Proceedings of Annual Switzerland Business Research Conference
12 - 13 October 2015, Novotel Geneva Centre, Geneva, Switzerland
ISBN: 978-1-922069-86-3
International Accounting Standards 1 (IAS 1) and Compliance
of Listed Manufacturing Companies in Ghana
John Kwaku Mensah Mawutor, Thelma A. Frimpong-Mensah, Adam Majeed
Abdul and Patience D.A. Korsorku
The aim of this study is to ascertain the extent to which listed manufacturing companies in
Ghana comply with International Accounting Standards, with particular reference to IAS 1,
Presentation of Financial Statements. The level of mandatory compliance with IAS 1 was
measured using a mandatory disclosure index (MDI) adopted by the researchers from
KPMG compliance checklist. A structured interview guide was also used to gather data for
the study. The tools of analysis were E-view and Excel. The sample consisted of ten listed
manufacturing firms. Data used were obtained from the published financial statements of
the sampled companies and covers five accounting periods, 2009 to 2013. The study
revealed that there is a low degree of compliance with the requirements of IAS1 amongst
manufacturing firms listed on the Ghanaian stock exchange. The study further revealed
that Leverage is the major determinant of compliance with Accounting Standards amongst
listed manufacturing firms. Also, the study reveals the existence of a rigorous monitoring
and enforcement mechanism; however, the researchers consider the inconsistency
between the IFRS and the Companies Act and Regulation to be reflective in the low
compliance levels with IAS 1 amongst Listed Manufacturing Companies in Ghana.
Keywords: Compliance, IFRS, MDI, Analysis, Leverage, Stock Exchange,
Measurement
JEL Codes: F34, G21 and G24
1. Introduction
The mandatory requirement of all listed companies on the various Stock Exchange
Markets across the globe to prepare and present financial report at the end of each fiscal
period has necessitated the need for adequate disclosure. In this regard, these companies
are required to prepare their various financial reports in consonance with generally
accepted accounting practices and standards in the jurisdiction within which they operate.
These standards are guidelines or rules issued by accounting bodies to govern accounting
practices and how to prepare accounts in countries under their jurisdiction (Wood, 2002).
The requirements and standards are clearly defined by International Accounting
Standards (IAS) and International Financial Reporting Standards (IFRS). These standards
are issued by International Accounting Standards Board (IASB) with the main objective of
_______________________________________________________________________
Dr. John Kwaku Mensah Mawutor, School of Graduate Studies (SOGS), University of Professional Studies,
Accra. Ghana, P.O.Box LG 149, Legon: Tel: 233243287242, Email: john.mensah@upsamail.edu.gh/
kwaku2mensah@gmail.com
Mrs. Thelma A. Frimpong-Mensah, SMC University, Switzerland, Email: thelma2mensah@gmail.com
Tel:233243723828
Mr. Adam Majeed Abdul, SM University (SMU), Ghana, Email: jeedada26@yahoo.com
Ms. Patience D.A. Korsorku, University of Professional Studies, Accra (UPSA), Email:
patkorsork@gmail.com, P.O.Box 149, Legon, Accra
Proceedings of Annual Switzerland Business Research Conference
12 - 13 October 2015, Novotel Geneva Centre, Geneva, Switzerland
ISBN: 978-1-922069-86-3
increasing comparability and transparency in financial reports produced by companies
regardless of their country of origin (Choi, Forst, & Meek, 2002). In view of the numerous
advantages associated with the adoption of these standards, most countries and firms
voluntarily adopted these standards however; IFRS was adopted in Ghana in 1999 by a
directive from the Institute of Chartered Accountants, Ghana (ICAG) leading to the
withdrawal of Ghana Accounting Standards (GAS) which was by then in existence.
