IDEAS home Printed from https://ideas.repec.org/p/gtr/gatrjs/afr162.html
   My bibliography  Save this paper

The Accounting Conservatism of the Adoption of IFRS in Indonesia

Author

Listed:
  • 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
    as

    Download full text from publisher

    File URL: http://gatrenterprise.com/GATRJournals/pdf_files/AFR%20Vol%203(4)/1.%20Juniarti.pdf
    Download Restriction: http://gatrenterprise.com/GATRJournals/online_submission.html
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    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.
    2. Paul André & Andrei Filip & Luc Paugam, 2013. "Impact of Mandatory IFRS Adoption on Conditional Conservatism in Europe," Working Papers hal-00862683, HAL.
    3. Madah Marzuki, Marziana & Abdul Wahab, Effiezal Aswadi, 2016. "Institutional factors and conditional conservatism in Malaysia: Does international financial reporting standards convergence matter?," Journal of Contemporary Accounting and Economics, Elsevier, vol. 12(3), pages 191-209.
    4. Oliver N. Okafor & Mark Anderson & Hussein Warsame, 2016. "IFRS and value relevance: evidence based on Canadian adoption," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 12(2), pages 136-160, April.
    5. Krismiaji & Y. Anni Aryani & Djoko Suhardjanto, 2016. "International Financial Reporting Standards, board governance, and accounting quality," Asian Review of Accounting, Emerald Group Publishing Limited, vol. 24(4), pages 474-497, December.
    6. Panayotis Manganaris & Charalambos Spathis & Apostolos Dasilas, 2016. "How institutional factors and IFRS affect the value relevance of conservative and non-conservative banks," Journal of Applied Accounting Research, Emerald Group Publishing Limited, vol. 17(2), pages 211-236, May.
    7. Ibrahim El-Sayed Ebaid, 2016. "International accounting standards and accounting quality in code-law countries," Journal of Financial Regulation and Compliance, Emerald Group Publishing Limited, vol. 24(1), pages 41-59, February.
    8. Nicky J. Welton & Howard H. Z. Thom, 2015. "Value of Information," Medical Decision Making, , vol. 35(5), pages 564-566, July.
    9. Niclas Hellman, 2008. "Accounting Conservatism under IFRS," Accounting in Europe, Taylor & Francis Journals, vol. 5(2), pages 71-100, December.
    10. Karampinis, Nikolaos I. & Hevas, Dimosthenis L., 2011. "Mandating IFRS in an Unfavorable Environment: The Greek Experience," The International Journal of Accounting, Elsevier, vol. 46(3), pages 304-332, September.
    11. Wan Adibah Wan Ismail & Khairul Anuar Kamarudin & Tony van Zijl & Keitha Dunstan, 2013. "Earnings quality and the adoption of IFRS‐based accounting standards," Asian Review of Accounting, Emerald Group Publishing Limited, vol. 21(1), pages 53-73, May.
    12. Basu, Sudipta, 1997. "The conservatism principle and the asymmetric timeliness of earnings," Journal of Accounting and Economics, Elsevier, vol. 24(1), pages 3-37, December.
    13. repec:hal:journl:hal-00862683 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Abdulrahman Alomair & Alan Farley & Helen Hong Yang, 2022. "The impact of IFRS adoption on the value relevance of accounting information in Saudi Arabia," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(2), pages 2839-2878, June.
    2. Chan, Ann L.-C. & Hsu, Audrey W.-H. & Lee, Edward, 2015. "Mandatory adoption of IFRS and timely loss recognition across Europe: The effect of corporate finance incentives," International Review of Financial Analysis, Elsevier, vol. 38(C), pages 70-82.
    3. Madah Marzuki, Marziana & Abdul Wahab, Effiezal Aswadi, 2016. "Institutional factors and conditional conservatism in Malaysia: Does international financial reporting standards convergence matter?," Journal of Contemporary Accounting and Economics, Elsevier, vol. 12(3), pages 191-209.
    4. Wafaa Salah & Abdallah Abdel-Salam, 2019. "The Effects of International Financial Reporting Standards on Financial Reporting Quality," Athens Journal of Business & Economics, Athens Institute for Education and Research (ATINER), vol. 5(3), pages 221-242, July.
