The Importance of Applying the International Accounting Standard IAS 32 and Its Effect on Financial Statement Presentation at Jordanian Commercial Banks

Article excerpt

[Abstract] The researchers aimed through this study to illustrate the importance of applying IAS 32, "Financial Instruments: Disclosure and Presentation," by Jordanian commercial banks, from the viewpoint of financial statement preparers at banks, auditors, and investors (institutions). They also sought to illustrate the effects of applying IAS 32 on the fair presentation of statements, as well as on disclosure adequacy in relation to financial instruments in the financial statements at Jordanian commercial banks.

To achieve the objectives of this study, a questionnaire was designed on the basis of IAS 32, research, and studies published in relevant scientific periodicals. The questionnaire targeted a sample of financial statement preparers at Jordanian commercial banks, auditors, and investors (institutions). Three hundred questionnaires were distributed, out of which (251) were approved for analysis and consideration, i.e. around 84% of the distributed questionnaires. Upon analyzing responses and examining hypotheses, it was evident that there was emphasis on the importance of IAS 32 application at the Jordanian commercial banks. It was also clear that there are no significant differences between the opinions of financial statement preparers at the studied Jordanian commercial banks, auditors, or investors (institutions) in that the application of IAS 32 considerably contributes to the fairness of statement presentation and adequacy of the disclosure of financial instruments in the financial statements.

[Keywords] Accounting standard; IAS 32; commercial banks; Jordan


Accounting is considered the contemporary language of business, as it is the communication tool between financial statement preparers and users of all categories, (Roberts et al., 2002), which requires that financial statements be clear, understandable, complete, and presented in a way that helps users understand and benefit from them. Financial statements are considered the cornerstone in the process of economic decision-making. These statements cannot fully perform their role unless presented to help achieve the expected goals. For the financial statements to be of high value, they should be fairly presented in conformity with accounting standards. AU information necessary for understanding, analyzing, and explaining financial statements should be disclosed in a complete and proper manner (Al- Rashed, 1999).

It is inappropriate for the accounting policies and professionals in charge to work in isolation from the important economic developments and their reflections on the quality of financial statements and their relevance to decision- making. Therefore, it was imperative to develop accounting standards or adopt IAS. This was the case in Jordan, where the IAS were adopted to ensure that financial statements are fairly presented to achieve adequate disclosure, cope with developments at the financial level, and take the financial reporting as well as the content of financial reports to the next level.

Accordingly, this study was conducted to outline the importance of applying IAS 32, "Financial Instruments: Disclosure and Presentation," at Jordanian commercial banks and to identify the effect of applying the standard on the fair presentation of financial statements, as well as the adequacy of disclosure in order to give the accurate image about the bank's financial position in a manner that serves the interests of the users of published financial statements.

Problem of the Study

The International Accounting Standards indicate that financial statements issued by different economic entities should have a number of characteristics, so that users can make use of them in rationalizing their various decisions. These characteristics include fairness of presentation, adequate disclosure, relevance, credibility, consistency, comparability, and completeness. Paragraph (15) of IAS 1 stipulates that fair presentation of financial reports is ensured through compliance with the appropriate international accounting standards in all material aspects. …