Abstract
This study aims to determine the effect of IFRS adoption on the readability of annual reports readability in Indonesia. The sample of this study includes 52 non-financial firms within a four-year period, from 2010-2011 and 2013-2014, with 208-year observations. Hypothesis testing is conducted by multiple linear regression analysis. This study provides evidence that IFRS adoption has significant and negative relationship with disclosure readability in Indonesian public companies. Implication of this study is IFRS adoption requires more sophisticated and/or more competent users of financial statements, measured by higher requirements of years of education needed to comprehend the disclosures.
Highlights
As one of the sources of information on decision making, financial statements are prepared based on applicable accounting standards to produce relevant and reliable information
The results show that the readability of annual reports based on International Financial Reporting Standards (IFRS) is significantly lower compared to financial statements prepared based on local accounting standards
The researcher found that IFRS adoption in Indonesia had a negative and significant effect on the readability of financial statement disclosures in Indonesia
Summary
As one of the sources of information on decision making, financial statements are prepared based on applicable accounting standards to produce relevant and reliable information. The adoption of international accounting standards into local accounting standards has the purpose of producing financial reports that have high credibility [29]. Many countries have adopted International Financial Reporting Standards (IFRS) into local accounting standards. The strategy of IFRS adoption consists of the big bang strategy and gradual strategy. Big bang strategy has been used by developed countries, such as European Union countries, Australia, Hong Kong, and New Zealand; while other countries such as Indonesia, Malaysia and the Philippines chose to carry out IFRS convergence gradually [30]. The development of financial accounting standards in Indonesia initially referred to the US Generally Accepted Accounting Principles (US GAAP), since 2008 Indonesia has begun to gradually adopt International Financial Reporting Standards (IFRS)
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