Tauringana 2016

Journal of Accounting in Emerging Economies
Determinants of risk disclosure compliance in Malawi: a mixed-method approach

Ven Tauringana Lyton W Chithambo
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To cite this document:
Ven Tauringana Lyton W Chithambo , (2016),"Determinants of risk disclosure compliance in Malawi: a mixed-method
approach", Journal of Accounting in Emerging Economies, Vol. 6 Iss 2 pp. -
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DETERMINANTS OF RISK DISCLOSURE COMPLIANCE IN MALAWI:
A MIXED-METHOD APPROACH
Abstract
Purpose
The main purpose of the study is to investigate compliance with risk disclosure requirements
under IFRS 7 by Malawian Stock Exchange (MSE) listed companies over a three-year period.
Specifically, the paper examines the extent and determinants of risk disclosure compliance
with IFRS 7.
Design/Methodology/Approach
The study uses a mixed-method approach. The quantitative approach employs the research
index methodology and uses panel data regression analysis to examine the relationship
between proportion of non-executive directors (NEDs), size, gearing and profitability and the
extent of risk disclosure compliance. The results of the panel data regression analysis are
triangulated by the qualitative research approach in the form of personal interviews with
company managers.
Findings
The results indicate that over the three years, the extent of compliance with IFRS 7 is, on
average, 40% which is very low. The regression results suggest that NEDs, size and gearing
are significantly and positively associated with the extent of risk disclosure compliance under
IFRS 7. The results of qualitative approach are mixed since some support and whilst others
contradict the regression results.
Research limitations/implications
The sample size is very small which may affect the generalisability of the study.
Originality/Value
The use of a mixed-methods approach to examine the determinants of risk disclosure
compliance provides additional insights not provided in prior studies. The contradicting
results suggest that more research using the mixed approach is required to provide more
robust evidence of the determinants of risk disclosure compliance.
Keywords
Determinants; risk disclosure; compliance; Malawi; IFRS 7; mixed-method approach.
Paper Type Research Paper
1
1. Introduction
In this paper we investigate the extent and determinants of risk disclosure compliance
with the requirements of International Financial Reporting Standard (IFRS) 7 by Malawian
Stock Exchange (MSE) listed companies using a mixed-method research approach. IFRS 7 -
Financial instruments: disclosures requires entities to provide disclosures in their financial
statements that enable users to evaluate the significance of financial instruments for the
entitys financial position and performance, as well as the nature and extent of risks arising
from financial instruments to which the entity is exposed during the period and at the end of
the reporting period, and how the entity manages those risks (IASB, 2007). Schrand and
Elliott (1998) suggested that shareholders are increasingly demanding more disclosures on
risk and uncertainties faced by a firm to help them in their investment decisions. Abraham
and Cox (2007) underscored the importance of risk disclosure by noting that shareholders are
increasingly looking for risk disclosure information to assess the risk profile and market
value of an entity. Moreover, the recent financial crisis has been attributed to the failures of
risk management and reporting, particularly in the financial sector (Hull, 2010; Shiller 2008;
Kirkpatrick, 2009).
A myriad of studies have so far investigated the extent and determinants of risk
disclosures (e.g., Linsley and Shrives, 2006; Abraham and Cox, 2007; Hassan, 2009; Amran
et al., 2009; Oliviera et al., 2011). Some of these studies have examined company variables
such as size, profitability, etc (e.g., Rajab and Handley-Schachler, 2009; Elzahar and
Hussainey, 2012) whilst others have emphasized corporate governance variables (e.g.,
Abraham and Cox, 2007; Vandemaele, 2009; Elzahar and Hussainey, 2012). However, the
results are mostly conflicting. For example, in the context of company variables, a positive
relationship between company size and risk disclosure has been reported by Linsley and
Shrives (2006), Elzahar and Hussainey (2012), Oliviera et al. (2011) whilst Hassan (2008)
and Rajab and Handley-Schachler (2009) found the relationship to be insignificant. Similarly,
gearing was found to be a positive determinant of risk disclosure by Vandemaele (2009) and
Abraham et al. (2007) contrary to the results reported by Elzahar and Hussainey (2012),
Abraham and Cox (2007), Linsley and Shrives (2006) and Rajab and Handley-Schachler
(2009). In addition, Oliviera et al. (2011) and Elzahar and Hussainey (2012) found no
significant relationship between profitability and risk disclosure whilst Elshandidy et al.
(2011) found a significant positive relationship. With respect to corporate governance
variables, Abraham and Cox (2007) found a positive relationship with executive directors,
2
independent non-executive directors but no significant relationship was reported in respect of
dependent non-executive directors. However, Vandemaele (2009) found that proportion of
non-executive directors and Chief Executive Officer (CEO) duality are not significantly
associated with risk disclosure. Finally, the findings by Elzahar and Hussainey (2012) suggest
that CEO duality; board size, proportion of non-executive directors and audit committee size
are not significantly associated with risk disclosure.
There are a number of possible reasons for the contradicting results which are
summarised in Wallace et al. (1995, p. 43) as ..the changing nature of prior studies such as
the number of firms included in the sample, the type and number of firm characteristics
examined, number of information items that formed the basis of the set of disclosure indexes
as dependent variable and the different statistical methodologies used to analyse the data have
jointly or severally contributed to mixed results. The mixed results particularly on the
determinants of disclosure have led to calls for the use of the qualitative research approach in
addition to the predominantly quantitative approach in form of ordinary least squares (OLS)
regression to improve our understanding of the determinants of extent of disclosure. For
example, Beattie and Smith (2012) noted that primary research based disclosure studies are
rare and yet such research approach can bring enormous benefits to the understanding of the
motives for disclosure. It is against this background that our study seeks to contribute to the
understanding of the determinants of risk disclosure by using both primary and secondary
data.
The main objective of this paper is to investigate risk disclosure compliance under
IFRS 7 by Malawian Stock Exchange (MSE) listed companies. Specifically, the paper
examines the extent and determinants of risk disclosure compliance with the requirements of
IFRS 7 over a three-year period (2007 - 2009) using the mixed-method research approach.
The paper raises the following research questions: (1) To what extent do MSE listed
companies comply with risk disclosure requirements of IFRS 7. (2) What company variables
influence the level of risk disclosure compliance with IFRS 7 requirements? To address these
research questions, the study employs both the quantitative approach (panel data regression)
and qualitative approach (personal interviews).
The quantitative approach results indicate that compliance with the requirements of
IFRS 7 is very low, consistent with the findings of ROSC (2007). The panel data regression
results suggest that the extent of risk disclosure compliance is significantly associated with
the proportion of non-executive directors (NEDs), size, and gearing, but not to profitability.
3
Our qualitative findings are mixed since some of the responses from the interviewees
confirmed whilst others contradicted the quantitative findings in respect of the influence of
the four company variables on the extent of risk disclosure compliance with IFRS 7.
The main contribution of this paper is the use of the mixed-method research approach
to investigate whether four company variables influence the extent of risk disclosure
compliance which enabled us to report additional insights of the determinants of risk
disclosure. According to Johnson et al. (2007, p. 113), ..the primary philosophy of mixed
research is that of pragmatism. Mixed methods research is, generally speaking, an approach
to knowledge (theory and practice) that attempts to consider multiple viewpoints,
perspectives, positions, and standpoints (always including the standpoints of qualitative and
quantitative research. Mixed research method is increasingly being recognised as the third
major research approach and has become popular in a number of disciplines (Johnson et al.,
2007, Leech and Onwuegbuzie, 2009). As a result of the use of the mixed method we have
been able to provide additional insights of the determinants of risk disclosure. For example,
through the qualitative approach we have documented evidence that confirm and also
contradict the quantitative approach findings in respect of some company variables. This
finding suggests that there is need for more research using the mixed-method approach in an
attempt to uncover why the results contradict. We have also documented reasons from our
interviewees why the company variables are perceived as either having or not having an
influence of risk disclosure compliance. Our paper also contributes by providing evidence
that MSE listed companies do not fully comply with the requirements of IFRS 7. This has
important implications for Malawi accounting regulators and policy makers who seek to
improve the quality of information produced by listed companies. The results are also
significant as they corroborate the findings by ROSC (2007) which also concluded that MSE
listed companies were not fully complying with prevailing International Accounting
Standards (IASs).
The rest of the paper proceeds as follows. Section 2 describes the corporate
governance, reporting and risk management initiatives in Malawi. This is followed by a
review of literature and hypotheses development in Section 3. The data and methodology is
discussed in Section 4. The findings, both quantitative and qualitative are presented and
discussed in Section 5. The final section is a summary and conclusion.
4
2. Corporate Governance, Reporting and Risk Management Initiatives in Malawi
2.1 Governance
The first Corporate Governance Code (known as Malawi Code I) was issued in 2001
(CBPCGM, 2001). The code was modelled on the UK Cadbury Report, Kings I Report of
South Africa, Commonwealth Association of Corporate Governance, and the Kenyan
Corporate Governance Principles. In general the Code was applicable to all companies on a
voluntary basis, but listed companies, financial institutions, public trusts and large unlisted
companies with a minimum capital of K50 million (Kwacha) (equivalent to US$300,000)
were urged to take the lead in complying with the Code. However, ROSC (2007) found that
most companies were not complying with good governance principles, and recommended the
need for action to be taken to strengthen their observance. Nyirenda (2009) also found that
only 15 per cent of listed companies were complying, and suggested that this was partly due
to the fact that MSE did not recognise the Code in its listing requirements. In response to
ROSC (2007) the Institute of Directors (IOD) in Malawi was formed, with the aim of
championing corporate governance issues in Malawi (IOD, 2011). The IOD began by
reviewing the Code to align it with international best practice. In particular, IOD found that
the Code was lacking aspects of risk management, sustainability reporting and board
evaluation (Malawi Code II, 2010). In overcoming these shortfalls, the IOD task force came
up with a principles based code, with overarching principles applicable to all entities, and
some sub-codes applicable to specific sectors. This culminated in the issue of Malawi Code II,
which replaced Malawi Code I in 2010. At the same time a separate code was also issued,
specifying issues specific to listed companies. Compliance with Malawi Code II was also
made mandatory, and any non-compliance issues would be referred to the MSE (Malawi
Code II, 2010). In April 2010, corporate governance guidelines were issued by the Reserve
Bank of Malawi requiring all entities licensed under the Banking Act to abide by them. In
2011, corporate governance principles were also issued that applies specifically to insurance
companies (Malawi Code II, 2010; RBM, 2011).
2.2 Reporting
Financial accounting and reporting in Malawi is primarily regulated through the
Companies Act 1984, International Accounting Standards (IASs), The Malawi (Corporate
5
Governance) Code II and the Malawi Stock Exchange rules. The Companies Act 1984 lays
down the procedures for company registration, and stipulates financial accounting and
reporting requirements. The Act requires registered entities to produce financial statements
which show a true and fair view of the state of affairs, at the end of the financial year. Other
major requirements include keeping proper accounting records, and the preparation of
financial statements such as a balance sheet and profit and loss account, in accordance with
the Act; auditing of accounts and circulation to members, and filing of accounts with the
registrar of companies.
The regulation of the accounting profession is governed by the Public Accountants

