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THE EFFECT OF INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) CONVERGENCE AND THE IMPLEMENTATION OF CORPORATE GOVERNANCE ON INTEGRITY OF FINANCIAL STATEMENTS

Name : Linda Fatmawati Alfi NPM : 28211700 Major : Accounting Advisor : Dr. Budi Prijanto

Background

1. The financial report is a source of information that shall to published as a means of accountability from management to shareholders. 2. Financial statements with international standards necessary to facilitate the investors in the country and abroad to understand the financial statements are issued. 3. The diversity of financial reporting systems are different in every country, so that the necessary financial reporting as standards applicable to all countries, such as the International Financial Reporting Standards (IFRS). 4. The financial statements are presented should have high integrity and show a true and honest information. 5. Implementation of corporate governance is one of the ways that are expected to be able to improve the integrity of financial statements.

INTRODUCTION

1. Does the variable of convergence of International Financial Reporting Standards (IFRS), managerial

• wnership,

institutional ownership, board of commissioner, the audit committee, the proportion of independent commissioner affect the integrity of the financial statements either simultaneously and partially? 2. How big is the contribution of variables influence the convergence of International Financial Reporting Standards (IFRS), managerial ownership, institutional ownership, board of commissioner, the audit committee, the proportion of independent commissioner on the integrity

• f the financial statements?

Problems Formulation

• 1. To find out and analyze the influence of variables

convergence of International Financial Reporting Standards (IFRS), managerial ownership, institutional

• wnership,

board

• f

commissioner, the audit committee, the proportion

• f

independent commissioner on the integrity of the financial statements.

• 2. To determine the contribution of the effect of IFRS

convergence, managerial

• wnership,

institutional

• wnership,

board

• f

commissioner, the audit committee, the proportion

• f

independent commissioner on the integrity of the financial statements.

Research Objective

Hypothesis

H1: The level of IFRS convergence influence on the integrity of the financial statements H2: Managerial ownership influence on the integrity

• f the financial statements

H3: Institutional ownership influence on the integrity

• f the financial statements.

H4: The size of the board of commissioners influence

• n the integrity of financial

statements

Research Framework

H1 H2 H3 H4 H5 H6 IFRS Convergence Managerial

• wnership

Institusional

• wnership

Board of Commissioners Audit Committee Proportion of Independent Commissioners Integrity of Financial Statements I m o p f G l o e C v m o e e r r n p n t o a a r n t a c i t e

• e

n

H5: The audit committee influence on the integrity

• f financial statements

H6: The proportion of independent commissioners influence

• n the integrity of

financial statements

Population and Sample

The population in this research is all manufacturing companies have been listed in Indonesia Stock Exchange (IDX) during the years 2010 to 2013. The sample used in this research is 15 companies in the manufacturing sector that has been registered on January 1, 2010 until December 31, 2013.

Method of Data Collection

The data used is secondary data. Secondary data in this research is obtained through books, journals and previous research that support this research. Based on the study of the documentation, the data used were

• btained through the official website of the Indonesia Stock

Exchange (IDX), www.idx.co.id.

Research Methodology

Independent Variable

Variable Research

Managerial Ownership Board of Commissioners Audit Committee Proportion of Independent Commissioner IFRS Convergence

Dependent Variable

Integrity of Financial Statements Level of IFRS Convergence ∑ board of commissioners in the company ∑ audit committee in the company

Institusional Ownership

1. Normality Test: The result show that the significant value > 0,05. So, it can be concluded the variables have a normal distribution. 2. Multicollinearity Test: The results show that all the independent variable has a value of tolerance > 0,1 and VIF <10. So, it can be concluded that there is no multicolinearity. 3. Autocorrelation Test: The result show from the run

test, that the significant value > 0,05. So, it can be

concluded that there is no autocorrelation. 4. Heteroscedasticity Test: The results show that the data point spread above and below 0 on Y axis with unclear pattern. So, it can be concluded that there is no heterocedasticity

Classical Assumption Test

Coefficientsa Model Unstandardized Coefficients Standardized Coefficients t Sig. B

• Std. Error

Beta 1 (Constant)

• 1.125

.943

• 1.193

.238 IFRS Convergence

• .001

.004

• .031
• .257

.798 Managerial Owneship .046 .015 .401 3.100 .003 Institusional Ownership .014 .006 .317 2.216 .031 Board of Commissioners .128 .048 .345 2.654 .010 Audit Committee .119 .258 .060 .464 .645 Proportion of Independent Commissioners

• .007

.006

• .158
• 1.144

.258

• a. Dependent Variable: Integrity of Financial Statements

Multiple Regression Analysis

INTGR = -1,125 - 0,001 CIFRS + 0,046 MANAG + 0,014 INST + 0,128 COMSZ + 0,119 COMAU - 0,007 COMIND + e

• F Test

Hypothesis Testing

ANOVAb

Model

Sum of Squares df Mean Square F Sig.

