Research Insights—A Study of European Compliance with IFRS 3- and IAS 36-Required Disclosures, including Company- and Country-Level Determinants

Martin Glaum, Peter Schmidt, Donna L. Street, and Silvia Vogel | November 10, 2014 |


Martin Glaum, Schmidt, Donna L. Street, and Silvia Vogel. “Compliance with IFRS 3- and IAS 36-Required Disclosures across 17 European Countries: Company- and Country-Level Determinants.” Accounting and Business Research 43, no. 3 (2013): 163-204.


1. To what extent do leading European-listed companies comply with International Financial Reporting Standard (IFRS) disclosure requirements? Specifically, to what extent do companies comply with disclosures required by IFRS 3, Business Combinations and IAS 36, Impairment of Assets (especially goodwill impairment testing)?

 2. What are the determinants of (non-) compliance? In other words, what are the driving factors that explain the degree of compliance by European stock-listed companies with IFRS disclosure requirements? In particular, how important are company-specific factors and country-level factors?

International Financial Reporting Standards (IFRS) can only result in high-quality, transparent, and comparable financial information for investors and other users of financial statements if companies implement the standards correctly. Our research set out to determine the extent of implementation of international financial reporting standards for two particularly critical areas—business combinations (IFRS 3) and impairment of assets (IAS 36). We based our research on an assessment of business combinations and impairment testing footnote disclosures provided by 357 leading European-listed companies from 17 countries in their 2005 consolidated financial statements.

The disclosure requirements of IFRS 3 and IAS 36 are designed to provide investors and other users of financial statements with information enabling them to evaluate the nature and financial effects of the acquisitions, which often involve large sums of money. Companies not fully complying with disclosure requirements withhold potentially relevant information from the capital markets. In addition, if non-compliance is intentional, the information presented is likely to be biased.

Our research found substantial non-compliance with these mandated disclosures. More precisely, based on a checklist that includes 100 items, the mean compliance level is 73% (median: 75%). Of the 357 sample companies, only 12 provide all required disclosures. The minimum compliance level is exhibited by two companies providing only 12% of the required disclosures.

By country, the highest average compliance is displayed by Swiss companies (mean: 85%). Other countries with above-average compliance are the UK, Ireland, Denmark, Sweden, and Finland. The lowest average compliance is for Austrian (mean: 56%) and Spanish (mean: 57%) companies. Other countries with below-average results are Luxembourg, Italy, Hungary, Poland, and the Czech Republic. Compliance is noticeably lower in the financial services sector than in other industries.

Analysis of the driving factors reveals that compliance levels are determined jointly by company- and country-level variables, indicating that accounting traditions and other country-specific factors continue to play a role despite the use of common reporting standards under IFRS. At the company level, the authors identify, inter alia, the magnitude of goodwill positions, prior experience with IFRS, type of auditor (Big-4 vs. non-Big-4), the existence of audit committees, ownership structure, and being in the financial services industry as influential factors. At the country level, the strength of the enforcement system and the size of the national stock market are associated with compliance. Both factors not only directly influence compliance but also moderate and mediate some company-level factors. Finally, national culture in the form of the strength of national traditions (“conservation”) also influences compliance, in combination with company-level factors.

Our findings confirm concerns that the implementation of IFRS in Europe may be uneven, thereby impeding interpretation and comparability of financial statements. Even among leading "blue-chip" European companies, it appears that implementation of IFRS is uneven, signaling that further efforts may be necessary to effectively and consistently enforce accounting and disclosure standards across Europe.

European countries have, however, made efforts over recent years to strengthen capital market supervision and enforcement of accounting standards. Future research is needed to investigate whether these measures have been successful in improving compliance with IFRS. Knowledge on the application of IFRS could also be developed further by studies on compliance with IFRS (disclosures) in areas other than business combinations and impairment testing and in countries outside Europe.

Notes on Methodology & Research Parameters

Compliance with business combination disclosures is often lacking for cost of the combinations, purchase price allocations, i.e. classes of acquired assets, liabilities and contingent liabilities, acquisition-related pro-forma performance figures and explanations concerning the recognition of goodwill or badwill. Compliance is also problematic for impairment test disclosures. For example, several companies with goodwill do not disclose the method used to test goodwill for impairment. For companies that do report the method, in many cases required details of the tests, such as the planning period, the long-term growth rate or the discount rate, are not presented.

To ensure that the findings regarding non-compliance in 2005 do not merely reflect transitory implementation problems pertaining to the first year of IFRS application, the authors also collect data for a select group of companies for 2007. The findings for 2007 are similar to those for 2005, indicating non-compliance is not a temporary phenomenon.

The authors acknowledge that their study is subject to certain limitations. In particular, like all empirical research that deals with compliance, the assessment of companies' disclosures is based partly on subjective judgment. However, the authors stress that great care was taken to minimize errors. The analysis of the disclosures is based on a detailed and clearly labeled checklist. All of the annual reports were reviewed completely to minimize the possibility that disclosures are overlooked or that companies are penalized for non-applicable disclosures. Finally, companies are given the benefit of doubt when it is not possible to determine whether a disclosure is applicable (such items are coded as not applicable).

Research Insights is a new series that will be featured on the IFAC Global Knowledge Gateway. The series will present articles that briefly describe an academic research study, report, or project; and the significance it has for the global accounting profession.  Please contact Mario Abela, Leader – Research and Development at, to submit a Research Insight article for consideration. 


Thank you for your interest in our publications. These valuable works are the product of substantial time, effort and resources, which you acknowledge by accepting the following terms of use. You may not reproduce, store, transmit in any form or by any means, with the exception of non-commercial use (e.g., professional and personal reference and research work), translate, modify or create derivative works or adaptations based on such publications, or any part thereof, without the prior written permission of IFAC.

Our reproduction and translation policies, as well as our online permission request and inquiry system, are accessible on the Permissions Information web page.

For additional information, please read our website Terms of Use. ALL RIGHTS RESERVED.