THE IFRS ADOPTION: CONTRIBUTION TO VALUATION THEORY
ABSTRACT: The transition to
IFRS has brought fundamental changes as it has impact on corporate accountants,
public auditors, investors and its influence extends well beyond the change in accounting
rules. The purpose of the paper is to investigate whether the information on
IFRS adjustments is value relevant. This paper analyses value-relevance, incremental,
and relative association of the effects of IFRS reconciliations reflected in
earnings and owners’ equity, versus Indonesia GAAP measures. This study adopts
a market value model, which relates a firm’s earnings to shareholders’ equity
measured under Indonesia GAAP together with the respective IFRS reconciliation
adjustment, to its market value, adding some firm specific factors to the
regressions. This research uses regression to test the hypothesis. The results show
that IFRS adjustments improve financial reporting quality and the capacity of
financial statements to explain firm values, over and above the INDONESIA GAAP
numbers. However, the effect is not equally distributed given that they are
more significant for larger firms. The research also reveals that the market
places a high value on the earnings reconciliation adjustments but, in general,
it appears that the IASB has had at least some success in providing relevant
information because it has the capacity to make a difference in investors’
decisions.
Author: Sekar Mayangsari
Journal Code: jpakuntansigg100043
