Secrecy, Mandatory IFRS Adoption and Earnings Quality

Houqe, Nurul; Monem, Reza; Tareq, Mohammad; Zijl, Tony van

doi:10.2139/ssrn.2716061

Cited by 2 publications

(4 citation statements)

References 31 publications

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“…The principle of fair value enables companies to present their financial information appropriately to investors (Barth et al, 2008;Yen et al, 2016). There is a large body of evidence from prior studies that the adoption of the IFRS in developed countries increases earnings quality (Chen et al, 2010;Houqe et al, 2015;Manganaris et al, 2016;Okafor et al, 2016). This result seems consistent with many of the studies conducted in developing countries (Ismail et al, 2013;Chebaane & Othman, 2014;Krismiaji et al, 2016;Outa et al, 2017).…”

Section: Introductionsupporting

confidence: 60%

“…The conservatism level of financial reporting immediately recognizes the possibility of loss, so that the loss is recognized following the fair value. The IFRS does not disregard conservatism as it follows the guideline of value relevance (Chen et al, 2010;Ismail et al, 2013;Chebaane & Othman, 2014;Houqe et al, 2015;Krismiaji et al, 2016;Manganaris et al, 2016;Okafor et al, 2016;Outa et al, 2017). In the IFRS, the possibility of loss is recognized on time, similar to the conservatism principle.…”

Section: Hypotheses Developmentmentioning

confidence: 99%

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The Accounting Conservatism of the Adoption of IFRS in Indonesia

2018

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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. Type of Paper Empirical Keywords: Conservatism; Earning Quality; IFRS Adoption; Indonesia; Pre and Post-adoption. JEL Classification: M41, M48.

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Section: Introductionsupporting

confidence: 60%

Section: Hypotheses Developmentmentioning

confidence: 99%

The Accounting Conservatism of the Adoption of IFRS in Indonesia

2018

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“…15 Using a sample based on 1,574 in European countries between 2001, Zeghal et al (2012 find that mandatory adopters show less earnings management, higher quality of accounting accruals, less loss avoidance (the improvement of earnings quality). 16 Houqe et al (2016), using a sample of 24,034 firm-years in 16 EU countries, report similar results. However, based on a sample of 15,206 firm-years from EU 22 countries between 2000 and 2010, Doukakis (2014) finds that IFRS mandatory adoption does not have a significant effect on real earnings management nor accrual-based earnings management.…”

Section: Effect Of Ifrs Adoption On Earnings Qualitymentioning

confidence: 64%

“…19 They report that positive effects on earnings quality are confined to firms in countries with stronger investor protection. Houqe et al (2016) find that the improvement of earnings quality of mandatory adopters is more pronounced in countries with a stronger culture 15 However, they show stronger income smoothing and less timely recognition of economic losses. 16 Timeliness, conservatism, and value relevance are not improved.…”

Section: Effect Of Institutional Factors On the Relationship Between mentioning

confidence: 91%

Cross-Country Research on Earnings Quality: A Literature Review and Future Opportunities

Enomoto

2020

TJAR

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Over the last two decades, a growing body of literature has investigated the factors influencing the differences in financial reporting, especially earnings quality, in an international setting. The purpose of this paper is to provide an overview of the crosscountry research that focuses on earnings quality and to offer suggestions for future topics in the field. In this study, I first discuss the relationship between earnings quality and the following institutional and cultural factors that have been examined in prior literature: legal tradition, investor protection (outside investor rights and legal enforcement), tax system, regulations, financial development, market competition, accounting standards (divergence from IAS), enforcement of accounting standards, culture, religiosity, and language. Second, the relationship between the improvement of earnings quality and International Financial Reporting Standards (IFRS) adoption is described. The results are mixed and suggest that a single set of accounting standards that are generally viewed as high quality does not always improve earnings quality. In addition, the relationship varies with the institutional and cultural factors of a country. It means that improvement through IFRS adoption would require the development of an institutional environment. Finally, as a prospect for future research, this paper discusses the extension from a single-country to crosscountry study, the impact of IFRS adoption * We gratefully acknowledge the useful comments and feedback from

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Secrecy, Mandatory IFRS Adoption and Earnings Quality

Cited by 2 publications

References 31 publications

The Accounting Conservatism of the Adoption of IFRS in Indonesia

The Accounting Conservatism of the Adoption of IFRS in Indonesia

Cross-Country Research on Earnings Quality: A Literature Review and Future Opportunities

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