The Influence of the Financial Distress, Conflict of Interest, and Litigation Risk on Accounting Conservatism

Abstract

This study aims to determine the effect of financial distress, conflict of interest, and litigation risk on the implementation of accounting conservatism. Data were collected from 20 annual reports of a manufacturing company in Indonesia, which is being experienced financial distress from the period 2014 to 2017. Model data analysis in this research is panel data regression. The results of this study indicate that financial distress can reduce the application of accounting conservatism. Relatively low conflicts of interest between investors and creditors have not been able to influence accounting conservatism. However, conservative reporting can avoid the litigation risk in the future. This research can be an input for companies to recognize early financial conditions, so they can overcome problems that might occur. For investors, creditors, and the government must monitor the behavior and actions of managers in presenting financial statements so as not to harm other parties. For further research can use financial that are prone to detect financial distress and add samples from other company sectors.
 Keywords: Accounting Conservatism, Financial Distress, Conflict of Interest, Litigation Risk

Accounting conservatism and uncertainty in business environments; using financial data of listed companies in the Tehran stock exchange

“…Accounting conservatism, previously accepted in the US GAAP, is projected to reduce the degree of implementation or will be abolished and substituted by prudence (Sholikhah and Accounting conservatism and uncertainty Suryani, 2020). However, on the basis of prior conservatism study, it can be inferred that conservatism has remained as one of the most significant features of financial reporting that it warrants further studies and cannot be removed from accounting principles (Zhong and Li, 2017).…”

Pengaruh Asimetri Informasi dan Risiko Litigasi Terhadap Konservatisme Akuntansi dengan Variabel Moderasi Financial Distress

“…Menurut (Hery, 2016:33) kesulitan keuangan adalah ketika keadaan perusahaan mengalami kesusahan dalam memenuhi tanggung jawabnya, serta pendapatan perusahaan tidak dapat melunasi hutang maupun total beban sehingga keuangan perusahaan mengalami kerugian. Kondisi keuangan perusahaan yang bermasalah dapat mendorong pemegang saham melakukan penggantian manajer perusahaan (Rahayu et al, 2018) serta mengakibatkan tidak dapat terpenuhinya hak-hak dari pihak berkepentingan (Sholikhah & Suryani, 2020). Oleh karena itu, konservatisme akuntansi mendorong pihak manajemen menyajikan laba yang tidak berlebihan dan melakukan pengelolaan perusahaan untuk meminimalisir konflik keagenan.…”

“…Jika perusahaan tidak ingin mendapat ancaman litigasi, maka perusahaan akan menyajikan laporan keuangan secara konservatif. Sejalan dengan penelitian (Sholikhah & Suryani, 2020) dan (Rahayu et al, 2018) menemukan hubungan positif risiko litigasi terhadap konservatisme akuntansi, namun perbedaan hasil penelitian (Mumayiz & Cahyaningsih, 2020) dan (Putri, 2019) menyatakan bahwa risiko litigasi berpengaruh negatif terhadap konservatisme akuntansi menunjukkan tidak konsistennya hasil penelitian tersebut.…”

“…Sejalan dengan penelitian (Mumayiz & Cahyaningsih, 2020) dan (Putri, 2019) yang menjelaskan bahwa kesulitan keuangan berpengaruh positif terhadap konservatisme akuntansi. Hasil penelitian ini berbeda dengan (Sholikhah & Suryani, 2020) menemukan bahwa financial distress tidak mempengaruhi konservatisme akuntansi.…”

The Role of Accounting Conservatism Influence Financial Distress and Litigation Risk on Sustainability Report of Infrastructure Companies Listed on Indonesian Stock Exchange for the Period 2019 – 2021

“…The occurrence of financial distress for the company is caused by the company because the company is late in debt payments, the company experiences failure in debt payments when the contract has expired, delays and demands or litigation made by the company. (Mar'atus Sholikhah & Wilujeng Suryani, 2020). The occurrence of Financial Distress in the company has 3 internal and external factors, according to (Supriati et al, 2019) which states that the main factor in causing Financial Distress from the main factors of the company's internal, namely company losses, the amount of debt and cash flow difficulties while the cause of Financial Distress from factors The main external factors of a company are in the form of government policies that have increased tax rates, an increase in loan interest rates, and fluctuations in currency exchange rates against other countries' currencies, from these external factors resulted in an increase in operating expenses that must be borne by the company.…”