Wan Adibah Wan Ismail

Earnings Quality and the Adoption of IFRS-Based Accounting Standards: Evidence from an Emerging Market

Purpose - This study aims to investigate the differences in earnings quality of Malaysian companies after the adoption of IFRS-based accounting standards named FRS. Design/methodology/approach - It is hypothesize that under the new set of accounting standards, the quality of earnings reported by these companies is relatively higher. Specifically, the study tests whether the level of earnings management is significantly lower after the adoption of IFRS, and reported earnings is more value relevant during the IFRS period. This study uses a large sample of 4,010 observations over a three-year period before and a three-year period after the adoption of the new set of accounting standards. Findings - The results show that IFRS adoption is associated with higher quality of reported earnings. It is found that earnings reported during the period after the adoption of IFRS is associated with lower earnings management and higher value relevant. Originality/value - The results of this study contribute additional evidence to the literature on earnings quality and the impact of IFRS adoption. As most of the existing studies on earnings quality and IFRS have been conducted on data from the U.S and European countries, this study fills a gap in the existing literature by studying the effect of adoption of IFRS on earnings quality in an emerging market.

Corporate Failure Prediction: An Investigation of Pn4 Companies

This paper investigates twenty financial ratios to develop a local financial failures prediction model. The study covers the period of 1993‐2001. We used mean and comparison of difference to the data set of fiveyears before the failures to identify the most superlative ratios. From these ratios, we developed two prediction models by using a logistic regression. The results indicae that these models are excellent in predicting financial failures a year before failure. Both models are able to predict financial failure two years before the failures with more than 90 per cent accuracy rate. It is hoped that this study, which is conducted using a recent data can contribute towards existing literatures on corporate failure prediction.

Income Smoothing and Market Perception of Accounting Numbers: An Empirical Investigation of Extraordinary Items

This paper examines issues related to the reporting of extraordinary items in the financial statements of Malaysian companies. The first issue concerns the change of accounting standards on extraordinary items, which has limited the scope of extraordinary items. It is found that there are significant changes on the incidence of reported extraordinary items during the period after the adoption of the new standard. The findings supported the argument that the new standards on extraordinary items had consequently reduce significantly these items from financial statements. This paper hypothesizes that extraordinary items classification choice is a means used by companies to smooth income. Two types of statistical tests performed have confirmed the proposition that the disclosure of extraordinary items is subject to this type of manipulation during the period before the adoption of the new standard. Although it is proved that the broad definition of extraordinary items allows companies to manipulate income, evidence gathered from multivariate regressions demonstrates that extraordinary items are of value‐relevance for investors in valuing a firm’s equity. Thus, investors take into account the extraordinary items even though it is disclosed “below the line”.

The quality of earnings in Shariah-compliant companies: evidence from Malaysia

Purpose – The purpose of this study is to examine the quality of reported earnings in the corporate reports of Shariah-compliant companies listed on Bursa Malaysia. Design/methodology/approach – This study hypothesises that companies with Shariah compliance status have higher quality of earnings because of greater demand for and supply of high-quality financial reports. The quality of reported earnings is measured using the cross-sectional Dechow and Dichev (2002) accrual quality model. The study uses a balanced panel data of 3,048 observations from 508 companies during a six-year period of 2003-2008. Findings – This paper finds robust evidence that Shariah-compliant companies have significantly higher earnings quality compared to other firms. The results provide support for the arguments that Shariah-compliant companies supply a higher quality of reported earnings to attract foreign investment, have greater demand for high-quality financial reporting because of their Shariah status and are subject to gre...

Auditor Specialization and Its Influence on the Association Between Governance and the Timeliness of Financial Reporting

This study examines the association between corporate governance (i.e., CEO–Chairman duality, audit committee size, audit committee independence, and audit committee meeting) and financial reporting timeliness. This research further investigates whether auditor industry specialization reduces/enhances the association between corporate governance and financial reporting timeliness. Our sample comprises of 740 companies listed in the Bursa Malaysia and focuses on the year 2014. The results show that firms with more timely reporting of financial statements are asssociated with larger audit committee, lower proportion of independent non-executive directors in audit committee, less frequent audit committee meeting; and are audited by industry specialist. More importantly, this study finds new evidence on the interaction effect of industry specialist and corporate governance variables. First, the results suggest that firm audited by industry specialist has a significantly longer audit reporting lag in firms with a dual role CEO–Chairman than firms with separate CEO–Chairman roles. Second, firms audited by industry specialist with high number of audit committee were found to take longer time to finish the audit work. Third, we find evidence showing that firms audited by industry specialist with larger audit committee took longer time to finish the audit work. Finally, this study finds that industry specialist firms enhance financial reporting timeliness in firm with more frequent audit committee meeting.

Board Members Diversity and Financial Statements Fraud: Malaysian Evidence

This research investigates whether the board member diversity: gender, ethnic, and roles diversity, are associated with the likelihood of financial statement fraud. The sample of this study includes all fraud firms which has been disclosed by the Securities Commission Malaysia matched with an equal number of non-fraud firm. A total of 124 firms are included in this study, consisting 62 firms that engaged in financial statement fraud and other 62 of non-fraud firms. Using the logistic regression analysis, the findings show that financial statement fraud is positively associated with less gender diversity and roles diversity. In addition, there is a significant relationship between governance characteristics (board size, board meeting, and chairman dual role) and financial statement fraud. This study concludes that firms engaging with fraud have more frequent board meeting, is dominated by Chinese ethnicity, have high proportion of independent directors and the chairman and Chief Executives Officer (CEO) or Managing Director are the same person/director. Overall, this research contributes new evidence on the factors that explain the likelihood of financial statement fraud.

Deceptive versus Informative Income Smoothing: Evidence from Audit Committee Attributes

The paper examines which income smoothing perspective (deceptive or informative) is more prevalent by focusing at four audit committee attributes namely audit committee size, the number of audit committee meeting, the proportion of nonexecutive, and the proportion of independent audit committee members. Using a sample comprises 604 public listed firms in Malaysia during the year 2008 to 2014, this study finds that firms with strong audit committee, which have large audit committee, more frequent meeting and high proportion of independent directors are associated with low extent of income smoothing. The findings provide evidence supporting the proponent for deceptive perspective in which income smoothing is viewed as an unacceptable act when reporting earnings. The results are robust even when using an alternative mesure for income smoothing and including various control variables namely auditor size, firm size, leverage, profitability, growth and industry fixed effects.

The change of auditors in businesses and earnings conservatism

This paper investigates the level of earnings conservatism during the first year of auditor change. We hypothesize that newly-appointed auditors demand more conservative accounting compared to established auditors due to lack of specific knowledge about the new client and higher litigation risks. We measure earnings conservatism based on the asymmetric recognition speed of good news and bad news on earnings, using Basus reverse regression. The sample includes 3,054 firm-year observations from 2003-2008. Our results indicate that firms with a newly-appointed auditor experienced significantly higher earnings conservatism than other firms. We also find that the level of earnings conservatism required by newly-appointed auditors depends on the size of the former auditor and that of the successor. Specifically, we find that firms that change from a small audit firm to one of the Big 4 exhibit significantly higher earnings conservatism than firms that change from one of the Big 4 to a small audit firm. This evidence is consistent with the argument that auditors require more conservative accounting when the risk of litigation is higher.