What Motivates Shariah Compliant Companies in Applying Accounting Conservatism?

Abstract

This study seeks to investigate the potential of corporate governance attributes (board independence, board leadership, ownership concentration, and audit committee) and bankruptcy prediction in the use of accounting conservatism by shariah compliant companies listed at Amana Income Investor as the first Islamic index in the world. The samples consist of the Top 10 Companies listed at Amana Income Investor from 2010- 2019. The 98 total observation data comprising of annual reports of the selected companies are analyzed using multiple linear regression. The findings indicate that some of corporate governance attributes like board independence, board leadership, and ownership concentration have no association with accounting conservatism. By contrast, audit committee and bankruptcy prediction have a significant effect accounting conservatism. This study implies that financial reporting environment for Shariah compliant businesses is relatively unique and indicate a support for a dedicated accounting principles and financial accounting standards for Shariah compliant businesses.