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This study provides an explanation of how the process of setting new mandatory disclosure requirements in the financial reporting environment takes place by using codification theory. An empirical investigation was undertaken on the Jordanian financial reporting practices by measuring the association between the voluntary and mandatory disclosure practices of 51 manufacturing corporations before and after imposing the new Jordanian Securities Commission (JSC) mandatory requirements in 1998. The results indicate a significant, positive relationship that reflects that in 1998 the JSC took the existing Jordanian companies’ voluntary financial disclosure practices and codified this practice into mandatory disclosure requirements. This paper provides evidence that will benefit future accounting standard setters as the codification of an existing optimal voluntary practice as a mandatory requirement increases the future level of compliance. This might be due to familiarity and cost effectiveness through reduced costs of compliance and analysis from a corporation's side, as well as through reduced costs associated with setting financial reporting standards, as the process can be costly for government. This paper addresses a topic that has not received appropriate attention in the extant literature, which offers a new platform for future research exploring new developments of financial reporting in relation to codification theory.

Codification Theory is a Gateway for Setting Mandatory Reporting Requirements in Emerging Economies