The introduction and application of international accounting standards to accounting disclosure regulations of a capital market in a developing country : the case of Egypt
The purpose of this study is to perform a rigorous testing and analysis of accounting disclosure practices in a developing country which has adopted the International Accounting Standards (IASs) and has changed towards an economic policy of privatisation after many years of a socialist era. The study also measures the effects on disclosure levels of changes in the economic policy and the new regulations. Furthermore, it investigates the relationship between disclosure levels and company characteristics. A review of the theories which have been used in previous research as a basis for explaining disclosure practices is used to establish a priori expectations. The Egyptian economic and social environment and the Egyptian accounting regulations and standards are outlined. From the theory, previous research and the particular circumstances of Egypt, specific empirical research questions are generated and then transformed into hypotheses. A mandatory disclosure list is created which combines the disclosure requirements of the IASs and national regulations using a technique of segmentation which takes into consideration four factors: a) whether the IASs disclosure item is also required both by local established regulations (Companies Act; CA) and by local new regulations (CML); b) whether the IASs disclosure item is required only by local new regulations; c) whether the IASs disclosure item is available in the native language; and d) in which part of the annual report is the disclosure item located. This technique of segmentation leads to different combinations of disclosure total indices (IASs, CML, CA), partial indices (Partial CML Arabic and Partial IASs not Arabic) and nine sub-indices. This allows detailed statistical analysis and richer interpretation of results. Matched pairs of the annual reports of a sample of Egyptian listed companies in 1991 and 1995 are compared using the aforementioned segmentation of total, partial and sub-indices. Also, a larger sample of 1995 annual reports is analysed to compare the different indices and to investigate any relationship between the indices and selected company characteristics using both univariate and multivariate analysis. The study concludes that accounting disclosure by Egyptian listed companies was significantly greater in 1995 than in 1991. Public sector companies which were the largest in size and actively traded in the Stock Exchange provided the highest CML disclosure. Companies audited by one of the `big-six' offered the highest IASs disclosure. Specific explanations for the increase in various accounting disclosure items and the relationship between various disclosure practices and specific company characteristics are offered based on the segmentation. Theoretical models of agency and capital needs appear to be applicable to the findings regarding Egypt, but the applicability of signalling theory is not clear. Other issues relating to theory are explored in the context of the research findings. Several conclusions are drawn and some policy implications are discussed.