International Financial Reporting Standards (Ifrs)

Many aspects in financial reporting have changed since the first set of financial statements has been published. Were the balance sheet, profit and loss statement and cash flow the most important statements in the past, currently the disclosures are an integral part of the financial statements and the requirements for these continue to grow. The first step to this was the introduction of the International Financial Reporting Standards (IFRS) in 2001, which aligned the reporting standards of the European public companies.

After 2001, IFRS requirements continue to develop and in 2006 the financial statements have reached an average length of 85, compared to 45 in 1996 (Deloitte, 2006).

In my short experience at a large audit firm, I too have noticed the growth of the financial statements and the increase in the IFRS requirements, resulting in more questions from the stakeholders on in which way to read these statements.

The most recent page increasing development in IFRS is the 2004 standard “IFRS 7 Financial Instruments: Disclosures”. This new standard applies to all companies that have financial instruments and requires additional disclosures relating to the risk associated with these, management responses and a sensitivity analysis. This information should provide the stakeholders insights in the risk management system of the company and should provide a better understanding of the risks associated with the company’s financial instruments. This standard was the result of the increased complexity and environment of our current financial environment.

A recent study of the influence of IFRS on the value relevance on the earnings showed no significant value relevance (De Oude, 2009), also a less recent study performed by Groenland on the risk reporting by the Dutch firms showed no significant impact on the share price of the selected Dutch companies (Groenland et al., 2006). Other research on specific IFRS 7 disclosure (Bischof 2009) showed a significant impact...