The Impact of the Adoption of International Financial Reporting Standards on the Quality of ...

100 Pages·2015·0.66 MB·English

The Impact of the Adoption of International
Financial Reporting Standards on the Quality of
Financial Statements in Palestine

ﺕﺎﻧﺎﻴﺒﻟﺍ ﺓﺩﻮﺟ ﻰﻠﻋ ﺔﻴﻟﻭﺪﻟﺍ ﺔﻴﻟﺎﻤﻟﺍ ﺮﻳﺭﺎﻘﺘﻟﺍﺮﻴﻳﺎﻌﻣ ﻖﻴﺒﻄﺗ ﺮﺛﺃ
ﻦﻴﻄﺴﻠﻓ ﻲﻓ ﺔﻴﻟﺎﻤﻟﺍ

By: Ala’a Musa Abu-Dieh
Supervised by: Dr. Nidal Sabri

Faculty of Graduate Studies
Birzeit University
January 2015
Faculty of Graduate Studies: MBA Program

The Impact of the Adoption of International
Financial Reporting Standards on the Quality of
Financial Statements in Palestine

ﺕﺎﻧﺎﻴﺒﻟﺍ ﺓﺩﻮﺟ ﻰﻠﻋ ﺔﻴﻟﻭﺪﻟﺍ ﺔﻴﻟﺎﻤﻟﺍ ﺮﻳﺭﺎﻘﺘﻟﺍﺮﻴﻳﺎﻌﻣ ﻖﻴﺒﻄﺗ ﺮﺛﺃ
ﻦﻴﻄﺴﻠﻓ ﻲﻓ ﺔﻴﻟﺎﻤﻟﺍ

This Thesis was submitted in partial fulfillment of the requirements
for the Masters Degree in Business Administration from the
Faculty of Graduate Studies at Birzeit University, Palestine
By: Ala’a Musa Abu-Dieh

Date of Examination: January 14, 2015

Approved by:

Dr. Nidal Sabri - (Chairperson of Supervisory Committee)
Dr. Zeyad Munawer - (Member of Supervisory Committee)
Dr. Ziad Zaghrout - (Member of Supervisory Committee)
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BIRZEIT UN1VERSITY
1
Faculty of Graduate Studies: MBA Program
The Impact of the Adoption of International
Financial Reporting Standards on the Quality of
Financial Statements in Palestine
1..- • • ..
WJ.,le~~WI
This Thesis was submitted in partial fulfillment of the requirements for the
Masters Degree in Business Administration from the
Faculty of Graduate Studies at Birzeit University, Palestine
By: Ala'a Musa Abu-Dieh
Date of Examination: January 14,2015
Approved by: ~ _,.....
Dr. Nidal Sabri (Chairperson of Supervisory Committee)---------- -------------------
_L::!_~---
Dr. Zeyad Munawer (Member of Supervisory Committee) ____
Committee) -----~-~------
Dr. Ziad Zaghrout (Member of Supervisory
I

ACKNOWLEDGEMENT
I would first like to express my grateful thanks to God for giving me patience,
power and strength during my study.
I would like to extend my thanks to my supervisor, Professor Nidal Sabri, who
provided me with friendly supervision and continuous encouragement during my
study. I would like also to thank my father, Musa Abu-Dieh, who taught me how to
work hard to achieve my goals and gave me his precious support and advice during
my study. And I thank the members of the supervisory committee, Dr. Zeyad
Munawer and Dr. Ziad Zaghrout, for their efforts and helpful suggestions provided to
me in order to successfully finalize this thesis.
I am deeply thankful to my mom and my brothers and sisters for their continuous
encouragement and support provided to me during my MBA study. My warm love
and thanks goes also to my husband, Yousef Hadmi, and my children for their
support, encouragement and sacrifice during my MBA study. Without their
continuous encouragement I would not have finished this thesis.
And finally I thank everyone who helped me accomplish this thesis and gave me
the power to stand in front of the supervisory committee and defend my thesis.
II

