Liquidity and financial leverage ratios: Their impact on compliance with international financial reporting standards (IFRS)

• Main Author: Ferrer, Rodiel C.
• Format: text
• Published: Animo Repository 2011
• Subjects: Liquidity (Economics); Ratio analysis; Financial statements—Standards; Accounting; Finance and Financial Management
• Online Access: https://animorepository.dlsu.edu.ph/faculty_research/5268
• Institution: De La Salle University

This paper investigates how the liquidity and leverage ratios exert significant effect on the degree of compliance with International Financial Reporting Standard disclosure as measured by Balance Sheet and Income Statement of Publicly Listed Corporations. The researcher analyzed the effects of current ratio, quick ratio, debt equity ratio and interest coverage ratio on compliance with IFRS. The compliance audit output was used by the author to calculate the financial statement disclosure index using a dichotomous procedure to score each of the company indices. This study covered 100 publicly listed corporations in the Philippines from different industries out of the 244 PLCs. The companies belong to different sectors / industries such as Financials, Industrial, Holding Firms, Property, Services, and Mining and Oil. Published annual reports of the aforesaid companies have been used as a secondary source. Disclosure indices were constructed from 475 items of Balance Sheet disclosure checklist and 263 items of Income Statement disclosure checklist based on the compliance audit consistent with the International Financial Reporting Standard (IFRS) Report Checklist. Using multiple regression analysis, the author regressed each of balance sheet index, income statement index and total of income statement balance sheet indices, against liquidity ratios and financial leverage ratios such as current ratio, quick ratio, debt ratio and interest coverage ratio. Finding suggests that none of the indices exert a significant effect on the financial variables cited based on the computed t-statistics whose p-values are greater than the level of significance (α = 0.05). Therefore, the null hypothesis, that liquidity and financial leverage have no effect on IFRS when the latter is expressed in terms of Balance Sheet and Income Statement indices, is accepted.