and Auditors Act (Chapter 53:06), under which the Public Accountants Examinations
Council (PAEC) was set up and empowered to conduct training and examinations of the
accounting profession. The same Act also authorised the formation of the Society of
Chartered Accountants of Malawi (SOCAM), which was founded in 1969 with the aim of
promoting and regulating the accountancy profession, including setting accounting and
auditing standards. However, SOCAM has never issued a single standard, due to lack of
capacity (ROSC, 2007). Prior to 2001 Malawi was using UK accounting and auditing
standards. SOCAM, however, decided to formally adopt the International Accounting
Standards (IASs) with effect from January 2001. ROSC (2007) reported substantial non-
compliance with IASs, and recommended improvements in compliance with IASs.
The Malawi Stock Exchange (MSE) was established in 1994 under the Capital
Markets Development Act 1990, when the economy was liberalised, but it opened for
business in 1996 with one listed company. By December 2006 there were eleven listed
companies, with an estimated market capitalisation of US$1.5bn. In December 2009, the total
number of listed companies had risen to fifteen (MSE, 2010). There are a number of
guidelines in the MSE rules that regulate financial reporting. For example, Section 5.31(a) of
the MSE rules requires all listed companies to prepare their financial statements in all
significant respects in accordance with Generally Accepted Accounting Principles (GAAP)
and International Financial Reporting Standards (IFRSs). Section 5.31 (b) requires that these
accounts should be audited in accordance with the auditing standards applicable in Malawi.
While the MSE recognises the need to check compliance with accounting standards for listed
companies, it does not have the capacity to do so and heavily rely on SOCAM. However, as
ROSC (2007) noted, SOCAM itself has neither the capacity nor any arrangement to monitor
6
or enforce compliance. This means that non-compliance is likely to continue undetected and
unpunished.
2.3 Risk management initiatives

There have been efforts by the Reserve Bank of Malawi (RBM) to ensure that its
regulated entities have sound risk management practices. These efforts saw RBM adopting a
risk based supervision approach for banks in 2006 and this was followed by the issuance of
risk management guidelines for banks. The guidelines were published in 2007 following a
survey that indicated many banks did not have adequate risk management systems in place
(RBM, 2007). Generally, the guidelines recognise the diverse nature of different banking
institutions and as such encourages them to tailor-make their risk management programs
according to their needs and circumstances. The guidelines however note that whatever
model is adopted, any risk management framework should contain the following: risk
identification, measurement, monitoring and control. In monitoring and control the emphasis
is on the role of senior management and board oversight. In accordance with Basel II, the
guidelines also encourage the link between business processes and the risk management
strategies. This linkage is further highlighted with the emphasis on sound internal controls
and information systems as basic pillars of any sound risk management system. The main risk
categories identified by the guidelines are: strategic risk, credit, interest rate, foreign
exchange, price, operational, compliance and reputation (RBM, 2007). More importantly the
guidelines demand that an institution, in addition to identifying the risks, should develop a
comprehensive policy as to how it deals with the identified risks. It is in these policies that an
institution is expected to explain how it identifies, measures, monitors and control risks.
Besides the RBM initiatives, the issuance of Malawi Code II has also helped highlight
the importance of risk management in Malawi. The Code places the responsibility of risk
governance on the board of directors and section 15.2 requires the board to regularly review
the organisations risks, risk appetite and tolerance, and ensure that it has endeavoured to put
in place measures to minimise or avert any identified risks (Malawi Code II, 2010). However,
the Malawi Code II has no requirement for companies to disclose risk information. The fact
that MSE has been made a custodian or part of the enforcement mechanism of the provisions
of the Code by ensuring that it is part of its listing requirements means that the issue of risk
management will be given due attention by all listed companies. Given that neither the
7
Companies Act 1984, RBM (2011) and Malawi Code II does not stipulate the disclosure of
risk information, it means that IFRS 7 is the only source of risk information disclosure.
3. Literature review and hypotheses development
3.1 Literature review