1 Regression

9.310 6 1.552 3.110 .011a

Residual

26.446 53 .499

Total

35.757 59

• a. Predictors: (Constant), Proportion of Independent Commissioners,

Audit Committee, IFRS Convergence, Managerial Owneship, Board of Commissioners, Institusional Ownership

• b. Dependent Variable: Integrity of Financial Statements

Sig value is 0,011 < 0,05, it means simultaneously that the convergence of IFRS, managerial

• wnership,

institutional

• wnership,

board

• f

commissioner, audit committee, and the proportion of independent commissioners have an influence on the integrity of financial statements.

• T Test

Hypothesis Testing

Coefficientsa Model Unstandardized Coefficients Standar dized Coefficie nts t Sig. B Std. Error Beta

1

(Constant)

• 1.125

.943

• 1.193

.238 IFRS Convergence

• .001

.004

• .031
• .257

.798 Managerial Owneship .046 .015 .401 3.100 .003 Institusional Ownership .014 .006 .317 2.216 .031 Board of Commissioners .128 .048 .345 2.654 .010 Audit Committee .119 .258 .060 .464 .645 Proportion of Independent Commissioners

• .007

.006

• .158 -1.144

.258

• a. Dependent Variable: Integrity of

Financial Statements

IFRS Convergence = Sig > 0,05. H1 was rejected Managerial Ownership = Sig < 0,05. H2 was accepted Institutional Ownership = sig < 0,05. H3 was accepted Board of Commissioner = sig < 0,05. H4 was accepted Audit Committee = sig > 0,05. H5 was rejected Prop Independent Commissioner = sig > 0,05. H6 was rejected

Determination Coefficient

Hypothesis Testing

Model Summaryb Model R R Square Adjusted R Square

• Std. Error of

the Estimate 1 .510a .260 .177 .70639

• a. Predictors: (Constant), Proportion of Independent Commissioners,

Audit Committee, IFRS Convergence, Managerial Owneship, Board of Commissioners, Institusional Ownership

• b. Dependent Variable: Integrity of Financial Statements

The value of Adjusted R square is 0.177 which indicates that the contribution influence independent variable, namely, the IFRS Convergence, managerial ownership, institutional ownership, the size of board of commissioners, audit committee, and the proportion of commissioners independent) in this research was 17.7%, while the remaining 82.3% is explained by other factors outside the model of this research.

1. H1 was rejected because IFRS is a standard which tends to embrace the principle-based to allow for subjective interpretation of the company in implementing these standards. Then difficult to predicted. 2. H2 was accepted because Managers of the company more know of internal information and prospects of the company in the future than the owner. 3. H3 was accepted because Institusional ownership in the company can improve its monitoring of the behavior of managers in anticipation of a possible manipulation so as to improve the integrity of the financial statements. 4. H4 was accepted because Board of commissioner larger will cause the duty of every member of the board of commissioners to be more specific because there are committees that are more specialized in overseeing the company. 5. H5 was rejected because the number of audit committee of the company does not change its duties and functions to monitor the financial reporting so that any number of the audit committee, the integrity of the company's financial statements are the same. 6. H6 was rejected because the strong control of the company's founder and majority ownership makes board of commissioners become not independent and monitoring functions that should be the responsibility of being ineffective, so that performance of independent commissioner can not be improved even decreased .

Discussion

1. The results showed that simultaneously, the convergence of IFRS and the Implementation of corporate governance (managerial ownership, institutional ownership, board of commissioners, audit committee, and the proportion of independent commissioner) affect the integrity of the financial statements. Partially indicate that managerial ownership, institutional ownership, and board of commissioners have a significant effect on the integrity of the financial statements, while the convergence of IFRS, audit committee, and the proportion of independent commissioner have no significant effect on the integrity

• f the financial statements.

2. Adjusted R square of 0.177, indicating that the contribution of the effect

• f

variable IFRS Convergence, managerial

• wnership,

institutional ownership, the board of commissioners, audit committee, and the proportion of board commissioners on the integrity of the financial statements amounted to 17.7 % and the remaining 82.3% is explained by other factors outside the research model.

Conclusions

1. Further research could develop this research by adding other independent variables, control variables,

• r

variables moderation. 2. The company that made the object of research is not only a manufacturing company, but can be expanded by adding or taking the object of research of other companies listed on the Indonesia Stock Exchange (IDX). 3. Adding the observation period to 5 years or more and do research with the most recent period. 4. Measurement of variables integrity of the financial statements in further research could use another proxy. 5. Develop research by adding other corporate governance mechanisms, such as the effectiveness of the board of commissioners and board of directors to implement the corporate governance in the company.

Recommendation

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