    5. Kim, Oksana, 2016. "The IFRS Adoption Reform through the Lens of Neoinstitutionalism: The Case of the Russian Federation," The International Journal of Accounting, Elsevier, vol. 51(3), pages 345-362.
    6. Adhikari, Ajay & Bansal, Manish & Kumar, Ashish, 2021. "IFRS convergence and accounting quality: India a case study," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 45(C).
    7. Maigoshi, Zaharaddeen Salisu & Latif, Rohaida Abdul & Kamardin, Hasnah, 2018. "Change in value-relevance of disclosed RPT across accounting regimes: Evidence from Malaysia," Research in International Business and Finance, Elsevier, vol. 44(C), pages 422-433.
    8. Philip Brown, 2011. "International Financial Reporting Standards: what are the benefits?," Accounting and Business Research, Taylor & Francis Journals, vol. 41(3), pages 269-285, August.
    9. Goncharov, Igor & Werner, Joerg R. & Zimmermann, Jochen, 2009. "Legislative demands and economic realities: Company and group accounts compared," The International Journal of Accounting, Elsevier, vol. 44(4), pages 334-362, December.
    10. Kim, Incheol & Miller, Steve & Wan, Hong & Wang, Bin, 2016. "Drivers behind the monitoring effectiveness of global institutional investors: Evidence from earnings management," Journal of Corporate Finance, Elsevier, vol. 40(C), pages 24-46.
    11. Persakis, Anthony & Iatridis, George Emmanuel, 2016. "Audit quality, investor protection and earnings management during the financial crisis of 2008: An international perspective," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 41(C), pages 73-101.
    12. Sílvio Hiroshi Nakao & Sidney J. Gray, 2018. "The Impact of IFRS in Brazil: The Legacy of Mandatory Book‐tax Conformity," Australian Accounting Review, CPA Australia, vol. 28(4), pages 482-495, December.
    13. Kamarudin, Khairul Anuar & Ariff, Akmalia M. & Jaafar, Aziz, 2020. "Investor protection, cross-listing and accounting quality," Journal of Contemporary Accounting and Economics, Elsevier, vol. 16(1).
    14. Mihaela Ionascu & Ion Ionascu & Marian Sacarin & Mihaela Minu, 2018. "Benefits of global financial reporting models for developing markets: The case of Romania," PLOS ONE, Public Library of Science, vol. 13(11), pages 1-24, November.
    15. Yan-Jie Yang & Qian Long Kweh & Ruey-Ching Lin, 2014. "Earnings quality of Taiwanese group firms," Asia-Pacific Journal of Accounting & Economics, Taylor & Francis Journals, vol. 21(2), pages 134-156, June.
    16. Persakis, Anthony & Iatridis, George Emmanuel, 2015. "Earnings quality under financial crisis: A global empirical investigation," Journal of Multinational Financial Management, Elsevier, vol. 30(C), pages 1-35.
    17. Richard Barker & Anne McGeachin, 2015. "An Analysis of Concepts and Evidence on the Question of Whether IFRS Should be Conservative," Abacus, Accounting Foundation, University of Sydney, vol. 51(2), pages 169-207, June.
    18. Jennifer Martínez-Ferrero, 2014. "Consequences of financial reporting quality on corporate performance. Evidence at the international level," Estudios de Economia, University of Chile, Department of Economics, vol. 41(1 Year 20), pages 49-88, June.
    19. Hans B. Christensen & Edward Lee & Martin Walker & Cheng Zeng, 2015. "Incentives or Standards: What Determines Accounting Quality Changes around IFRS Adoption?," European Accounting Review, Taylor & Francis Journals, vol. 24(1), pages 31-61, May.
    20. Rodríguez García, Martha del Pilar & Cortez Alejandro, Klender Aimer & Méndez Sáenz, Alma Berenice & Garza Sánchez, Héctor Horacio, 2017. "Does an IFRS adoption increase value relevance and earnings timeliness in Latin America?," Emerging Markets Review, Elsevier, vol. 30(C), pages 155-168.

    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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gtr:gatrjs:afr162. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Prof. Dr. Abd Rahim Mohamad (email available below). General contact details of provider: http://gatrenterprise.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.