THE IMPACTS OF CONSERVATISM AND FIRM SIZE TOWARD EARNINGS QUALITY

Br Munthe, Elisabet Nathasa Bellina (2019) THE IMPACTS OF CONSERVATISM AND FIRM SIZE TOWARD EARNINGS QUALITY. S1 thesis, UAJY.

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Abstract

Financial reports should be able to provide information as a decision making so that the information contained is reliable information. The financial statements must fulfill the objectives, rules and accounting principles that are by generally accepted standards to produce financial statements that can be accounted for and beneficial to every user. Investors and creditors as users of financial statements can use earnings information and its components to assist them in evaluating company performance, estimate earnings in the long run, predict future earnings, determine investment or loan risk to the company. The principle adopted in the financial reporting process is one of the principles of conservatism.Conservatism is a cautious reaction to the uncertainty that exists so that uncertainty and risk associated with a business situation can be considered adequately. These uncertainties and risks must be reflected in the financial statements so that their predictive and neutral values can be corrected. Reporting based on prudence will provide the best benefits for all users of financial statements (Almilia, 2004). Another factor that will give an effect on earnings quality is the firm size. The size hypothesis shows that the larger the company is, the larger the probability of the company to choose an accounting method that will lower earnings, with the purpose to reduce the political cost, to avoid government actions of implementing more regulations that can lower the company’s revenue.This research was conducted to determine the effect of conservatism and firm size on earnings quality. The research will be conducted on manufacturing companies that were listed on the Indonesia Stock Exchange in 2013 – 2017 and the analytical tool which used is multiple regression analysis.The results showed that conservatism had a positive effect on earnings quality and firm size did not affect earnings quality.

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