IFRS compliance in GCC countries: Do corporate governance mechanisms make a difference?

Abstract

This research aims at examining the level of International Financial Reporting Standards (IFRS) compliance across the entire Gulf Cooperation Council (GCC) region and seeks to explore the impact of corporate governance mechanisms on the level of compliance with IFRS disclosure requirements. We employ a cross-sectional analysis of 314 non-financial listed companies within the GCC countries. The compliance level with IFRS was measured using a self-built disclosure index consisting of 379 mandatory disclosure items of IFRS. The partial compliance method was implemented in calculating the compliance score for the targeted companies. The results show that none of the targeted companies had fully complied with the disclosure requirements of IFRS. Three corporate governance mechanisms were found to have a significant effect on the level of compliance with IFRS, namely board independence, concentrated ownership and the external auditor quality. Further, the results are not indicative of any distinctive contributions of board size, chief executive officer duality, institutional ownership, audit committee size and the number of audit committee meetings held during the year on the level of compliance with IFRS. Hence, the current results may reflect that corporate governance best practices need to be revised to improve the level of compliance with IFRS, particularly in emerging markets. We draw out the implications for theory and practice.