The impact of IAS 36 on the quality of financial statements for UK companies: A multi-dimensional analysis of impairment of assets

This doctoral thesis explores the influence of International Accounting Standard 36 (IAS 36) on the quality of financial statements for UK companies. The study focuses on the impairment of assets, aiming to understand the factors affecting impairment timeliness, the role of audit industry specialisation, and the extent of compliance with disclosure requirements.

The research is divided into three empirical chapters, each employing distinct methodologies to address the research objectives. The first empirical chapter explores timeliness of impairments through studying the association between conservatism, measured by C_Score, and various firm characteristics, such as return on assets (ROA), non-operating accruals (NOAcc), business investment cycle, volatility, corporate governance, firm’s age, and credit rating.

The second empirical chapter employs a modified Basu's model of conservatism to test the relationship between audit industry specialisation and impairment timeliness, using negative news signals as predictors. The third empirical chapter utilizes content analysis to examine the level of compliance with IAS 36 disclosure requirements and identifies potential areas of improvement in the disclosure practices of UK companies. Through rigorous analyses, this research contributes to the understanding of the factors influencing impairment timeliness and the compliance level of UK companies with IAS 36 requirements. The findings shed light on the role of audit industry specialisation in shaping financial reporting quality and provide insights into the impact of conservatism on accounting practices.

The study uncovers that the implementation of IAS 36 has led to improvements in financial reporting quality, particularly in the impairment recognition and disclosure processes. The research also highlights the importance of audit industry specialisation in influencing impairment timeliness and the relevance of negative news signals, such as stock returns, sales changes, and operating cash flow changes, as predictors of impairment.

Moreover, the content analysis reveals variations in the level of compliance with IAS 36 disclosure requirements across different industries and years, emphasizing the need for enhanced transparency and consistency in financial reporting practices. The findings of this thesis contribute to the ongoing debate surrounding the impact of IAS 36 on financial reporting quality. The insights gained from this study can aid regulators, standard setters, and companies in enhancing financial reporting practices and ensuring the reliability and transparency of financial statements.

Overall, this research advances the understanding of impairment of assets in the context of UK companies, providing valuable contributions to the fields of accounting and financial reporting. The implications of this study extend to researchers, practitioners, and policymakers seeking to improve the quality and effectiveness of financial reporting practices in an evolving global financial landscape.