Extant literature suggests a number of theories to explain why companies would
disclose risk related information. For example, Linsey and Shrives (2000) identify agency,
signalling, political costs and legitimacy theories as providing the rationale why companies
would voluntarily provide information on business risk. According to agency theory (e.g.,
Jensen and Meckling, 1976; Fama and Jensen, 1983) disclosure of risk information is used as
a means to overcome agency problem between management and owners of the company
(Healy and Palepu, 2001). In terms of signalling theory, if management has more information
including that on the organisations risk than investors, information asymmetry can be
reduced if a party privy to more information signals that to others through disclosure (e.g.,
Linsey and Shrives, 2000; Watson et al., 2002). Political costs theory (Watts and Zimmerman,
1986) could also explain why companies disclose more risk related information in the sense
that some firms due to their economic significance are bound to attract attention of the media,
public and politicians. To deflect the unwanted attention such firms may disclose more risk
related information such as that on liquidity risk to show that they are solvent.
The motives for risk disclosures can also be viewed from the lenses of legitimacy
theory. For example, according to Gray et al. (1996) and Woodward et al. (1996), a firm is
part of society, and strives to exist within the generally accepted norms of society. As a result,
whatever the organisation does, it tries to act in a manner that will be viewed by outsiders as
legitimate (Deegan, 2000). Schocker and Sethi (1974) demonstrated that at the heart of such
consciousness is the view that where an organisation exists, a social contract, implicitly or
explicitly is presumed to have been conceived between the entity, the public and the
shareholders. Therefore, in a bid to demonstrate this legitimacy, communication through
disclosure of information becomes important, regardless of whether it is voluntary or
mandatory. Finally, the stakeholder theory has also been employed in explaining risk
disclosures. Stakeholder theory is about a dynamic and complex relationship between an
organisation and its surroundings (Gray et al., 1996). As such a major task of the company is
to balance the conflicting demands of various stakeholders of the firms (Roberts, 1992).
8
Since information is important for decision making a stakeholder such as an investor would
exert pressure on the company to gather as much information on risk as required to make an
informed decision.
Previous research results on the determinants of risk disclosure have all employed a
single research method to investigate whether company variables determine the extent of
disclosure. In a majority of cases the quantitative approach in the form of ordinary least
squares regression (OLS) has been used (e.g. Abraham and Cox, 2007; Hassan, 2009; Amran
et al., 2009). To date the results are generally mixed. For example, Beretta and Bozzolan
(2004) in Italy, using OLS found that size was positively related to the quantity of risk
disclosures but no association was found between quality of risk disclosure and size. The
findings in UK and Canada by Linsley et al. (2006) revealed that company size had a positive
relationship with risk disclosure. However, no association was found between profitability,
gearing and risk disclosure. Linsley and Shrives (2006), in a study of the nature of risk
disclosure within UK annual reports also found a positive correlation between the volume of
disclosures and both company size and gearing. Similarly, in the UK, Abraham and Cox
(2007) investigated the extent and determinants of risk disclosure by 71 non-financial
companies listed on the London Stock Exchange. Their OLS results suggest a significant
positive relationship between size, gearing, proportion of non-executive directors (NEDs),
dual listing, and quantity of risk disclosures.
Hassan (2009) documented the risk disclosure practices from 41 annual reports of
United Arab Emirates listed companies. His OLS results indicated a positive relationship
between gearing, industry type and risk disclosure. No significant relationship was found
between company size and risk disclosure. Finally, Amran et al. (2009) studied a sample of
100 Malaysian listed companies annual reports in order to trace the extent of risk disclosure.
The relationship between firm characteristic and extent of risk disclosure was also tested
using OLS regression model and the stakeholder theory as the theoretical basis. They found
that company size and gearing are positively related to quantity of risk disclosures. Given the
contradictory nature of the studies to date and the use of the single quantitative approach, the
current study seeks to contribute to the literature by adopting a mixed research method to
document the nature of the relationship selected company variables and risk disclosure in
Malawi.
9
3.2 Hypotheses development
Proportion of Non-executive directors
A number of previous studies have examined the possible influence of non-executive
directors (NEDs) on disclosure of information in general (Forker, 1992; Ho and Wong, 2001;
Li et al., 2008); earnings management (e.g. Klein, 2002) and management forecasts (e.g.
Ajinkya et al., 2005; Karamanou and Vafeas, 2005). The basis for the expected relationship
between NEDs and disclosure is that the inclusion of NEDs on corporate boards would
improve the quality of financial reporting by encouraging management to comply with
mandatory disclosure requirements (Forker, 1992; Chen and Jaggi, 2000). Since the objective
of the IFRS 7 is to improve the information available to investors by requiring the provision
of information that that enables users to evaluate the significance of financial instruments for
the entitys financial position and performance, NEDs will more likely encourage compliance
with the disclosure guidelines. Moreover, Fama and Jensen (1983) argued that the presence
of independent NEDs on the board reduces agency costs, by narrowing the information gap
between parties, on the assumption that NEDs are bound to enforce the need for more
disclosure. Previous studies have found a positive relationship between NEDs and risk
disclosure (Abraham and Cox 2007; Deumes and Knechel 2008). However, Vandemaele
(2009) found no relationship between NEDs and risk disclosure. It can, therefore, be
hypothesised that:
H1 There is a positive relationship between proportion of NEDs on the board and risks
disclosure compliance.
Company Size
Many reasons have been suggested for expecting a positive relationship between
company size and disclosure in general. These have included the argument that information
generation and dissemination is costly, and therefore, larger companies with more resources
and superior expertise are better placed to produce comprehensive and detailed financial
statements (Wallace et al., 1994, Barako et al., 2006). Other reasons for expecting a positive
relationship are sensitivity to political costs (Wallace and Naser, 1995), higher agency costs
as a result of dispersed ownership (Cooke, 1991; Depoers, 2000; Hossain and Hammami,
2009), and higher analyst following (Hussain, 2000). More specifically with risk disclosure,
Vandemaele (2009) argued that size is an important factor in predicting amount of risk
10
disclosure, as larger companies tend to have heavy dependence on a complicated web of
stakeholders, which may influence them to disclose more information. Deumes and Knechel
(2008) also suggested that often, being large comes with complexities, and large companies
are bound to disclose more risk information to unpack their complexities and create a positive
image. Previous studies (Beretta and Bozzolan, 2004; Linsley and Shrives, 2006; Amran et
al., 2009) found a positive relationship between company size and the amount of risk
disclosures. However, Hassan (2008) found no such relationship. It can, therefore, be
hypothesised that:
H2 There is a positive relationship between company size and risk disclosure