Among these standards is IAS 1. Captioned as ‘Presentation of Financial Statements’, it
provides the basis and guidelines for the preparation and presentation of financial
statements. According to IFRS (2014), IAS 1 comprises of records such as the Balance
Sheet, Trading Profit and Loss Account, Statement of Changes in Equity, Cash Flow
Statement, and Notes to the accounts. These statements after the revision of IAS 1
became Statement of Financial Position, Statement of Comprehensive Income, and
Statement of Changes in Equity, Statement of Cash Flows and Notes. The objective of
IAS 1 (2007) is to prescribe the basis for presentation of general purpose financial
statements, to ensure comparability both with the entity's financial statements of previous
periods and with the financial statements of other entities. IAS 1 sets out the overall
requirements for the presentation of financial statements, guidelines for their structure and
minimum requirements for their content however, reports and findings of a number of
organizations such as the International Federation of Accountants (IFAC) has revealed a
gap between claiming to have adopted the IAS and the actual level of compliance by the
companies in question. Evidence of non-compliance with IAS by companies claiming to
have adopted them was found by Street and Gray (2001). This was attributed to the lack
of inadequacy of comprehensive IAS compliance mechanisms in the country. This study
sought to serve as a baseline check for IAS 1 compliance in listed manufacturing
companies in Ghana with the aim of assessing the extent of compliance with the
disclosure requirement of IAS 1 by these companies.
2. Literature Review
The two main competing theories in accounting regulation are the public interest theory
model and the private interest model. The assumption of the public interest model is that,
regulations are meant for the public but the private interest model is of the view that
regulations primarily results in assistance of the profession. According to Taylor and
Turley (1986), accounting regulation is a mandatory call for information that the preparer
of such information would not have voluntarily provided. Mitnick (1980), however provides
a broader definition for a regulation when he stresses that it is the intentional restriction of
a subject’s choice of activity, by a party not directly party to or involved in the activity. From
a more narrow perspective regulation is defined within the scope of accounting as ‘the
imposition of constraints on the preparation, content and form of external financial reports
by bodies other than the preparers of the reports or the organisations and individuals for
which the reports are prepared’ Taylor & Turley (1986). The regulation theory argument is
made along the lines of public and private interest. Whereas the former perceives
regulations as a method for improving societal welfare, the private interest theories are
directed toward the wealth maximization of certain individual interest groups. There have
been some deviations from public interest effects with respect to regulations. These
deviations are captured in three explanations by Mitnick (1980). He argues first and
foremost that this is due to the fact that the regulators have become venal, secondarily he
points out that regulators have become incompetent and lastly he opines that the
regulators become captured by regulated interest groups. He further observes that the
Proceedings of Annual Switzerland Business Research Conference
12 - 13 October 2015, Novotel Geneva Centre, Geneva, Switzerland
ISBN: 978-1-922069-86-3
public interest is invariably accompanied by legislative and judicial decision making in the
regulatory area. Due to this many scholars are thus inclined towards the private interest
theory arguing that they offer better explanation tools for regulations. Regulations are
recognized as a mechanism for conferring benefits on politically effective groups Peirson
& Ramsay (1983). The private interest theory has therefore been applied by accountants.
Burkley (1980), asserts that the accounting profession uses a rule making apparatus to
enhance the price of its products through the process of restricting supply.
Conceptual Framework.
The conceptual framework sets out the concepts and theories that underline the core
objective of the research. It takes into perspective, the relevance of each reviewed theory
as it applies to the work. A conceptual framework is a statement of generally accepted
theoretical principles that serve as a reference point for an authoritative work.
Regulation according to Taylor and Yurley (1986) is the mandatory call for information that
the preparer of such information would not have voluntarily provided. Mitnick (1980)
defines regulation to be the intentional restriction of a subject’s choice of activity, by a
party not directly party to or involved in the activity. From the above definitions from these
authorities, regulation is perceived to be a force and authority that compels entities or
subjects to voluntarily comply with certain requirements. These authorities gain their power
from the laws that establish them. In Ghana listed firms are expected to comply with the
regulations and laws of the Ghana Stock Exchange on which they are listed. With
reference to the theory under review, information that are disclosed by these firms form
the mandatory call from the GSE for them to disclose those information that they would
not have voluntarily disclosed. Although the private regulation theory is preferable to the
public regulation theory, this work is more inclined towards the public regulation theory
because of the wide array of stakeholders and users of the information disclosed by these
listed firms.
The legitimacy theory is based on the assumption that socially, a contract exists between
the society and the business organisations which exist within the society. In this social
contract, the society which is also seen to have rights permits the organisation to exist
within its confines. The society in return requires that the companies act according to the
status quo established for it by the society. For the organisations to thrive and survive in
the society, it should comply with the deeds considered to be legitimate and legal. Only
then shall the organisation have the legitimacy to legally exist in the society. Stakeholders
and users of information by listed firms in Ghana form the society within the context of this
work. These stakeholders decide per the level of compliance and disclosure by the firms
whether or not to patronise their products and services.
