Compliance with IFRS 7 by financial institutions: evidence from GCC

The purpose of this paper is to address the essential steps for constructing a compliance index. It answers the research question: ‘What are the guidelines for constructing the compliance index with IFRS 7?’ To conduct this study, an index is constructed based on the disclosure requirements of financial instruments (i.e. IFRS 7). The sample includes listed banks from the Gulf Cooperation Council (GCC) countries that adopted IFRS mandatorily from 2011 to 2017. Further, a descriptive analysis is employed. The findings emphasise the significant role of the steps outlined in constructing the index. Despite the importance of all the steps mentioned (basic source, materiality, reliability, validity, and scoring), there are some forms that can be considered as alternatives for each other. Overall, clarifying these steps for constructing an index will no doubt increase the effectiveness of the tool used for measuring the compliance level. Consequently, future researchers can concentrate more on other types of requirement, such as measurement and presentation. They may also include non-financial sectors and give more attention to the other scoring methods mentioned in the study. The study contributes to the IASB by supporting their efforts towards improving disclosure, especially in mandatory cases. It also supports all initiatives and efforts of policy makers, government institutions, and formal associations. The study presents illustrative steps to establish an index under the basic requirements (narrative study). Moreover, it provides a new index to measure cross-country (GCC countries) compliance with IFRS 7.