The extent of compliance with FRS 101 standard: Malaysian evidence
Abstract
Purpose
The purpose of this paper is to investigate Malaysian companies’ compliance with mandatory accounting standards. Specifically, this study examines the efficacy of agency-related mechanisms on the degree of compliance with Financial Reporting Standards (FRS) 101, Presentation of Financial Statements. It so proceeds by focussing on corporate governance parameters (board characteristics and ownership structure) and other firm characteristics.
Design/methodology/approach
Using data drawn from a sample of 105 Malaysian companies listed on the ACE market in 2009, the authors employ multiple regression analysis models to establish whether selected corporate governance and company-specific characteristics (proxying for agency-related mechanisms) are related to the degree of disclosure compliance.
Findings
The results indicate that the overall disclosure compliance is high (92.5 per cent). Furthermore, only firm size is positively associated with the degree of compliance. The other variables, those consisting of board independence, audit committee independence, CEO duality, the extent of outside blockholders’ ownership and leverage, do not show any significant relationship with the degree of compliance.
Research limitations/implications
This study focusses on only one accounting standard (FRS 101) that is mandatory in Malaysia. FRS 101 is both structured and rigid, leaving no room for companies to conceal any particular information. The sample of Malaysian companies selected is restricted to those listed only on the ACE market. As such, the results cannot be generalised to every company in Malaysia.
Practical implications
These results have important implications for policy makers because they suggest that whilst agency-related mechanisms may motivate compliance with mandatory standards, full compliance may be unattainable without regulations.
Originality/value
This is the only study in Malaysia to investigate the impact of regulatory requirements on corporate compliance level by companies listed on the new ACE market, which was introduced by the Bursa Malaysia in August 2009. This study contributes to the literature by examining the effects of both company-specific characteristics (such as company size, company age, liquidity, etc.) and corporate governance parameters on the degree of corporate compliance with mandatory disclosure, simultaneously, in contrast with prior studies which have examined them in isolation.
Keywords
Acknowledgements
The authors are grateful for the helpful comments and suggestions from the editor of this journal, the anonymous referees, and the seminar participants at the 2012 International Conference on Management, Economics and Finance in Sarawak (Malaysia), the 2012 International Soft Science Conference on Management, Economics and Finance in Phnom Penh City (Cambodia), and the 2015 International Conference on Management, Finance & Entrepreneurship in Istanbul (Turkey). The authors acknowledge financial contributions from the Malaysian Ministry of Higher Education (MOHE-FRGS Grant Phase 1/2013 (No. 12932)). The authors gratefully acknowledge the financial assistance provided by the Research and Innovation Management Centre (RIMC), Universiti Utara Malaysia. Further, the authors also like to thank the Bursa Malaysia for providing the authors the facilities to obtain the data for this study. Finally, the authors wish to acknowledge the support and helpful comments given by the Dean and staff of the School of Accountancy, College of Business, Universiti Utara Malaysia.
Citation
Abdul Rahman, A. and Hamdan, M.D. (2017), "The extent of compliance with FRS 101 standard: Malaysian evidence", Journal of Applied Accounting Research, Vol. 18 No. 1, pp. 87-115. https://doi.org/10.1108/JAAR-10-2013-0078
Publisher
:Emerald Publishing Limited
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