The Effect of Quantity and Quality Sustainability Disclosure Towards Innate and Discretionary Earnings Quality

Etna Yuyetta,Sudarno Sudarno,T. Triadi Putranto,Aditya Septiani,B. Warsito

doi:10.1051/e3sconf/202020203029

Abstract

Examining the effect of quantity and quality of sustainability disclosure on innate and discretionary earnings quality is the purpose of this research. the GRI G4 index was used to measure The sustainability disclosure quantity, while the report form, the adherence level and external statements was used to measure the quality of sustainability disclosure. A modified Jones Model uses to measure Innate and discretionary earnings quality as the dependent variable. Return on assets, leverage, net operating assets, and operating cycle were used as control variables. The research sample consisted of 10 main sector companies, namely the agriculture and mining sub-sectors, which are listed in the Indonesia Stock Exchange in 2014-2018. purposive sampling method was used in this research. The technique of analysis in this research is multiple linear regression analysis. As results, innate earnings quality was significantly influenced by sustainability disclosure quantity while discretionary earnings quality was not significantly influenced by sustainability disclosure quantity. Moreover, both innate earnings quality and discretionary earnings quality was significanty influenced by the quality of sustainability disclosure.

Highlights

Earning is an indicator of health and company performance that is used as a basis for decision making by stakeholders
The quantity of sustainability disclosure has a significant positive effect on innate earnings quality. These results prove the company conducts sustainability disclosure in order to give a good signal to the market so that it can increase the innate earnings quality of the company
The quantity of sustainability disclosure does not have a significant positive effect on discretionary earnings quality. These results indicate that the flexibility of management to conduct sustainability disclosure does not affect the mitigation of earnings management practices as reflected by discretionary earnings quality

Summary

Introduction

Earning is an indicator of health and company performance that is used as a basis for decision making by stakeholders. High earning quality will reduce uncertainty, low earnings quality will cause information asymmetry towards users of financial statements[1].According to Francis, Olsson, & Schipper (2008) [10]there are two factors that influence earnings quality. : the factor that reflects the financial reporting process itself, which is called discretionary earnings quality. Innate earnings quality refers to whether high-quality corporate business, how business models can convert income into cash and profits, while discretionary earnings quality leads to whether accounting can encourage clarity, communication, transparency, predictability, and visibility[7].

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