Cognitive and Social learning theory is hinged strongly on the moral consideration that
firms give to the need to disclose information and comply to set standards. Most firms
would comply or not comply based on their morale background and past learning
experience. A manager who has been penalized in the past for non-compliance is more
likely to comply in the next extreme case as compared to one who has not been penalised
before. Again managers of these listed firms who have their moral conduct and integrity at
heart would be quick to compel and ensure that the company complies with the standards
under which they operate. This theory is relevant as it informs the decision of the research
team in selecting some independent variables in measuring the determinants of
compliance like the auditor firm size.
Proceedings of Annual Switzerland Business Research Conference
12 - 13 October 2015, Novotel Geneva Centre, Geneva, Switzerland
ISBN: 978-1-922069-86-3
Instrumental theory under the sociology theory assumes that individuals are willing to
comply to set standards the degree to which they perceive those standards serve their
personal interests. Owing to this theory, firms are more likely to comply if they perceive
that possible benefits would accrue to the compliance. The normative theory however is of
the view that compliance is strictly based on what the individuals consider as just and
morally right rather than what is in their self-interest. For this matter compliance by listed
firms would be based on the fact that they perceive compliance to be legally and morally
right and not purely because they stand the chance of getting some benefits from it.
Application of IAS 1
As to which entities are obligated to comply with IAS 1, IAS 1.2 states that it applies to all
general purpose financial statements prepared based on International Financial Reporting
Standards.
IAS 1.16 categorically states that financial statements shall not be described as complying
with IFRSs unless they comply with all the requirements of IFRSs (including
Interpretations).
An entity in compliance to IFRSs is required to present a complete set of financial
statements as stated by IAS 1.10 with components as follows:
• a statement of financial position (balance sheet) at the end of the period
• a statement of comprehensive income for the period (or an income statement and a
statement of comprehensive income
• a statement of changes in equity for the period
• a statement of cash flows for the period
• notes, comprising a summary of accounting policies and other explanatory notes
However, an entity is permitted to use titles other than stipulated by IAS 1.10 above.
3. The Methodology and Model
Research Design
This research is predominantly descriptive and exploratory in nature. It employed
quantitative techniques as the variable measurement concept in checking for the level of
compliance as a relationship with other variables. Panel data was used as the level of
compliance by the listed manufacturing firms over a five year period from 2009 - 2013.
Throughout the research, secondary data basically sourced from the Ghana Stock
Exchange (GSE) was employed. During the research however, where it was expedient to
solicit for primary data, this was done through small interviews platforms and structured
questionnaires.
Population and Sample size of the Study
The main population of interest for this study was, manufacturing companies listed on the
Ghana Stock Exchange. The manufacturing companies were chosen because, it was
easier to compare data from firms in the same line of operation and this is so because
they are expected to present similar information in their financial reports. This to a large
extent aided in the comparability and inference of logical analysis of data, hence achieving
an accurate result. As at the time of the study, a number of fourteen (14) manufacturing
Proceedings of Annual Switzerland Business Research Conference
12 - 13 October 2015, Novotel Geneva Centre, Geneva, Switzerland
ISBN: 978-1-922069-86-3
firms were listed on the Ghana stock exchange. The target population for the research
was all the fourteen manufacturing firms in the GSE. Out of this total number of listed
manufacturing firms a number of ten (10) was to be selected by a purposive sampling
approach. Purposive sampling was utilized because it afforded the researchers the
opportunity to use their judgment in selecting manufacturing firms that best helped in
meeting the objective of the research. Purposive sampling was more suitable for the study
(Neuman, 2000) due to the small nature of the population.
Model Specification
Available research suggests that some factors are very likely to determine the level of
compliance by listed firms. These factors vary from different literature from different
researchers. Some of these factors are adopted in the specification of the model given
below:
Level of compliance = β0+ β (Determinants of Compliance) + β (Control Variables) + ԑ
Where:
β0 = constant term
β = coefficient term
ԑ = error term
Model: COMP = α + β1 SIZE + β2 LEVERAGE + β3 PROFITABILITY + β4 LIQUIDITY + ԑ
Compliance Index and checklist
The level of mandatory compliance with IAS1 was measured using a mandatory
disclosure index (MDI). A comprehensive MDI is viewed as a reliable measurement device
for corporate compliance (Marston & Shrives, 1991) and is consistent with previous
studies by (Street & Bryant 2000; Street & Gray, 2001; Glaum & Street, 2003). The index
summarises the disclosure requirement of IAS1 into a composite figure ranging from zero
(0) to one (1), which is used in determining the level of compliance of each manufacturing
firm.
