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Lookup NU author(s): Dr Ekaete Efretuei
This work is licensed under a Creative Commons Attribution 4.0 International License (CC BY 4.0).
The application of International Financial Reporting Standards (IFRS) was introduced in many countries to enhance efficiencies in financial markets and improve communication in financial reporting. However, extant studies have suggested that the introduction of IFRS have increased narrative complexity, owing to the demand for more reporting. Considering that accounting complexity can be either informative (enhancing understanding) or non-informative, thereby causing obfuscation, this study performs an empirical analysis to highlight which of the two types of complexities may be affected by IFRS application. Using the setting of IFRS adoption in the UK and a word list-adjusted component of the fog index, this study decomposes complexity into two components: information (common complexity) and obfuscation (uncommon complexity). The results reveal that IFRS adoption has increased the common complexity of accounting narratives (information) but does not necessarily increase obfuscation. The study’s contribution is two-fold: methodological through the decomposition of complexity using the term weighting concept and policy-related by identifying areas of increased narrative comparability in IFRS reports. Moreover, the study’s application of complexity decomposition to IFRS is novel. Future studies may apply this by using the identified information and obfuscation components to investigate the economic consequences of IFRS-associated complexity.
Author(s): Efretuei E, Usoro A, Koutra C
Publication type: Article
Publication status: Published
Journal: South African Journal of Accounting Research
Pages: epub ahead of print
Online publication date: 02/12/2021
Acceptance date: 11/08/2021
Date deposited: 13/08/2021
ISSN (print): 1029-1954
ISSN (electronic): 2376-3981
Publisher: Taylor & Francis
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