What Firms' Discretionary Narrative Disclosures Reveal About the Adoption of International Financial Reporting Standards

We use content analysis to investigate what discretionary narrative disclosures reveal about firms' responses and attitudes to adoption of International Financial Reporting Standards (IFRS). Specifically, we apply a framework adapted from Smith and Taffler () to examine annual reports of first-time adopters of IFRS from 2005 to 2008 in New Zealand. Our form-oriented' results reveal that the extent of such disclosures is limited in spite of material differences to financial statement information caused by IFRS adoption. To the extent that this reflects the importance that firms attach to IFRS adoption, these findings are contrary to prior literature suggesting that IFRS adoption is a significant event in accounting history with potential important consequences for capital markets and the quality of accounting information. Applying meaning-oriented analysis, we find that importance' of IFRS adoption is the most dominant theme and that specific descriptions of IFRS impacts on financial statements are more prevalent than vague or general descriptions. Evaluative comments regarding the consequences of IFRS adoption are predominantly negative. Early (voluntary) adopters provide approximately twice as much narrative disclosure as late adopters, offering significantly more information about IFRS importance and impacts. There is, however, no significant difference between early and late adopters with regard to evaluative comments.