Marzuki, Marziana Madah and Abdul Wahab, Effiezal Aswadi
(2016)
Earnings And Balance Sheet Conservatism
In Malaysia: The Effect Of Malaysia's
Convergence To International Financial
Reporting Standards (Ifrs).
Asian Academy of Management Journal of Accounting and Finance, 12 (2).
pp. 1-29.
ISSN 1823-4992
Abstract
The objective of this paper is to examine the impact of International Financial Reporting
Standards (IFRS) on both earnings and balance sheet conservatism in Malaysia. Earnings
conservatism has been used extensively in common-law countries such as the United States
(US) and the United Kingdom (UK), which are known to have good financial reporting
quality. In contrast balance sheet conservatism is more evident in code-law countries such
as Japan and France, where accounting practice is highly influenced by the institutional
culture similar to Malaysia such as political connection and family-firms. Since Malaysia
uses international accounting standards adopted from common-law countries, we
hypothesise that earnings conservatism will increase whereas balance sheet conservatism
will decrease after the incorporation of IFRS in the financial reporting environment.
Consistent with the hypothesis, we find that earnings conservatism and balance sheet
conservatism increase and decrease respectively after Malaysia's convergence to IFRS.
The results indicate that Malaysia has successfully adopted IFRS from common-law
countries as earning conservatism increase after IFRS convergence.
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