Measurement of de facto harmonisation: implications of non-disclosure for research planning and interpretation

Index-based harmonisation measurement techniques using company accounts data have been developed in prior research. Although the results of applying such measures have been reported in the literature as indicating actual levels of financial reporting harmony, such conclusions have not always been justified. In the first instance, it can be argued that the limitations of the indices as measures of financial reporting harmony in situations of non-disclosure were not always appreciated or highlighted. Secondly, data used for the purpose of measuring harmony was not always sufficiently robust to support the conclusions drawn. In this study, a generalised formula is presented, combining different categories of non-disclosure. It is reconciled to special cases derived in previous research and is then applied to company accounts data, which is sufficiently refined in detail to form a basis for answering illustrative exploratory research questions relating to the level of harmony and harmonisation trends. The specific analysis relates to deferred tax accounting in Ireland and Denmark over a period of eight years. Statistical analysis reinforces a discussion that warns researchers of the potential variations in results. Conclusions are drawn that the state of harmony is better estimated when the data is analysed to distinguish applicable from not-applicable cases of non-disclosure, and the index formulae applied are adjusted appropriately in both the numerator and the denominator. However, caution remains necessary where the non-disclosure level is relatively high.