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Value Relevance Of Accounting Information During Ifrs Convergence Process In Indonesia

1733 words - 7 pages

International accounting standards have been affecting Indonesian companies since 1994 when DSAK has committed to harmonizing PSAK to international accounting standards. As such, most PSAK issued since then have been based on international accounting standards. Although the converging process was slow in the first decade, DSAK take a serious effort to expedite the convergence process in 2009. A number of new revisions are made and some new standards are issued during 2009 and 2010. However, the target to fully IFRS adoption in 2012 has not been achieved. Some major and minor differences between IFRS and PSAK still exist. The convergence process still left two PSAK that have not been adopted ...view middle of the document...

The goal of establishing international accounting standards (IAS/IFRS) is to develop an internationally acceptable set of high financial reporting standards. However, there has been considerable debate over the value relevance of accounting information prepared under IAS/IFRS. Barth et al. (2001) show that firms with high quality accounting have a stronger association between stock prices and earnings and book value because higher earnings quality better reflects a firm`s economic condition. In addition, Barth et al. (2008) also find the accounting standards that reduce earnings management behavior result in high value relevance accounting earnings.
However, prior studies on value relevance of accounting information under international standards show conflicting evidence. Some studies find that accounting information under IAS/IFRS is more value relevance (Barth et al., 2008; Paglietti, 2009; Liu et al., 2011; Samarasekera et al., 2012; Alali and Foote, 2012; Widodo Lo, 2012; and Wan Ismail et al., 2013), while other studies find no improvement in value relevance after IAS/IFRS adoption (Paananen and Lin, 2009; Dobija and Klimczak, 2010; Aubert and Grutnitski, 2011; and Tsalavoutas et al., 2011).
Studies on the relevance of IFRS adoption in emerging market become more popular in the recent years, especially value relevance of accounting information prepared under IFRS-based standards. Liu et al. (2011) argue that examining the value relevance of accounting information under IFRS in an emerging market become interesting because investors in emerging markets have very limited information available. Widodo Lo (2012) investigates value relevance of accounting information under IFRS transition in Indonesia from 1994 to 2009. He finds that value relevance of earnings and equity book values is higher in the period of significant adoption of IAS/IFRS than the period of little IAS/IFRS adoption. IFRS convergence process in Indonesia is still continuing. This continuing process has been made significant revisions of the standards since 2009.
Based on this background, it is interesting to investigate value relevance of accounting information prepared under accounting standards during IFRS convergence process in Indonesian market. The main purpose of this study is to examine whether value relevance of accounting information increase over time during IFRS convergence process. Different from Widodo Lo (2012), which only use price model in his analysis, this study analyzes value relevance during IFRS convergence process using price model and return model. By using both models, the analysis encompasses the scope of assessing value relevance into both income statement and balance sheet. Moreover, this study uses more recent data of Indonesian listed firms, which covers period from 2005 to 2012. This study also gives other contribution by analyzing some factors that may affect value relevance of firms financial reporting. These factors include positive vs....

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