compliance
Gearing
A relationship between gearing and the level of disclosure is expected because high
debt/equity ratio firms may, in addition to addressing shareholders, provide information to
satisfy the specific needs of long-term creditors (Wallace and Naser, 1995). Long-term
creditors often require information which could assure them that shareholders and
management are less likely to diminish claims accruing from bond covenants (Myers, 1977;
Schipper, 1981 and Wallace et al., 1994; Linsley and Shrives, 2006). Malonie et al. (1993)
similarly suggested that highly geared companies may disclose more information (which
could include risk related) to satisfy their lenders needs. Thus the more the company
increases its risk level through dependency on borrowed capital, the more urgent it becomes
for it to be accountable to creditors. Previous research on the association between gearing and
risk disclosure has been, however, inconclusive. For example, Vandemaele (2009) and
Abraham et al. (2007) reported significant relationships between gearing and risk disclosure
whilst Linsley and Shrives (2006), Abraham and Cox (2007), Rajab and Handley-Schachler
(2009) and Elzahar and Hussainey (2012) found leverage to be insignificantly related to risk
disclosures. It can, therefore, be hypothesised that:
H3 There is a positive relationship between gearing ratio and risk disclosure compliance
11
Profitability
Profitability has also been associated with higher levels of disclosure, on the
assumption that more profitable firms are expected to have incentives to voluntarily disclose
information to the capital market, in order to distinguish themselves from less profitable firms
and avoid being labelled lemon (Akerlof, 1970). Inchausti (1997) employed the agency
theory, to argue that managers of very profitable companies will disclose detailed information,
in order to support the continuance of their positions and compensation arrangements. More
specifically, there is an expectation that risk disclosure will be positively related to
profitability, because profitable companies are likely to have more resources to invest in risk
management systems, which may enable them to disclose more information (Deumes and
Knechel, 2008). Helbok and Wagner (2006) argued that profitable institutions are bound to
disclose more risk information to distinguish themselves from the less profitable ones.
Previous studies on influence of profitability on risk disclosure have been mixed. Whilst
Elshandidy et al. (2011) found a positive association in respect of voluntary and mandatory
risk reporting with FTSE All share index whilst Elzahar and Hussainey (2012) did not find
any significant relationship. It can, therefore, be hypothesised that:
H4 There is a positive relationship between profitability and risks disclosure compliance
4. Data and Methodology
4.1 Sample selection

The total number of companies listed on the Malawi Stock Exchange on 31st
December, 2009 was fifteen (MSE 2010), so it was decided to study the whole population for
as many years as the data would allow. However, given that our focus was IFRS 7 which was
issued in 2005 but effective for the period beginning on or after 1 January, 2007 it meant that
we could only investigate compliance from 2007 to 2009. In the process of data collection we
found out that in the case of two companies, one had been listed on the MSE in 2008 and the
other was listed in 2009, which meant they had to be excluded because their inclusion would
have meant that our study would be limited to 15 companies over one year or 14 companies
over a two year period. This meant that we could only investigate 13 companies out of the 15
over the three years (39 firm years), due to the unavailability of their data for the three-year
period.
12
4.2 Modelling and Data
To address our research objectives, we employed a mixed-method approach using
both quantitative and qualitative methods. Teddlie and Tashakkori (2003) suggest that mixed
methods are superior to single approach designs in three ways. First, they can answer
research questions that the other methodologies cannot. Second, mixed methods research
provides better (stronger) inferences and finally, mixed methods provide the opportunity for
presenting a greater diversity of divergent views. Brannen (2005, p. 12) identifies four
functions, besides corroboration, of mixed methods research. These include: elaboration or
expansion the use of one type of data analysis adds to the understanding being gained by
another; initiation the use of a first method sparks new hypotheses or research questions
that can be pursued using a different method; complementarity together the data analyses
from the two methods are juxtaposed and generate complementary insights that together
create a bigger picture; and contradictions simply juxtapose the contradictions for others
to explore in further research.
4.2.1 Quantitative approach
Model
Under the quantitative approach the study employs panel data regression analysis to
determine if company variables determine the extent of risk disclosure compliance. In using
panel data, the researcher must decide whether to employ a fixed or random effects model.
The random effects model assumes a single common intercept term, and that the intercepts
for individual companies vary from this common intercept in a random manner; the fixed
effects model assumes different intercept for individual companies (Ibrahim et al., 2011). In
order to choose the appropriate model, both the fixed effects and random effects estimators
were used to estimate the co-efficients in the model below. Then the Hausman test was
performed, which rejected the null hypothesis that the unobserved heterogeneity is
uncorrelated with the regressors. This finding meant that the random and the fixed effects
were significantly different, and that the fixed effects was the more consistent and efficient
one to use. The following model was tested;
13
DSindex = 0 + 1NEDs + 2Size + 3Gear + 4 Profit + j
Where:
0 . 4 = Regression coefficients
j = Error term
We define all the variables in Table I.

[Table I about here]
Measures of risk disclosure

To quantify risk disclosure we developed an index of risk disclosure compliance
based on the requirements of IFRS 7 (see Appendix I), and then employed a content analysis
technique to quantify the risk disclosures. Content analysis has been widely used in
disclosure studies (Hossan et al., 1994; Mangena and Tauringana, 2007). Literature suggests
that the quantification of disclosure can either be done on a weighted or un-weighted basis.
Gray et al. (1995) suggested that the adoption of either method does not materially alter the
results. An unweighted approach has been adopted for this study, which is most appropriate
when no importance is given to any specific user groups (Cooke, 1989; Hossain et al., 1994).
A company is awarded a score of 1 for the disclosed item, and 0 if not disclosed. However,
the company is not penalised if an item does not apply. In order to make a judgement as to
the applicability of an item in the risk disclosure compliance index to the company we read
the whole annual report following (e.g., Cooke, 1989; Wallace and Naser, 1995). For
example, to decide whether currency risk was applicable to a company we read the annual
report to establish whether the company is exposed to currency risk as indicated by its scope
of operations. The total risk disclosure compliance index was then captured for each sample
company as a ratio of the total risk disclosure compliance score, divided by the maximum
possible disclosure for the company. The disclosure index for each company is then
14
expressed as a percentage. Based on this approach, the total risk disclosure compliance score
per company can be summarised as follows;
DS Score
= Ds
s=1 N
Where DS score is the aggregate risk disclosure compliance per observation
ds 1 if the sth item is disclosed or 0 if it is not disclosed.
n is the maximum score for each company.

4.2.2 Qualitative approach

In addition to the quantitative approach, the study also used a qualitative approach in the form
of personal interviews with company managers to determine whether the four company
variables included in the panel data regression are perceived as influencing risk disclosure
decisions. The personal interviews also sought to find out if there are any other factors that
the interviewees thought influenced their decisions to comply with the requirements of IFRS
7. The questionnaire used for the personal interviews consisted of Part A which asked some
biography questions, and Part B, about influences on risk disclosure (see Appendix II). The
initial version of the questionnaire was pilot tested with finance directors of two out of the
thirteen listed companies, who had agreed to be interviewed at that stage. It was then
amended and requests for personal interviews sent out in July 2011, addressed to finance
directors of the remaining eleven companies. After three follow-up letters, four responses out
of eleven were received, stating that they were prepared to be interviewed, making a response
rate of 36.4%. The biographical details of the interviewees (see table II below and questions 1
to 5, Appendix II) were as follows:
[Table II about here]
Two were finance managers, one head of risk and the other a finance director; two have been
in their current post for up to five years, one up to 10 years and the other over 10 years; Two
of the interviewees firms operated in the financial services sector (a bank and an insurance
company) while the remaining two were in the services industry; Two interviewees were
15
Chartered Certified Accountants, one had a bachelors degree and the other a Masters
degree; All four respondents were male by gender.
5. Findings of the study

