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The Accounting Conservatism of the Adoption of IFRS in Indonesia

Author

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  • Juniarti

    (Petra Christian University, Jl. Siwalankerto 121-131, 60236, Surabaya, Indonesia Author-2-Name: Devi Tirta Raharjo Author-2-Workplace-Name: Petra Christian University, Jl. Siwalankerto 121-131, 60236, Surabaya, Indonesia Author-3-Name: Regina Monica Author-3-Workplace-Name: Petra Christian University, Jl. Siwalankerto 121-131, 60236, Surabaya, Indonesia Author-4-Name: Author-4-Workplace-Name: Author-5-Name: Author-5-Workplace-Name: Author-6-Name: Author-6-Workplace-Name: Author-7-Name: Author-7-Workplace-Name: Author-8-Name: Author-8-Workplace-Name:)

Abstract

Objective - The Indonesian Accounting Standard Authority has required companies to adopt the International Financial Reporting Standard (IFRS) since its adoption in 2012. The new standard emphasizes relevance, while the previous standard focused on conservative issues. While the IFRS does not specifically aim to reduce conservatism, this aspect is no longer the emphasis of the new standard. There are concerns about whether the IFRS reduces conservatism and the research on this issue are still uncertain. Hence, this study aims to determine the level of conservatism in the period following the adoption of the IFRS. The study also aims to examine the outcome of the adoption of the IFRS since its adoption in Indonesia in 2012. Methodology/Technique - Using the accounting conservatism model developed by Basu (1997), the authors compare firm conservatism before and after the adoption of the IFRS. The sample includes companies listed on the Indonesian Stock Exchange between 2006 and 2016. There are 3.742 firm-years that consist of 394 companies from various industrial sectors. The data is analyzed using a Pooled Least Square method. Findings - The results show that conservatism was high prior to the adoption of the IFRS. Further, accounting earnings are more sensitive to the negative return than to the positive return before the adoption of the IFRS. However, in the post-adoption period, sensitivity to negative return has decreased. This means that the adoption of the IFRS has reduced levels of conservatism. The Indonesian Accounting Standard Authority may rely on these results to evaluate the mandatory policy of IFRS. Novelty - This study explores the prevalence of conservatism within firms prior to, and following, the adoption of the IFRS using longitudinal data.

Suggested Citation

  • Juniarti, 2018. "The Accounting Conservatism of the Adoption of IFRS in Indonesia," GATR Journals afr162, Global Academy of Training and Research (GATR) Enterprise.
    • Handle: RePEc:gtr:gatrjs:afr162
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    References listed on IDEAS

    as
    1. Mary E. Barth & Wayne R. Landsman & Mark H. Lang, 2008. "International Accounting Standards and Accounting Quality," Journal of Accounting Research, Wiley Blackwell, vol. 46(3), pages 467-498, June.
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    13. repec:hal:journl:hal-00862683 is not listed on IDEAS
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    More about this item

    Keywords

    Conservatism; Earning Quality; IFRS Adoption; Indonesia; Pre and Post-adoption.;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation

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