The disadvantage with the disclosure index methodology is that some of the information
may not be applicable to the firms. Following the work by Owusu-Ansah & Yeoh (2005), a
relative score is computed for each firm. This relative score is the ratio of what the firm
has actually disclosed and the minimum disclosure requirement in the annual report of
these firms under the IAS. The relative score of each firm is considered as it MDI which
was derived using the formula below:
njt
∑ Xijt
MDIjt = i=1
njt
Where:
xijt
= number of mandated information items applicable to the sample company
j,that it actually disclosed in the year t,
njt
= the number of mandated information items applicable to sample company j,
which are expected to be disclosed by j in the year t. Manufacturing
companies were not penalized for not disclosing an item if it deemed obvious
by the researcher that the item does not apply to that company.
In order to ascertain the level of mandatory compliance with IAS 1, an adopted
compliance checklist by KPMG was obtained. The checklist contains the disclosure
requirement of IAS 1 which is constructively spelt out in a full volume of IAS 2009 and as
published by the International Accounting Standards Board (IASB). Whereas in previous
studies, (Street and Bryant, 2000), (Glaum and Street 2003) it was necessary to validate
Proceedings of Annual Switzerland Business Research Conference
12 - 13 October 2015, Novotel Geneva Centre, Geneva, Switzerland
ISBN: 978-1-922069-86-3
the checklist by an auditor’s opinion, the researchers were not obliged to do so because
whiles previous studies had their checklist to be self-constructed, this checklist was valid
and authentic as it was prepared by one of the big five audit firms in the world KPMG. The
individual components of the disclosure were given equal weight in the index consistent
with previous (Street and Gray 2001). Equal weights were given because of the following
reasons
• Equal weights weight avoids subjection and judgemental ratings that can arise with
unequal weighting. (Wallace, Naser, & Mora, 1994), (Owusu-Ansah & Yeoh, 2005)
• Using equal weight is deal because user preferences are unknown and different users
across the world are very likely to assign different weight to similar items.
• Prior studies have argued that the results of equal weighting procedure tend to be
similar to those of other weighting systems. (Prencipe, 2004).
Data analysis techniques
To assess the level of compliance with International Accounting Standards 1 by listed
manufacturing companies listed on the Ghana Stock Exchange, a self-structured
compliance checklist was developed by the researchers using the mandatory minimum
disclosure requirement under IAS 1 spelt out in the summarized edition of IAS 2013 which
have been outlined in the Theoretical Literature Review above. The self-structured
checklist was given to an experienced auditor to crisscross the comprehensiveness and
applicability to IAS 1. For our analysis, data was imputed into E-Views and Microsoft Excel
which processed the raw data that was collected.
Initially, the level of compliance with IAS 1 by each company was measured using a
disclosure index to obtain a relative score, which is the ratio of what it disclosed in its
annual report to what is expected of it to disclose under IAS 1. Secondly, the overall level
of compliance of manufacturing companies in Ghana was obtained by finding the average
compliance level by each of the ten manufacturing company sampled. The relationship
between the dependent and independent variables was determined through regression
analysis. To achieve the rest of the objectives, tables and narratives was presented and
analyzed.
Correlation Matrix
The strength and relationship among the independent variables was tested with a
correlation matrix shown below in table...