5.1 Analysis of risk disclosure compliance
The analysis of risk disclosure compliance at the overall level and by category over
the three-year period is presented in Table III. At the overall level, the analysis shows that the
average compliance scores for 2007, 2008 and 2009 are 37%, 41% and 42% respectively
which means a three year average of 40% (see below). This suggests that the companies are
not fully complying with the provisions of IFRS 7. This is consistent with the findings by
ROSC (2007) which concluded that the companies are not compliant with the requirements
of accounting standards. The analysis also shows that there are differences in the extent of
compliance according to the category of risk. The average yearly compliance scores by risk
category in Table III indicate that the companies are complying more with disclosure of
credit risk as suggested by the scores of 18%, 20% and 21% for the years 2007, 2008 and
2009 respectively compared with liquidity and market risks. The results also show that the
companies are least compliant with liquidity risk disclosure requirements with a yearly
average score of 5% for 2007, 2008 and 2009. Looking at the trend over the three year
period by category of risk, there is a mixed picture. Whilst the compliance with credit risk
disclosure requirements of IFRS 7 shows an increase from 18% in 2007 to 21% in 2009 there
is no change in the risk disclosure compliance with liquidity risk requirements over the three
years. The market risk disclosure compliance increased from 14% in 2007 to 16% in 2008 but
then dropped to 15% in 2009. The scores in Table III, however, indicate that overall, on
average basis there is increasing compliance in total risk (market, liquidity and credit) as the
figures show that average compliance rose from 37% in 2007 to 42% in 2009. Although the
companies are far from full compliance, overall, the finding of an increasing trend in risk
disclosure compliance suggests that companies are increasingly making an effort to comply.
There are two possible reasons that may explain the low individual company and average
compliance scores in Table III. One, it is possible that the companies lack the expertise to
identify the risks they face and as such may be unaware of the risks and hence the non-
disclosure. Two, another possibility is that some of the risks may be commercially sensitive
which means that companies are unwilling to disclose such risks.
16
[Table III about here]
The descriptive statistics of risk disclosure compliance and the independent variables are
presented in Table IV. The results show that the average risk disclosure compliance by the
sampled companies over the whole three-year period is 40%, with a minimum of 12% and a
maximum of 63.8%. The descriptive statistics of in respect of NEDs show that the mean of
NEDs is about 75%, with a minimum of 57% and a maximum of 82%, suggesting that the
NEDs are in the majority in all boards. This means that all the companies are compliant with
the requirement of Malawi Code II (2011, p. 18) which requires that in order to provide an
appropriate balance in decision making, excluding the chairman, the majority of remaining
members of the board of listed companies shall be non-executive. The average company size
is K8, 747.05 million with a median of K4, 106 million which suggests that the companies
tend to have a small turnover. However, the fact that the maximum size in terms of sales is
K47, 560 million and the minimum K117 million means that there is a big difference between
the largest and smallest company in terms of turnover. This also explains a large company
size standard deviation of K10, 377.86. The companies are moderately geared, as indicated
by a median of 42.98%. Finally, profitability ranges from minus 9.08% to 53.94%.
[Table IV about here]
The results of a simple correlation between the dependent and independent variables
are presented in Table V. They suggest that the highest correlation between the dependent
and independent variables is between risk disclosure compliance and gearing, followed by
size, profitability and then NEDS. The highest correlation among independent variables is
minus .398, between profit and gearing. Bryman and Cramer (1997) and Field (2009)
suggested that simple correlation between independent variables should not be considered
harmful in a regression model, unless they exceed 0.8 or 0.9. This suggests that multi-
collinearity problems among the dependent variables are unlikely to arise in our model.
17
According to Field (2009), low values of VIF are expected if the multi-collinearity problem is
to be controlled. Our mean VIF was 1.153 and the highest VIF was 1.306 for profitability.
This means then that multi-collinearity is not prevalent in our model. To control for hetero-
scedasticity in the standard errors we used the option of robust in Stata (Greene, 2008). Thus
apart from just addressing hetero-scedasticity issues, the robust option deals with other minor
concerns bordering on failure to meet other assumptions like normality or excessively large
residuals, or influence from a particular variable. Therefore without altering the point
estimates of the coefficient as derived from OLS, with the robust option, standard errors
adjust for any concerns of data abnormality or hetero-scedasticity.
[Table V about here]
5.2 Determinants of risk disclosure compliance

The panel data regression analysis (fixed effects) results are summarised in Table VI.
The results show that the model explains 73.66% of the variation in risk disclosure
compliance. The co-efficients for NEDs, size and gearing are positive and statistically
significant, while the co-efficient for profitability is negative and not significant. The positive
co-efficient for NEDs, suggests that our H1 which stated that there is a positive relationship
between NEDs and risk disclosure compliance is confirmed. This is consistent with previous
research results by Abraham and Cox (2007). However, these panel data regression results
are inconsistent with the qualitative findings. Specifically, in Part B, Question Six, of our
questionnaire we asked the interviewees whether non-executive directors influence the extent
of the risk disclosure compliance under IFRS 7 in their annual reports two out of the four
interviewees suggested that the presence of NEDs on their boards do not exert any influence.
One of these interviews said:
18
Our NEDs are not involved in the preparation of the annual report as such. They
usually see the annual report once it has been audited and in most cases all they are interested
in is the auditors opinion. If the report is not qualified they are happy and they do not tell us
to include anything else. As a result I would say that NEDs do not influence our extent of
compliance with IFRS 7.
The other two interviewees acknowledged that NEDs, especially those with finance
and accounting backgrounds, provide useful guidance when preparing annual reports. One
interviewee, whose company operates in the services sector said:
our NEDs tend to be appropriately experienced and qualified experts in various

fields, and we do appreciate their valuable contribution in how we run our business. I
should also add that those with accounting backgrounds do provide useful insight
regarding the accounting aspects of the business.
The view expressed by this interview is, therefore, consistent with existing literature (Forker,
1992; Chen and Jaggi, 2000) as well as the findings of regressions above which suggest that
NEDs have a significant influence on the extent of disclosure. In line with agency theory
predictions, it means NEDs on MSE listed companies in Malawi provide effective monitoring
role that ensure more disclosure of risk information.
[Table VI about here]
The significant positive association between size and risk disclosure in Table VI also means
that our second hypothesis, H2 is confirmed. This panel data analysis result is consistent with
previous research (e.g., Vandemaele, 2009; Linsley and Shrives, 2006; Abraham and Cox,
2007; Amran et al., 2009). However, it contradicts the findings by Hassan (2009) in the
United Arab Emirates. The significant positive result is, however, inconsistent with the
responses from some of our interviewees. Question Seven in our questionnaire asked
interviewees whether the size of their organisation meant that there were more under pressure
to disclose more information to comply with IFRS 7 on risk disclosures. Three out of the four
interviewees suggested that the size of the institution does not influence their compliance
with IFRS 7. Asked to elaborate why they thought that size had no influence on the extent of
risk disclosure compliance one of the three commented that:
When preparing our accounts we do not think about our size. Instead we look at the relevant
legislation and accounting standards and make sure that we have complied. Otherwise if the
19
extent of compliance was determined by our size we would change our disclosure from year
to year as the company grows.
However, one interviewee who is a finance director and works for a financial institution
stated that size indeed influences their disclosure requirements, as the bigger the institution,
the more risk it is exposed to. When the finance director was asked to explain why and how
he believes size influences risk disclosure compliance he said:
..I cant precisely determine the extent of size influence on risk disclosure
compliance but our experience is that we tend to disclose more risk related when we
transact in a diverse range of areas..our size and status of being a listed company
also means that we need to be accountable to many players so more risk disclosures is
part of the deal.
Again this view is consistent with the panel data regression findings of the significant
positive relationship reported in Table VI. The influence of size is supported from a multi-
theoretical point of view notably agency and stakeholders theories. As noted being large
means being highly visible and subject to intense public scrutiny which then might force a
firm to make more disclosures as a way of deflating criticism. Being large is however also
synonymous with being resource rich which may enable managers to exercise more
flexibility in their disclosure decisions unlike in small firms where resources are deemed to
be in short supply. Large firms also have a large network of stakeholders which then may
make them disclose more risk disclosure.
The results in Table VI which also suggest that gearing is significantly associated
with risk disclosure compliance under IFRS 7 means that our H3 is confirmed. This panel
data regression result is consistent with Abraham et al. (2007) and Vandemaele (2009). The
finding on gearing may be a reflection of the influence of the financial firms included in this
study. Generally financial firms are highly leveraged firms, and so are bound to disclose more
information about their risks. The interviewees were asked about the possible influence of the
level of gearing in Question Eight of the questionnaire. Again three interviewees said that the
level of gearing did not influence the extent of risk disclosure compliance. The general
feeling among the three was that the level of gearing did not in any way influence them to
change how they report since there were procedures in place for preparing financial
statements and that the level of gearing was not among the considerations as to what extent to
20
comply with IFRS 7. However, one interviewee suggested that that gearing had an influence
on the extent of risk disclosure compliance. When asked why he thought so, he said:
Regarding gearing, I should say it does influence risk disclosure compliance because
in the course of our business, we tend to rely on various partners for liquidity and
other business financing needs.In dealing with these partners we come to
realise that accountability and disclosure plays a crucial role in building trust, (Non-
financial institution interviewee).
Although this was a minority view, it suggests that the level of gearing does have a role to
play as far as the extent of risk disclosure. This view is therefore consistent with the panel
data regression results reported in Table VI.
The panel data analysis results of the association between profitability and risk
disclosure compliance in Table VI suggest that the relationship is insignificant and negative.
This is contrary to our hypothesis of a positive association. This finding means that we are
unable to confirm our H4. Although insignificant, the negative relationship may suggest that
less profitable firms are under pressure to disclose more risk related information. Indeed, it
may be argued that less profitable entities might decide to disclose more information in order
to lower the cost of capital. Our findings are consistent with previous studies on risk
disclosure (e.g., Linsley et al., 2006 and Elzahar and Hussainey, 2012) who similarly did not
find any significant relationship. However, the results are inconsistent with those by
Elshandidy et al. (2011).
When all four interviewees were asked about the influence of profitability on risk
disclosure compliance they all said that profitability had no influence whatsoever on the
extent of their risk disclosure. Asked why this was the case, one of the four interviews said
that:
When deciding to what extent to comply with IFRS 7 we do not first take a look at
how much profit they had made each year. You cannot decide to comply more or less with a
particular accounting standard on the basis of a single profit figure. We therefore believe that
the profit does not in any way influence the extent of our compliance with IFRS 7.
The final question in our questionnaire (q 10) asked the interviewees to state what
other factors influenced their risk disclosure compliance. All four interviewees said that the
21
primary influence was the need to comply with the law and applicable accounting standards
including IFRS 7. Some respondents also cited the influence of the Malawi Stock Exchange
Requirements, Financial Services Act and Malawi Code II on Corporate Governance. One
respondent, who works for an insurance company, also mentioned that they looked at the
internal underwriting standards and actuarial deficit/surplus when deciding what risk
information to disclose. One interviewee, who works for a financial institution, summarised
the major influences on risk disclosure in Malawi;
I dont think we are influenced either by size or profitability. It is more to do with

