users.