A TEST OF A MANDATED ACCOUNTING CHANGE: CONSOLIDATION STANDARD AASB 1024

Corporate disinvestments and liquidations of 'controlled associates' are found to have coincided with the introduction of the amended Australian consolidation Standard AASB 1024 which mandated consolidation of controlled associate assets and liabilities that had previously been excluded from group financial statements. Reporting higher-than-expected group debt is argued to be costly in the presence of information asymmetry. Strong evidence is found that firms reducing equity ownership in or liquidating many of their controlled associates exhibited lower net-of market returns relative to firms that did not. From this we infer the former firms faced higher disclosure costs.