The Effect of Financial Distress, Firm Size, Leverage and Litigation Risk on The Application of Accounting Conservatism In Manufacturing Companies Listed In Indonesia Stock Exchange

Ira Septriana,Agung Prajanto,Hermawan Triyono

doi:10.33633/jpeb.v6i2.4303

Abstract

This research aims to analyze the effect of financial distress, firm size, leverage, and litigation risk on implementing the accounting conservatism of manufacturing companies in Indonesia. The population in this research is manufacturing companies listed on the Indonesia Stock Exchanged (IDX) over 2014-2018. Research sample selection used the purposive sampling method. Obtained company data that meet the research criteria as many as 169 companies, so that the total research data is 149 data. The analysis methods in this research are multiple regression analysis. Based on the test results of the research conclude that variables of the board of financial distress, firm size, and litigation risk have no effect on accounting conservatism implemented of manufacturing companies. Meanwhile, the variable of leverage affects the accounting conservatism's implemented by manufacturing companies. Keywords: Conservatism Accounting. Financial Distress, Firm Size, Leverage, Litigation Risk

Highlights

IFRS (International Financial Reporting Standards) is an International Accounting Standard used by companies in the world on an international scale
IFRS convergence itself aims to improvise on corporate financial information's quality, especially companies listed on the Stock Exchange
Accounting conservatism recognizes a decrease in assets even though the event has not yet been realized, but if there is an increase in unrealized assets, it cannot be identified

Summary

Introduction

IFRS (International Financial Reporting Standards) is an International Accounting Standard used by companies in the world on an international scale. As one of the G-20 members, must follow the agreement to carry out IFRS Convergence. IFRS convergence itself aims to improvise on corporate financial information's quality, especially companies listed on the Stock Exchange. Based on PSAK 68, the Financial Statements use valuations based on Fair Value. Using Fair Value in valuation here means that if there is no active market value, it must conduct self-assessment (competence required) or use the services of an appraiser. This results in a managers' expectation in the face of uncertainty are to apply conservative accounting principles. Accounting conservatism recognizes a decrease in assets even though the event has not yet been realized, but if there is an increase in unrealized assets, it cannot be identified

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Conclusion