Analysis of Accounting Conservatism on Accounting Policy Post-Implementation of International Financial Reporting Standard

Abstract

The study aims to examine the conservatism of accounting policies after convergence to IFRS in the financial reporting of Indonesia. The study was conducted with the population of manufacturing companies listed in Indonesia Stock Exchange. Samples were determined by purposive sampling method, obtained a sample of 75 firms with 8 years of observation ( 20082015). Tests using a panel of data and there are 600-year-firm observations, where data is divided into two periods: before and after IFRS. The analysis using Basu Model (1997) was developed by Ismail and Elbolok (2011). The model to examine conditional and unconditional conservatism. Additionally, conducted the negative earnings response coefficient models (Basu, 1997, which was modified by Ball and Shivakumar, 2005, and Ruddock et al., 2006), and the response coefficient of accruals on the negative versus positive cash flow models by Ball and Shivakumar (2005) modified by Ruddock et al. (2006). The result shows that ex ante conservatism (unconditional conservatism) or also called balance sheet conservatism has decreased. Because of fair value in the statement of financial position, the which previously used historical cost. Although the fair value was not completely eliminating conservatism, because of the lot of value of level 2 and 3. In contrast, the ex post conservatism (conditional conservatism) was also called income statement conservatism increased. This research shows that the arguments of IFRS are of fair value and financial statements, free from conservatism can be rejected. This study also shows that conservatism at a certain level is still needed because of the contracting efficiency.