Earnings quality before and after the implementation of PSAK 69 (original) (raw)
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Accounting for conservatism or what is known as the precautionary principle is one of the most important and influential limitations on accounting information. With reliable accounting information, the presentation of financial statements will be high quality. Conservatism has become an accounting principle that has been widely adopted by accountants since the 15th century and has become increasingly popular in the past three decades. The FASB Statement of Concept No. 2 defined conservatism as a prudent reaction to deal with uncertainty. This is done to ensure that the uncertainties and risks inherent in the business situation have been adequately considered (Pujiati, 2013). By considering the situation, the company can minimize the risks that may be faced. According to Basu (1997) conservatism is an accounting practice by reducing profits (and decreasing net asset value) when faced with the practice of bad news, but does not increase profits (and increase net asset value) when responding to good news. In principle, conservatism accounting is implemented in conditions if there is something that has not been realized, then the event cannot be recognized. However, acknowledging the decline in assets even though the event has not been realized. Basu added that there was conditional conservatism or ex post conservatism. Conservatism in this form is conservatism based on market conditions related to earnings and depends on news (news dependent). This form of conservatism is a reaction or response from companies that carry out different verification as the absorption of information contained in the business environment. Things related to conservatism can also affect earnings of the company. Values are related to the information that can be caused by gain (profit) and losses (deprivation) economically. In PSAK, several choices of recording methods that can lead to financial reporting are conservative. According to PSAK no. 16 concerning fixed assets and other assets that regulate the estimation or estimated useful life of a fixed asset. That the estimation of the useful life of an asset is based on management's consideration that comes from the company's experience when using similar assets. The estimated useful life must be reexamined periodically and if management finds that the useful life of an asset is different from what was previously estimated, adjustments must be made to the current and future depreciation expenses. These standards allow companies to change the useful life of an asset used and can encourage the emergence of conservative profits. Based on PSAK No.19 concerning intangible assets related to the amortization or depreciation method, it is explained that there are several amortization methods to allocate the amount of depreciation of an asset on a systematic basis throughout its useful life. According to PSAK No. 20 related to research and development costs state that the allocation of research and development costs is determined by looking at the relationship between economic costs and benefits that the company expects to obtain from research and development activities. If it is probable that these costs will increase the economic benefits in the future and these costs can be measured reliably, then these costs meet the criteria to be recognized as assets. With the choice of these methods will affect the numbers presented in the financial statements. So that it can be said that indirectly the concept of conservatism will affect the results of the financial statements.
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This study empirically proves that standard policies concerning the format of presenting income statements are in the form of additional information. This is particularly relevant to the reclassification of other comprehensive income and profit attribution in increasing transparency and reducing asymmetry information. This study investigated the effect of reclassified items concerning other comprehensive income and net income attributable to owners on earnings management and the quality of earnings. The attribution of earnings to owners was found to have a negative effect on earnings management, along with a positive effect on earnings quality as measured by the earnings response coefficient net and comprehensive income. It was also shown that earnings management does not mediate the effect to earnings quality. Accordingly, this means that the market has responded positively to the reclassification of other comprehensive income and profit attribution. It also precludes the company f...
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The use of fair value to measure the worth of biological assets allows discretionary choices when using discounted cash flow in the absence of an active market, influencing the quality of accounting information. The objective of this study was to investigate evidence of earnings management among Brazilian companies that have adopted fair value based on the discounted cash flow method. The firms were investigated with regard to: a) disclosure of the discount rate, b) BM&FBovespa corporate governance levels; and c) adherence to disclosure requirements in the Brazilian accounting standard CPC 29 (IAS 41). We analyzed 31 firms with significant biological assets from 2010 to 2012. The earnings management measurements were calculated according to the modified Jones, the Teoh, Welch and Wong (1998), and the KS models. The Mann-Whitney test of the means was applied and revealed evidence of greater earnings management for companies that use discounted cash flow, and the ones that least meet CPC 29 disclosure requirements, considering the KS model estimates. Regarding the other proposals, testing did not offer enough evidence of differences in discretionary accruals. In this sense, only hypotheses 1 and 4 are partially accepted, demanding more research in this area. We also present evidence in favor of adopting Exposure Draft ED/2013/08 Agriculture: Bearer Plants, Proposed amendments to IAS 16 and IAS 41, which proposes to measure biological assets at cost, because firms already following these rules showed lower earnings management in this study.