Table 4.1 Correlation Matrix
Sample: 2009 2013
Included observations: 50
Correlation
Probability
COMP
COMP
1.000000
-----
LEVG
LEVG
0.309844
0.0285
1.000000
-----
LIQD
0.087775 -0.408554
0.5444
0.0032
LIQD
1.000000
-----
PRFT
SIZE
Proceedings of Annual Switzerland Business Research Conference
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ISBN: 978-1-922069-86-3
PRFT
-0.000804 -0.299565
0.9956
0.0346
SIZE
-0.072968
0.6146
0.166341 1.000000
0.2483
-----
0.239695 -0.117920 -0.137840 1.000000
0.0936
0.4147
0.0000
-----
P-Value (Significant at 5%)
Table 4.3 above indicates the correlation matrix conducted for the variables used in
the study. From the table, there is a significant positive relationship between the level of
compliance (COMP) and leverage (LEVG) with a correlation of 0.309844 (P = 0.0285 <
0.05) indicating that the higher the leverage of the company, the higher the level of
compliance. In the same vein, liquidity is positively related to the level of compliance but at
an insignificant level of 0.087775 (P = 0.5444 > 0.05) supposing that the higher the
liquidity of the frim, the higher the level of compliance and vice versa. However, liquidity is
inversely related to leverage at a significant level of (P = 0.0032 < 0.05) with the
correlation of -0.408554. This indicates that as the companies are able to pay their short
term obligation they are less geared.
Profitability is negatively related to compliance and leverage with the correlation of 0.000804 (P = 0.9956 > 0.05) and -0.299565 (P = 0.0346 < 0.05). Whereas its relationship
with compliance is insignificant, its association with leverage is fairly significant.
Similarly size is negatively related to compliance insignificantly at a correlated value
of -0.072968 (P = 0.6146 > 0.05). At an insignificant level, size is positively related to
leverage with a correlation of 0.239695 (P = 0.0938 > 0.05). The essence of this
relationship is that as the company increases in size through either sales or total assets,
the leverage of the company increases as well. The relationship however that size has
with liquidity is inverse at an insignificant level of (P = 0.4147 > 0.05) with a correlation of 0.117920. This relationship is realistic in practicality since large firms may have difficulty in
paying off their short term obligation as they fall due. Size however has a very high
significant negative relationship with profitability with the correlation of -0.137840 (P =
0.0000 < 0.05). This suggests that, the larger the size of the firm, the less profitable the
company becomes.
The potential threat of multicolinearity was non-existent among the variables as
there are no high values with significance among them. The highest value is between
liquidity and leverage which has a significant correlation of 0.408554. This is relatively low
and as such gives no threat of a potential multicolinearity issue.
8.2 Regression Analysis
Regression analysis was used in measuring the level of effect and relationship between
the independent and dependent variables. In order to determine the extent to which the
independent variables determines the overall level of compliance, the following equation
was used as earlier explained in the chapter 3 of this work:
COMP = α + β1 SIZE + β2 LEVERAGE + β3 PROFITABILITY + β4 LIQUIDITY + ԑ
Because there were no issues with multicolinearity, this model was maintained. The
table below summarises the effect and association that exists between the dependent and
independent variables.
Dependent Variable: COMP
Method: Panel Least Squares
Proceedings of Annual Switzerland Business Research Conference
12 - 13 October 2015, Novotel Geneva Centre, Geneva, Switzerland
ISBN: 978-1-922069-86-3
Date: 05/10/15 Time: 13:12
Sample: 2009 2013
Periods included: 5
Cross-sections included: 10
Total panel (balanced) observations: 50
Coefficien
t Std. Error t-Statistic
Prob.
C
LEVG
LIQD
PRFT
SIZE
0.779777
0.008519
0.006620
-0.012154
0.008884
0.0000
0.0050
0.0347
0.6897
0.0026
R-squared
Adjusted Rsquared
S.E. of regression
Sum squared resid
Log likelihood
F-statistic
Prob(F-statistic)
0.380175
Variable
0.037957
0.004536
0.006076
0.030245
0.005997
20.54381
1.878090
1.089562
-0.401849
1.481296
0.325079
0.039992
0.071970
92.64138
6.900278
0.000202
COMP is the dependent variable.
The results of the Panel Least Square (PLS) regression in the above table show that
statistically, the results are supported by the significance of the study. This is due to the
fact that, the F-statistics was 6.900278 (P= 0.000202 < 0.05). This is significant because
the lower the P value, the more significant the role of the beta in the model and vice versa.
Also the F-statistics again is an indication that the equation is significant in determining the
relationship between the level of compliance and the independent variables. From the
table, the R-squared was 0.380175 indicating that 38.01% of variations in the dependent
variable (COMP) is explained by the variations in the independent variables. Thus 38.01%
of the variations in the level of compliance is explained by the model.
