April 3AA- Presentation UGM

7/28/2019 April 3AA- Presentation UGM

1/18

Did the IFRS Adoption have Effect on Acco

Manipulation Practices in Emerging EconThe Case of Indonesian Listing Compa

Theresia TrisantiSekolah Tinggi Ilmu Ekonomi YKPN, Yogyaka


2/18

General Overview

Investors

Listed Firms

Government &Regulator

Manipulate FR

Acct. Standard

Demand High

Quality of FR

Effic

mark

Invesconf


3/18

Issue of Interest (1)

Investors

ListedCompanies

Government& Regulator

Manipulate FR

Regulate

Review FR

Accountin(IFRS)

IS practice

O

in

d

f ( )


4/18

Research Focus

Accounting ReformIncome

SmoothingPractices

Constrain ?

Indonesian Context

Issue of Interest (2)IFRS were from developed countries

Developed countries (Aggressive

shareholders activisms, active takeovermarkets, diverse corporate

shareholdings).

Developing countryInd

concentrated ownership developing legal infrastr

accounting & corporate X


5/18

Research Objectives

Accounting

Reforms

2005 :

Converged to

IFRS

Government

& Regulator

Pra

?

Companys factors:

- Company Size

- Profitability

- Debt Financing

- Institutional Ownership

IS Practi?


6/18

Literature ReviewIS practices occur when companys management take step

reduce and store earnings during the good years and defe

for use during the business-downturn years orvice versa2009; Lo, 2008).

Authors/

Variable

Aussenegg,

E.U,

2008

Latridis,

U.K.

2010

Tondeloo ,

Germany,

2005

Paglietti,

Italy,

2009

Paananen,

Sweden,

2007

IncreasedMarket

Liquidity

Yes No No No

Reduce

Trans Cost Yes Yes

Increased Disclosure

Yes Yes No

Information

Comparability Yes Yes Yes Yes Yes

Reduce

EM practice Yes No Yes No

LR: Research of the effects of IFRS adoption to

(selected only)


7/18

esearc ypot eses

Four variables related to companys factors will be tested to ascertain their effect i

practices.

H2 There is a significant relationship between the IS practice and the company siz

H3 There is a significant relationship between the IS practice and the total debt of

H4 There is a significant relationship between the IS practice and the institutional o

company.

H5 There is a significant relationship between the IS practice and the profitability o

The main hypotheses to ascertain whether the convergence to IFRS have effec

practices.

H1 There is a significant differences on IS practices after the convergence to IFR

the pre- period convergence.

R h D i (1)


8/18

Research Design (1)

Firms with complete data

Initial Sample

2000 2004

Smoother Firms= 210

Non Smoother Firms= 117(Average score of smoothing index


9/18

Research Design (2)

Smoother = 1

Non- Smoother = 0

Independent Variable

Company and CG factorpractices: Company size (H2) Debt financing (H3) Institutional ownersh Profitability (H5)

DependentVariable(Status)

Logistic regression model was used to test the com

factors that affecting IS practices.

Logit (pi) = ln [pi/1-pi] = + 1 SIZEi + 2 DEBTi + 3 INSTi + 4

Fi di d Di i (1)


10/18

Finding and Discussion (1)

Paired Differences Sample Test Before and After Convergence to IFRS

Description MeanStd. Deviation Std. Error

Mean T

Pair 2000-2004 with

2005-2009 0.066 0.302 0.026 2.546

* Notes: The table indicated significance at 0.01 (***), 0.05(**) and 0.1(*) levels

The Effect of Convergence of IFRS to IS Practices

Firms with Complete Financial Data

Description NumbListed firms from 2000 to 2009

Bank and financial institution (-)

Incomplete data (-)

Listed firms with complete data from 2000 to 2009

R h Fi di d Di i (3)


11/18

Research Finding and Discussion (3)

Variables

Before Convergence to IFRS

(2005-2009)

After Convergenc

(2005-200

SIZE 0.115 0.213

DEBT 0.025** 0.013**

INST 0.312 0.239

PRT 0.018** 0.014**

* Notes: The table indicated significance at 0.01 (***), 0.05(**) and 0.1(*) levels

Logistic Regression Result

Logit(pi) = 1.871 -0.881*SIZE + 2.480*DEBT -0.05

+5.006*PRT


12/18

Limitations of the Research

Suggestions for Future Research

The convergence of accounting standards to IFRS was started

year 2005 and continuing convergence until now. The samples

research were collected from 2000 up to 2009 only.The study focused only on publicly listed companies in I

Develop different IS model: different type of industry.

Research Finding

The IS practices get lesser after

convergence to IFRS, but the

occurrence still high.

The big challenge is

on releasing standard

regulations but is on

that they can be wellimplemented and mo


13/18


14/18

The explanatory variables and measurem

Variable Representedby

Predicted Measured Company Size SIZE (+) Total assets (after taking logarit

Debt Financing DEBT (+) Long term debt to total assets

Institutional

Ownership INST (+)

% of institutional ownership

Profitability PRT (+) Net income after tax to total ass


15/18

Artificial & Real SmoothingArtificial smoothing: changing in accounting

procedures. Examples: inventory valuation,depreciation and changing in accounting estibad debts, capital assets lives, and pensionassumption.

Real smoothing: examples: timing transactio

capital assets acquisitions, spending the R&Dadvertising, delay (after shipment) or acceler(before shipment) the recognition of sales at year-end period.

(Atik, 2009; Chong, 2004; Eckel, 1981)

International Financial Report


16/18

International Financial ReportStandards (IFRS) IFRS is issued by the International Accounting

Board (IASB). They purport to be a set of ruleswould apply equally to financial reporting by p

companies worldwide.

Information asymmetry should decrease:

IFRS are more market-oriented IFRS disclosure requirements are larger

Earnings management and IS practices should

IFRS are more precise

They admit a limited number of options


17/18

Income Smoothing Model

Eckels indexIS index = (CVi/CVs)

where

i = one-period change in income

S = one-period change in sales

CVj = coefficient of variation for

variable j (i.e., j's standard deviation

divided by its expected value)(Ahmad & Mansor, 2009; Habib, 2005; Ashari et al., 1994)

If the CVi (the c

variation for inco

than the CVs (th

of variation for sa

ratio less than on

suggesting that t

income smoothe

A h t D t t IS P ti


18/18

Approaches to Detect IS Practices

1. Studies uses income smoothing index (CVi / CVs)

1981)

2. Studies accepts accounting changes as income-sm

instruments and examines the effects of accountin

changes to the net incomes of firms (Moses, 1987

3. Studies and examines classificatory smoothing. O

income (income before extraordinary items) is a bepredictor of future cash flows than net income.

4. Studies uses discretionary accruals to detect inco

smoothing behavior. Accrual models were develop

earnings management literature.

Documents

April 3AA- Presentation UGM