Impact of IFRS 13 on disclosure requirements under fair value hierarchy : Case: Industrial sector in Finland

Due to globalization, more companies become international. This created a necessity for a common accounting language, International Financial Reporting Standards (IFRS). International convergence of accounting standards is still under investigation and new standards are being issued. This research work is specifically focused on one accounting standard, IFRS 13, Fair Value Measurement that is planned to be under a post implementation review in 2016. The study investigated the impact of IFRS 13 on the note section and was motivated by the general discussion on how IFRS is different from Finnish Accounting Principles (FAS). Fair Value Hierarchy is the central concept under IFRS 13, which is represented by three levels (Level 1, Level 2 and Level 3). The extent and nature of disclosure requirements are based on the Level in which the inputs are categorized. The concept has been previously applied under IFRS 7, Financial Instruments: Disclosures. However, IFRS 13 extended requirements to non-financial instruments. The purpose is to investigate how requirements to disclose hierarchy levels for both financial and non-financial instruments affected the note section with an in-depth research on financial instruments. The scope of the research is limited to large and medium-sized companies operating in the industrial sector in Finland. The data is gathered from the note sections of annual reports from 2012 and 2013. An explanatory approach is used in data interpretation, which refers observations to existing theory. As the main result, IFRS 13 extended disclosures. However, the greatest impact was on the companies, which had Level 3 inputs