9.1.1 Testing the Hypothesis
Hypothesis 1- The level of compliance and leverage
H0: There is no relationship between the leverage of the firm and the level of the
compliance
H1: There is a relationship between the leverage of the frim and the level of
compliance
Chow and Wong-Boren (1987) and Ahmed and Nicholls 91994) found no significant
relationship between leverage and the level of compliance within the Bangladesh and
Mexico perspectives. Belkaoui and Khal (1994) concluded on a significant negative
relationship between the two variables. In this study, there is a contradiction to this prior
studies above because, leverage had a beta of 0.008519 (P = 0.0050<0.05). Therefore
the current studies found a significant positive relationship between the leverage of the
firm and its level of compliance. The null hypothesis was rejected and the alternate
hypothesis was accepted. This findings agree with that of (Al-Shimimiri, 2003) who
Proceedings of Annual Switzerland Business Research Conference
12 - 13 October 2015, Novotel Geneva Centre, Geneva, Switzerland
ISBN: 978-1-922069-86-3
asserted that because companies with high leverage have relatively less equity, they in
turn have fewer shareholders who greatly demand information to assess the profitability of
their company.
H2: The level of compliance and liquidity
H1: There is no relationship between liquidity of the firm and the level of compliance
H0: There is a relationship between liquidity of the firm and the level of compliance
Few studies have considered the association between liquidity and the level of
compliance. This study however included liquidity as an independent variable that may or
may not have an association with the level of compliance. At a beta of 0.006620 (P =
0.0347 < 0.05), from the table, liquidity was found to have a positive association with the
level of compliance following the fact that, the null hypothesis was rejected at the benefit
of the alternate hypothesis. This findings has been supported by (Naser, Al-Khatib, &
Karbhari 2002) who concluded that because higher liquidity ratios is an indicator of good
management performance companies with higher profitability ratios disclosed more
information in their study. The findings of Belkanoui and Khal (1978) also stress on the
current findings of this work.
H3: The level of compliance and profitability
H0: There is no relationship between the profitability of the frim and the level of
compliance
H1: There is a relationship between the profitability of the firm and the level of
compliance
Form the regression table above, the variable profitability has a negative beta of 0.012154 (P = 0.6897 > 0.05). At the P value greater than the significant level, the null
hypothesis is accepted whereas the alternate hypothesis is rejected. This findings
suggests that profitability does not in any way affect the degree to which a firm complies or
does not comply with the standards. This findings with respect to prior studies, disagrees
with Singhvi and Desai (1971), Belkanoui and Khal (1978) and Wallace and Naser (1995)
it however supports the findings of Street and Bryant (2000), Cerf (1961) and Dumontier
and Raffournier (1998). The rationality behind this findings is that most firms which have
high or low profits have those profits and the extent of their compliance level has got
nothing to do with their profit levels. This assertion is however not in support of the
assertions of Belkanoui and Khal (1978) who explained the reason behind the association
he found between profitability and compliance level. He asserted that smaller firms are
risk and competition averse and so do not disclose information in compliance to these
standards.
H4: The level of compliance and size of the firm
H0: There is no relationship between the size of the firm and the level of compliance
H1: There is a relationship between the size of the firm and the level of compliance
There have been a lot of studies that have found a significant positive relationship
between size and the level of compliance. Cooke (1991), Chow and Wong-Boren (1987).
However, Street & Bryant (2000) found a negative association between the two variables.
From this studies, the independent variable size, had a beta of 0.008884 (P = 0.0026 <
0.05). This is an indication of a significant P value of the variable. Therefore the null
Proceedings of Annual Switzerland Business Research Conference
12 - 13 October 2015, Novotel Geneva Centre, Geneva, Switzerland
ISBN: 978-1-922069-86-3
hypothesis is rejected and the alternate hypothesis is accepted. Hence, there is an
association between the size of the firm and its level of compliance. Although this findings
disagrees with Street and Bryant (2000) and Spero (1979) who found no association,
between firm size and level of compliance, it supports the findings of Cooke (1991) and
Chow & Wong-Boren (1987) who found a positive association between these variables.
The association is a positive relationship signifying that, the higher the firm size, the higher
the level of compliance and vice versa. This is supported by the findings of Dumontier and
Raffournier (1998).
