april 3aa- presentation ugm
TRANSCRIPT
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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
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General Overview
Investors
Listed Firms
Government &Regulator
Manipulate FR
Acct. Standard
Demand High
Quality of FR
Effic
mark
Invesconf
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Issue of Interest (1)
Investors
ListedCompanies
Government& Regulator
Manipulate FR
Regulate
Review FR
Accountin(IFRS)
IS practice
O
in
d
f ( )
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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
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Research Objectives
Accounting
Reforms
2005 :
Converged to
IFRS
Government
& Regulator
Pra
?
Companys factors:
- Company Size
- Profitability
- Debt Financing
- Institutional Ownership
IS Practi?
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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)
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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)
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Research Design (1)
Firms with complete data
Initial Sample
2000 2004
Smoother Firms= 210
Non Smoother Firms= 117(Average score of smoothing index
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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)
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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)
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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
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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
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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
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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
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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
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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
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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.