regulation be it Companies Act, Accounting Standards, Reserve Bank of Malawi and
Stock Exchange.In fact since I have been in my current post as finance director I
should say there have been more changes in accounting standards as well as RBM
regulations that have influenced the way we disclose our risk information.
Interviewees also acknowledged that while they are solely responsible for risk disclosure
compliance, they also heavily rely on the advice of their auditors. Thus audit firms also have
a significant influence on the disclosure of risks in Malawi.
The results from the quantitative approach (panel data analysis) and qualitative
approaches (interviews) discussed above, taken together, show a mixed picture with some
results of the qualitative approach confirming and others contradicting the quantitative
approach findings. A possible reason for the conflicting findings is that the perception of the
respondents may have been affected by their background. For example, several studies, have
shown that individual characteristics affect the individuals perception e.g. gender (Alatas et
al., 2006; Torgler and Valev, 2010); age (Torgler and Valev, 2004) and religion (Triesman,
2000). Because of the small sample, we could not test whether there were differences in
responses due to these characteristics.
6.0. Summary and Conclusion

The objective of this study was to investigate the extent and determinants of risk
disclosure compliance using a mixed-method research approach. The quantitative approach
measured the extent of risks disclosure compliance by thirteen out of a population of fifteen
companies listed on the Malawi Stock Exchange in their annual reports. Panel data analysis
was then used to determine if whether four company variables (NEDs, size, gearing and
profitability), influence the extent of risk disclosure compliance. The results suggest that the
extent of risk disclosure compliance over the three-year period is, on average, 40 per cent.
22
From a quantitative approach, three attributes (NEDs, size and gearing) were found to be
significantly related to the extent of risk disclosure compliance. However, profitability was
found not to be a significant influence. The qualitative approach gathered evidence of
whether the four company variables influence disclosure through personal interviews with
four company managers. Two out of four interviewees said that NEDs did not influence the
extent of risk disclosure compliance whilst two said that NEDs had an influence. On the
influence of size and gearing, one interviewee suggested that size and gearing had some
influence on their extent of risk disclosure compliance whilst the remaining three said that the
two variables had no influence. All interviewees indicated that profitability did not influence
their risk disclosure compliance under IFRS 7 which is consistent with our panel data
regression results.
These results should be interpreted in the light of the limitations of the study. Firstly,
our theoretical results are limited to thirteen companies listed on the MSE over a three year
period, and therefore cannot be generalised to all companies in developing emerging
economies. However, there are only fifteen companies listed on the MSE, three year data was
only available for thirteen companies, and nothing could have been done to increase the
sample size. Secondly, our practitioner evidence was gathered through only four personal
interviews, a response rate of 36.4 per cent. Although this is low, it is comparable to other
response rates (Sainidis et al., 2001, De Saulles, 2008 and Bates, 1995). Finally, our
investigation concentrated specifically on the influence of company variables on compliance
with IFRS 7 requirements. It is possible that if our focus was disclosures in annual report in
general, our interviewees may have said something different.
Despite these limitations our study makes an important contribution to accounting
literature because by using the mixed-method approach we have been able to provide
additional insights about the determinants of risk disclosure compliance. For example,
although some of the qualitative results contradict those of the quantitative approach, we have
been able to document reasons why our interviewees think that the company variables
influence or do not influence the extent of risk disclosure compliance. This finding suggests
that there is need for more research using the mixed-method approach in an attempt to
uncover why the results contradict. Our finding that the extent of risk disclosure compliance
is very low at 40% means that accounting regulators in Malawi need to do more to enforce
compliance. More importantly, our findings help highlight the fact that adoption of IFRS/IAS
alone without viable compliance mechanisms may not ensure appropriate risk reporting
23
especially in markets where investor activity is inactive. Thus, in as far as risk reporting is
concerned in Malawi, neither application of IFRS/IAS, nor managerial incentives and market
pressure guarantees the adequate disclosure of risk information. Since RBM is considered by
the preparers of the risk information as an important stakeholder and its risk based
supervision initiatives have helped raise the profile of risk management issues it is now
important that the capacity of both MSE and SOCAM to enforce compliance are strengthened
in order to change the landscape of risk disclosures in Malawi. Both Djankov et al. (2003)
and Shleifer (2005) underscore the importance of enforcement mechanisms as being
fundamental to the success of any accounting regulation. Erkens et al. (2012) argue that such
enforcement is vital not only in ensuring positive market outcomes such as liquidity and
reducing information asymmetries but also in ensuring compliance with mandatory rules.
Arguably the reporters also stand to benefit from the study as it highlights best practice in
terms of what needs to be reported to comply with the IFRS 7 risk disclosure requirements.
Nonetheless going forward there is need to increase the sample taking into account
developments that might have occurred after the period covered by this study. Notably the
Stock exchange has welcomed two new entrants, one in telecommunication sector and the
other in the insurance sector and these could help improve the sample limitation. There is also
a significant number of companies that are comparatively big in size but are not yet listed on
MSE hence further research may expand the sample to incorporate these since by law they
are required to produce annual accounts in accordance with prevailing standards as issued by
SOCAM.
24
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31
Table I: Definition of variables included in the regression model
Variable(s) Definition
DSindex Risk disclosure compliance score measured by the number of IFRS 7
disclosure items included in the index that are disclosed in the annual
report of an individual company divided by the maximum total number of
risk disclosure items applicable to a particular company.
NEDs Proportion of non-executive directors is measured by the number of non-
executive directors on the board of directors divided by total number of
directors on the board as at the financial year-ends of each of the three
years.
Size Company size measured by the natural logarithm of turnover as at the
financial year-ends of each of the three years.
Gear Gearing ratio is measured as total debt at the end of the financial year
divided by total equity plus total debt as at the financial year-ends of each
of the three years.
Profit Profitability is measured by profit after tax divided by capital employed as
at the financial year-ends of each of the three years.
32
Table II: Interviewee Information
Company Industry Position Duration Gender Qualifications Interview

