A Comparative Study for the Impact of IFRS Convergence on Accounting Quality between Malaysian PLC and Chinese PLC

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The purpose of this research is to examines whether Malaysian PLC (fully converge to IFRS) could achieve better accounting quality as compare with Chinese PLC (non-fully converge to IFRS) or otherwise. And then further study on the relationship between the PLCs’ characteristics with accounting quality. Full samples of both groups consist of 2510 PLC and 17570 observations. Group FC (Malaysian PLC) consist of 420 PLC with 2946 observations and Group NFC (Chinese PLC) consist of 2090 PLC with 14204 observations. This research used the Modified Jones model to estimate the absolute value of discretionary accruals (ABSDACC); a proxy for earnings management practice. Accounting quality decrease as earnings management practices in a PLC increase and vice versa. This research used OLS to test the hypotheses. Which includes earnings management (ABSDACC) as the dependent variable, and IFRS Convergence (CONVERGE) and some other variables (PLC’s characteristics) as the independent variables. The result clearly stated that the nexus between CONVERGE (IFRS Convergence) and accounting quality is negative and statistically significant. Hence, Malaysian PLC with full convergence to IFRS practising a lower accounting quality as compare to Chinese PLC. Furthermore, there is a statistical significant negative correlation between the accounting quality with leverage (LEV), profitability (ROA), earnings growth (GROWTH), and prior-year loss (LAGLOSS). Variable firm’s size (SIZE) is significantly positively associated with accounting quality. Percentage change in company shares (EISSUE) is significant but has no relation with accounting quality; while percentage change in company debts (DISSUE) also reported no relationship with accounting quality but insignificant. This study contributes to the literature by examining IFRS convergence in China and Malaysia are useful in evaluating whether fully converged to IFRS achieves its stated objective of fulfilling the financial reporting needs of emerging economies. And add to the literature by identifying the potential PLCs’ specific characteristics that are associated with accounting quality.