4. The findings
This study found that the level of compliance among the sample companies although
encouraging was relatively low. A compliance level of 89% can be said to be low because,
the regulatory bodies expect a 100% level of compliance. The trend of compliance among
these firms are over the five year under review in this study never rose above 90%. This
finding disagrees with Street and Bryant (2000) who concluded that the overall level of
compliance for sample companies was equal to or less than 75%. The researchers
attribute the low level of compliance to a possible complacency on the part of the
companies and relent on the part of the regulatory bodies. This is thus asserted because
although the regulatory bodies demand a full compliance level from these companies, little
has been done to ensure this.
Again, the study found that, all the factors that were examined for an association with the
level of compliance with the exception of profitability had a significant relationship with the
overall level of compliance. Leverage had a positive association with the level of
compliance. This emphasises the conclusions drawn by (Al-Shimimiri, 2003). The positive
relationship could be identified with the fact that because these companies are geared,
they see it as a mandate to open up their information for public scrutiny. Liquidity also had
a positive relationship with the level of compliance signifying that probably companies who
are able to fulfil their short term obligation in a bid to communicate this to stakeholders
end up complying with regulatory requirements. (Naser, Al-Khatib, & Karbhari 2002) also
found a positive relationship between liquidity and the level of compliance. The studies
further found that there was no relationship between profitability and the level of
compliance. This suggests that because some companies have good profitability ratios,
they may not be bordered to disclose information to the general public. The size of the firm
in the like manner, had a positive relationship with the level of compliance. This finding
agrees with that of Dumontier and Raffournier (1998) but disagrees with Street & Bryant
(2000) who found a negative association between size and the level of compliance.
It was also discovered during the interview that Ghana Stock Exchange (GSE), Institute of
Chartered Accountants Ghana (ICAG) and Securities and Exchange Commission (SEC)
enforce and monitor compliance with respect to IAS1 by listed manufacturing companies
in Ghana. With respect to ICAG, it is done through the auditing firms. Out of the above
three regulatory bodies, two of which were interviewed and they were ICAG and GSE.
Both bodies played significant roles in enforcing and monitoring compliance. The role of
GSE is to ensure that, the financial statements of listed companies are critically audited
before they are finally submitted to them by the auditing committee whilst ICAG ensures
that all listed entities comply with IFRS in their financial statements preparation, the
auditors licensed by ICAG ensures that financial statement prepared by listed entities
Proceedings of Annual Switzerland Business Research Conference
12 - 13 October 2015, Novotel Geneva Centre, Geneva, Switzerland
ISBN: 978-1-922069-86-3
comply with IFRS and lastly, organizes CPDs on IFRS for accountants to build upon their
capacity. The systems employed by both bodies for enforcing and monitoring compliance
are the auditing process or techniques and the examination of the financial statements.
There is no problem faced by the two entities in enforcing and monitoring compliance of
IAS 1 on the listed manufacturing companies.
The acceptable level of compliance is a one hundred percentage (100%) compliance,
which means a total compliance by listed manufacturing companies is expected by GSE
and ICAG. Where total compliance does not exist, it might be due to the fact that, there is
a conflict between companies codes of the company and the disclosure requirements of
IAS1 or inconsistency between the Companies Act 1963 (some items may be treated
inconsistently to IAS which may result in below hundred percent level of compliance).
Failure to comply might also be attributed to the year that the company has fully adopted
the standard (IAS1). If situations stated above arise, it should be disclosed in the notes to
the account (that is, the accountant stating reasons why the company did not comply with
the disclosure requirement. Qualification of financial statements by the auditors is the
punishment meant for non-compliance by listed manufacturing companies.
5. Summary and Conclusions
On the average, manufacturing companies have an average level of compliance between
85% and 90%. However, ICAG asserts that, 100% compliance is what is acceptable. This
therefore implies low level of compliance amongst listed manufacturing firms.
Notwithstanding, ICAG further explains that due to some inconsistency between the
Companies Act 1963, some items may be treated inconsistently to IAS requirement which
may result in a level of compliance below hundred percent.
To monitor compliance, Ghana Stock Exchange cross-checks financial statements
prepared by listed companies before publication unto the Market. Where it is justified, a
company’s financial statement may be accepted for publication and vice versa.
This study shows that with the exception of profitability, liquidity, leverage and firm size
have influence on compliance but the level of influence is insignificant. It can therefore be
concluded that, there might be some other factors that infer significance on these factors
tested in this study to have a relationship with level of compliance.
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