in Post Duration
Firm A Bank Finance 5 Years Male ACCA 34
Manager Minutes
Firm B Insurance Head of Over 5 Male ACCA 47
Risk Years Minutes
Firm C Service Finance Over 10 Male Bachelors 50
Manager years Minutes
Firm D Service Finance 10 Years Male Masters 36
Director Minutes
33
Table III: Extent of risk disclosure compliance by risk category over a three year period
Name Market Risk Liquidity Risk Credit Risk Total Score
07 08 09 07 08 09 07 08 09 07 08 09
1 NICO 0.17 0.17 0.17 0.07 0.07 0.07 0.19 0.19 0.19 0.43 0.43 0.43
Holdings
Ltd
2 Blantyre 0.05 0.03 0.03 0.03 0.05 0.05 0.14 0.14 0.15 0.22 0.22 0.24
Hotels Ltd
3 Illovo 0.20 0.20 0.20 0.05 0.05 0.05 0.14 0.14 0.14 0.45 0.45 0.45
(Malawi)
Ltd
4 Standard 0.26 0.26 0.26 0.07 0.07 0.07 0.31 0.31 0.31 0.64 0.64 0.64
Bank
(Malawi)
Ltd
5 Packaging 0.03 0.10 0.14 0 0 0 0.10 0.04 0.14 0.14 0.14 0.28
Industries
(Mw) Ltd
6 Press 0.17 0.17 0.17 0.07 0.07 0.07 0.29 0.29 0.29 0.53 0.53 0.53
Corporation
Ltd
7 Old Mutual 0.19 0.19 0.20 0.05 0.07 0.07 0.21 0.21 0.21 0.45 0.47 0.48
(Malawi)
Ltd
8 National 0.20 0.20 0.20 0.07 0.07 0.07 0.28 0.28 0.28 0.55 0.55 0.55
Bank of
Malawi Ltd
9 Sunbird 0.10 0.10 0.10 0.07 0.07 0.07 0.17 0.17 0.17 0.34 0.34 0.34
(Malawi)
Ltd
10 National 0.03 0.10 0.10 0.03 0.05 0.05 0.05 0.12 0.12 0.12 0.28 0.28
Investment
Trust Ltd
11 First 0.17 0.17 0.17 0.07 0.07 0.07 0.07 0.33 0.33 0.40 0.57 0.57
Merchant
Bank
12 NBS Bank 0.20 0.24 0.24 0.05 0.05 0.05 0.26 0.26 0.26 0.52 0.55 0.55
13 MPICO Ltd 0 0 0 0 0 0 0.14 0.14 0.14 0.14 0.14 0.14
Average .14 .16 .15 .05 .05 .05 .18 .20 .21 .37 .41 .42
34
Table IV: Descriptive Statistics (N=39)
Variables Mean Std dev Median Min Max VIF
Risk Disclosure Score .3983 .1617 .4310 .1207 .6379 -
Non-Executive Directors .7426 .0542 .75 .5714 .8182 1.098
Size (Kmillions) 8747.05 10377.86 4106 117 47560 1.001
Gearing .5194 .3031 .4298 .0001 .9161 1.206
Profitability .0851 .1064 .0465 -.0908 .5394 1.306

35
36
Table V: Correlation among dependent and independent variables
Variables 1 2 3 4 5
1 Risks Disclosure Score 1.000

Non-Executive Directors
2 .205 1.000
3 Size .423** -.014 1.000
4 Gearing .743** -.005 -.012 1.000

5 Profitability -.360* .276 -.027 - 1.000

.398*
**Correlation is significant at 0.01 level (1 Tailed. *Correlation is significant at 0.05 level (1

Tailed)
37
___________________________________________________________________________
Table VI: Panel Data Regression Results

___________________________________________________________________________
Number of obs = 39; F(4,22) = 6.26; Prob > F = 0.0016
R-squared = 0.8475; Adj R-squared = 0.7366; Root MSE .08287
____________________________________________________________________
Disclosure | Coef. Rob. Std. Err. t P>|t| [95% Conf. Interval]
____________________________________________________________________
Neds | .7117617 .2997721 2.37 0.027 .0900725 1.333451

Size | 6.75e-06 1.65e-06 4.09 0.000 3.32e-06 .0000102
Gear | .3192688 .1013213 3.15 0.005 .1091412 .5293964
Profit | -.0706705 .1810742 -0.39 0.70 -.4461953 .3048543
Cons | -.3495504 .2404597 -1.45 0.16 -.8482334 .1491325
____________________________________________________________________
ID | F(12, 22) = 0.541 0.865 (13 categories)
___________________________________________________________________________
38
Appendix I
Risks Disclosure Compliance Index based on IFRS 7
Market Risk Interest Rate Risk
Item Disclosure Requirement Source Maximum
Score
1 Exposure to risk and how they arise IFRS 7.33a; IFRS 7.IG15 1
2 Objectives, policies and processes for managing the IFRS 7.33b; IFRS7.IG15 1
risk and the methods used to measure the risk
3 Changes in exposure to risk, measurement of risk, and IFRS 7.33c; IFRS 7.IG17 2
objectives policies and processes to manage the risk
from the previous period
a. Disclosure of changes
b. Explanation for changes

4 Summary quantitative data about exposure to risk at the IFRS 7.34a 1

reporting date
5 Interest rate sensitivity analysis showing how profit or IFRS 7.40a 1

loss and equity would have been affected by changes in
the relevant risk variable that were reasonably possible
at that date
6 Methods and assumptions used in preparing the IFRS 7.40b 4

sensitivity
a. Method sensitivity analysis
b. Model used for analysis
c. Assumptions used
d. Explanation of on what the parameters based
7 Concentration of interest rate risk if not apparent from IFRS 7.34c 1

summary quantitative data and sensitivity analysis
Total Score for Interest Rate Risk 11
Market Risk Currency Risk
9 Objectives, policies and processes for managing the IFRS 7.33b; IFRS 7.IG15 1

reporting date
39
12 Currency risk sensitivity analysis showing how profit IFRS 7.40a 1
or loss and equity would have been affected by changes
in the relevant risk variable that were reasonably
possible at that date

sensitivity analysis preparing the sensitivity analysis
c. Assumptions used
d. Explanation of on what the parameters are

based
14 Concentration of currency risk if not apparent from IFRS 7.34c 1

Total Score for Currency Risk 11
Market Risk Other Price Risk
objectives, policies and processes to manage the risk
from the previous period.

