The Australian Stock Exchange (ASX) required all listed firms to disclose their Y2K compliance status to the ASX by the 30 June 1998. However, the ASX did not prescribe the form and content of the required Y2K disclosures. Consequently, the resulting Y2K disclosures reflected the exercise of considerable discretion by firms. The discretionary nature of these disclosures provides a unique opportunity to examine the determinants of discretionary disclosure by Australian firms. Given the nature of the Y2K problem, this issue is particularly important as almost all firms that uses date dependant systems are affected, and for firms that fail to take appropriate corrective action, the operational and economic implications are potentially huge.
The research method adopted in this study involves testing a regression model where the dependent variable is a disclosure index with its ranking derived form classifying the disclosures made to the ASX according to the nature and extent of each Y2K disclosure. Based on prior disclosure literature, firm characteristics are identified which are expected to explain differences in disclosure patterns.
Consistent with expectations, the findings reveal a positive association between key disclosure determinants and the extent of disclosure. These determinants included firm size, audit type, firm leverage and uncertainty of the firm. Interestingly, among all the variables that are examined in this study, audit type has the strongest association with the extent of disclosure that suggests considerable concern by auditors of the potential litigation costs.