Abstract
The primary objective of general-purpose financial statements is to provide investors,
lenders and other creditors with decision-useful information. In line with this
requirement, IFRS 7 requires specific risk disclosures, such as credit risk, with regard
to financial instruments for users to evaluate the nature and extent of risks arising and
how these are managed. However, IFRS 7 is premised on a combination of objectivesbased
disclosures and specific disclosure requirements, which provides flexibility to a
reporting entity in respect of the method in which certain disclosures are provided. In
practice, the application of these IFRS® Accounting Standards disclosure
requirements have presented some challenges. Disclosure requirements are often
treated like checklists without due consideration or sufficiently detailed entity-specific
information and regulators have raised ongoing concerns regarding credit risk
disclosure deficiencies. More recently, the International Accounting Standards Board
(IASB) in concluding their Post-Implementation Review (PIR) of IFRS 9 – Impairment,
indicated that targeted improvements to the credit risk disclosures in IFRS 7 would be
made, given the diverse quantity, quality and level of disaggregation of information
disclosed by reporting entities. The objective of this study is to analyse the credit risk
disclosure practices of a selection of non-financial Johannesburg Stock Exchange
(JSE) listed entities and to report on their decision-usefulness in respect of trade
receivables. This study contributes to academic research in respect of the existence
and quality of current credit risk disclosures of listed entities.
This study analyses the credit risk disclosure practices of the top 40 non-financial JSE
listed entities based on their latest audited annual financial statements as published
on 31 March 2024, by applying a deductive research approach. An empirical analysis
is undertaken in examining the credit risk disclosure practices in relation to trade
receivables via a mixed-method research design by using both quantitative and
qualitative research methods. This is respectively done via a disclosure index study to
examine the existence of specific credit risk disclosures in respect of trade receivables,
and a thematic content analysis is then used to evaluate the quality of these
disclosures. The analysis is conducted based on a disclosure checklist derived from
the literature review based on five disclosure themes: (i) general credit risk
disclosures; (ii) credit risk management practices and policies; (iii) approach used to
iv
estimate the expected credit loss allowance (ECLA); (iv) changes in the ECLA; and
(v) credit risk exposure and credit quality.
This study establishes that, credit risk disclosures were, at times limited in providing
decision-useful information to users. While some credit risk disclosures were well
addressed, others were diverse or deficient in nature. Specifically, this study identifies
that significant diversity exists with respect to both quantitative and qualitative
disclosures. Invariably, the diversity is mostly attributable the level of disaggregation
provided, and at times to the lack of sufficiently detailed and entity-specific disclosures.
As such, the observed diversity in respect of some credit risk disclosures results in
reduced comparability between entities and limits the decision-usefulness of
information to users. Furthermore, where insufficient detail and entity-specific
disclosures are provided, a limited understanding of an entity’s nature, extent and
management of credit risk in respect of trade receivables is obtained.
Keywords: Credit risk; disclosure; expected credit loss; financial instruments;
financial reporting; financial statements; IFRS Accounting Standards; IFRS 7 Financial
Instruments: Disclosures; IFRS 9 Financial Instruments; impairment; loss allowance;
post-implementation review; trade receivables.