reporting date
19 Other price risk sensitivity analysis showing how profit IFRS 7.40a 1
or loss and equity would have been affected by changes
in the relevant risk variable that were reasonably
possible at that date

sensitivity analysis
c. Assumptions used
d. Explanation of on what the parameters are

based
40
21 Concentration of other price risk if not apparent from IFRS 7.34c 1
Total Score for Other Price Risk 11
Liquidity Risk
Objectives, policies and processes for managing the
risk
a. Methods used to measure the risk

b. Explanations for changes
25 Maturity analysis for financial liabilities that show the IFRS 7.39a 1
remaining contractual maturities
Total Score for Liquidity Risk 6
Credit Risk
a. Objectives, policies and processes for

managing the risk
b. Methods used to measure the risk

reporting date
30 Concentrations of credit risk if not apparent from IFRS 7.34c 1

31 Amount of maximum exposure to credit risk (before IFRS 7.36a 1

deducting value collateral)
32 Description of collateral held as security and other IFRS 7.36b 1

credit enhancements security and other credit
41
enhancements
33 Information about the credit quality of financial assets IFRS 7.36c; IFRS 7.IG23 2
with credit risk that are neither past due nor impaired
IFRS 7.36c; IFRS 7.IG24; IFRS
a. Information about credit quality 7.IG25
b. Explanation rating system
34 The carrying amount of financial assets that would IFRS 7.36a 1

otherwise be past due or impaired whose terms have
been renegotiated
35 By class of financial assets an analysis of the age of IFRS 7.37a 1

financial assets that are past due as at the reporting date
but not impaired
36 By class of financial assets an analysis of financial IFRS 7.37b; IFRS 7.IG29 3

assets that are individually determined to be impaired at
the reporting date, including the factors the entity
considered in determining that they are impaired
a. Disclosure of factors the entity considered in

the impairment
b. Carrying amount of impaired Financial assets
c. Amount of impairment loss
37 Description of collateral held by the entity as security IFRS 7.37c 1

and other credit enhancements for the amounts as
disclosed in IFRS 7.37a and b and, unless
impracticable, an estimate of their fair value
38 Nature and carrying amount of assets obtained by IFRS 7.38a 1

taking possession of collateral it holds as security or
called on other credit enhancements, and such assets
meet the recognition criteria on other standards
39 Policies for disposing assets or use of it in its IFRS 7.38b 1

operations when the assets are not readily convertible
into cash
Total Score for Credit Risk 19
Total Score for all Risk Disclosures 58
42
Appendix II:
Questionnaire Survey on Factors Influencing Risks Disclosure Compliance with IFRS 7.
Part A: Biography Information
1. What is your official title and what are its responsibilities_____________________
2. How many years have you been in this role?________________________________
3. In which Industry does the company operate in?______________________________
4. What is your highest qualification?________________________________________
5. What is your gender?____________________________________________________
Part B: Factors determining the extent of risk disclosure compliance with IFRS 7
in annual reports
6. Does the presence of non-executive directors on your board have any influence on the
extent of risk disclosure compliance with IFRS 7 in your annual report?
Yes.......................... No..........................
Please explain why.
..........................................................................................................................................
7. When disclosing risk information in the annual report does company size (in terms of
turnover) of your organisation influence the extent of risk information disclosure
compliance under IFRS 7?
Yes................................. No.................................
Please explain to why.
..........................................................................................................................................
.........................................................................................................................................
8. Does your financing structure i.e. level of gearing have any influence on the extent of
your risk disclosures compliance under IFRS 7?
Yes................................. No.................................
Please explain why.
..........................................................................................................................................
9. Does the level of your profitability influence the extent of risk disclosures compliance
under IFRS 7 in your annual report?
Yes.......................... No..........................
Please explain why.
..........................................................................................................................................
43
10. In your opinion what other factors influence the extent of your companys compliance
with risk disclosure under IFRS 7?
..........................................................................................................................................
Thank you very much for your participation. If you need a copy of the findings of this
research please give me your contact details so that I can send you the report.
*The authors are respectively Associate Professor in Accounting and PhD student,
Department of Finance, Accounting and Economics, The Business School, Bournemouth
University. Correspondence should be addressed to Dr Venancio Tauringana, Associate

Professor in Accounting, Bournemouth University, Department of Accounting, Finance and
Economics, Fern Barrow, Poole, Dorset, BH12 5BB. UK. E-
mail:vtauringana@bournemouth.ac.uk
44

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Journal of Accounting in Emerging Economies

Determinants of risk disclosure compliance in Malawi: a mixed-method approach

*Related content and download information correct at time of download.

Paper Type Research Paper

The regulation of the accounting profession is governed by the Public Accountants

2.3 Risk management initiatives

3. Literature review and hypotheses development

3.1 Literature review

H2 There is a positive relationship between company size and risk disclosure

4. Data and Methodology

4.1 Sample selection

4.2.1 Quantitative approach

We define all the variables in Table I.

[Table I about here]

Measures of risk disclosure

ds 1 if the sth item is disclosed or 0 if it is not disclosed.

n is the maximum score for each company.

4.2.2 Qualitative approach

[Table II about here]

5. Findings of the study

[Table IV about here]

adjust for any concerns of data abnormality or hetero-scedasticity.

[Table V about here]

5.2 Determinants of risk disclosure compliance

our NEDs tend to be appropriately experienced and qualified experts in various

[Table VI about here]

I dont think we are influenced either by size or profitability. It is more to do with

6.0. Summary and Conclusion

corruption: insights from an experimental analysis. Research Paper Number 974,

Department of Economics, University of Melbourne, Australia.

accessed 10 March 2011.

Ball, R. and Foster, G. (1982), Corporate financial reporting: A methodological review of

empirical research, Journal of Accounting Research, vol. 20, supplement, p. 161-234.

disclosure by Kenyan companies, Corporate Governance: An International Review,

Vol. 14 No. 2, pp. 107-125.

Review Papers. ESRC National Centre for Research Methods.

Business Research, Vol. 22 No. 86, pp. 111-124.

Reports of New Zealand Companies, Journal of International Financial

Company Industry Position Duration Gender Qualifications Interview

13 MPICO Ltd 0 0 0 0 0 0 0.14 0.14 0.14 0.14 0.14 0.14

Variables Mean Std dev Median Min Max VIF

Risk Disclosure Score .3983 .1617 .4310 .1207 .6379 -

Non-Executive Directors .7426 .0542 .75 .5714 .8182 1.098

Size (Kmillions) 8747.05 10377.86 4106 117 47560 1.001

Gearing .5194 .3031 .4298 .0001 .9161 1.206

Profitability .0851 .1064 .0465 -.0908 .5394 1.306

1 Risks Disclosure Score 1.000

3 Size .423** -.014 1.000

4 Gearing .743** -.005 -.012 1.000

5 Profitability -.360* .276 -.027 - 1.000

**Correlation is significant at 0.01 level (1 Tailed. *Correlation is significant at 0.05 level (1

Table VI: Panel Data Regression Results

Number of obs = 39; F(4,22) = 6.26; Prob > F = 0.0016

R-squared = 0.8475; Adj R-squared = 0.7366; Root MSE .08287

Neds | .7117617 .2997721 2.37 0.027 .0900725 1.333451

Size | 6.75e-06 1.65e-06 4.09 0.000 3.32e-06 .0000102

Gear | .3192688 .1013213 3.15 0.005 .1091412 .5293964

Profit | -.0706705 .1810742 -0.39 0.70 -.4461953 .3048543

Cons | -.3495504 .2404597 -1.45 0.16 -.8482334 .1491325

ID | F(12, 22) = 0.541 0.865 (13 categories)

b. Explanation for changes

4 Summary quantitative data about exposure to risk at the IFRS 7.34a 1

5 Interest rate sensitivity analysis showing how profit or IFRS 7.40a 1