TABLE OF CONTENTS
ABSTRACT...………………………………….………….…..………VI
ABSTRACT IN ARABIC…………………………….…….…….….VII

CHAPTER ONE: INTRODUCTION
1.1 INTRODUCTION ........................................................................................................ 1
1.2 RESEARCH OBJECTIVE............................................................................................ 4
1.3 PROBLEM STATEMENTS ......................................................................................... 4
1.4 THE IMPORTANCE OF THE STUDY ....................................................................... 5
1.5 TERMS AND ABBREVIATIONS ............................................................................... 5
1.5.1 TERMS ................................................................................................................. 6
1.5.2 ABBREVIATIONS ............................................................................................... 8
CHAPTER TWO: LITERATURE REVIEW
2.1 INTRODUCTION ...................................................................................................... 10
2.2 BACKGROUND ABOUT IFRS ................................................................................ 11
2.2.1 HISTORY OF IFRS ............................................................................................ 11
2.2.2 SUMMARY OF IFRSs ....................................................................................... 13
2.3 ADOPTION OF IFRS BY DEVELOPING COUNTRIES ......................................... 15
2.4 ADOPTION OF IFRS BY THE PALESTINIAN CAPITAL MARKET ................... 16
2.5 ACCOUNTING EDUCATION IN PALESTINE ....................................................... 17
2.6 MEASURES OF ACCOUNTING QUALITY ........................................................... 18
2.6.1 EARNINGS MANAGEMENT ........................................................................... 18
2.6.2 TIMELY LOSS RECOGNITION ....................................................................... 20
2.6.3 VALUE RELEVANCE OF ACCOUNTING INFORMATION ........................ 21
III

2.7 PRIOR LITERATURE ABOUT IFRS IMPACT ON ACCOUNTING QUALITY OF
DIFFERENT COUNTRIES ....................................................................................... 22
2.8 CONCLUSION ........................................................................................................... 27
CHAPTER THREE: METHODOLOGY
3.1 INTRODUCTION ...................................................................................................... 29
3.2 POPULATION AND SAMPLE OF THE STUDY .................................................... 30
3.3 RESEARCH PROCEDURES AND METHODS ....................................................... 31
3.4 THE THREE MEASUREMENTS OF ACCOUNTING QUALITY AND THE
METRICS OF EACH MEASURE ............................................................................ 33
3.4.1 EARNINGS MANAGEMENT ........................................................................... 33
3.4.2 TIMELY LOSS RECOGNITION ....................................................................... 39
3.4.3 VALUE RELEVANCE ...................................................................................... 39
3.5 CONCLUSION ........................................................................................................... 43
CHAPTER FOUR: FINDINGS OF THE STUDY
4.1 INTRODUCTION ...................................................................................................... 46
4.2 DATA COMPOSITION ............................................................................................. 47
4.3 DATA DESCRIPTIVE STATISTICS ........................................................................ 50
4.4 FINDINGS AND DISCUSSION OF QUANTITATIVE RESULTS ......................... 56
4.4.1 ANALYSIS AND RESULTS OF EARNINGS MANAGEMENT .................... 57
4.4.2 ANALYSIS AND RESULTS OF TIMELY LOSS RECOGNITION ................ 62
4.4.3 ANALYSIS AND RESULTS OF VALUE RELEVANCE ................................ 63
4.5 CONCLUSION ........................................................................................................... 66
CHAPTER FIVE: CONCLUSIONS AND RECOMMENDATIONS
5.1 SUMMARY OF THE STUDY ................................................................................... 71
5.2 CONCLUSIONS AND RECOMMENDATIONS OF THE STUDY ........................ 73
5.2.1 CONCLUSIONS ................................................................................................. 73
5.2.2 LIMITATIONS OF THE STUDY ...................................................................... 77
IV

5.2.3 RECOMMENDATIONS .................................................................................... 78
5.2.4 RECOMMENDATIONS FOR FURTHER RESEARCH .................................. 80

REFERENCES……………………………………….....……………82
APPENDICES
APPENDIX 1: PALESTINIAN LISTED COMPANIES INCLUDED IN THE
STUDY…………………………..…………………………………....88
APPENDIX 2: TOTAL ANNUAL ACTIVITY OF PEX FROM YEAR 1997 TO
2012……………………………………………………………..………90
V

LIST OF TABLES
Table (1): Observation Sample Selection……………..…………….…….……....…...47
Table (2): Descriptive Statistics of Industry Breakdown Percentage……………….....48
Table (3): Descriptive Statistics for application of IFRS by Industry Breakdown….....49
Table (4): Descriptive Statistics for IFRS Observation by Year Breakdown…………..50
Table (5): Descriptive Statistics for IFRS Post-adoption and Pre-adoption Period.…...51
Table (6): Comparison of Pre-adoption and Post-adoption Accounting Quality for
Earnings Management - First Two Metrics……………………..….….….59
Table (7): Comparison of Pre-adoption and Post-adoption Accounting Quality for
Earnings Management - Last Two Metrics……………….…………...….60
Table (8): Comparison of Pre-adoption and Post-adoption Accounting Quality for
Timely Loss Recognition…………..………………………………..........63
Table (9): Comparison of Pre-adoption and Post-adoption Accounting Quality for Value
Relevance……………………………………………………………...….64
Table (10): Summary of Results for Accounting Quality Metrics………………….....67
VI

ABSTRACT
The objective of this study is to examine the impact of the adoption of
International Financial Reporting Standards (IFRS) on the quality of financial
statements in Palestine. The analysis was based on the annual financial data of a
sample of 32 Palestinian listed companies for the period from year 2003 to year
2012. All Palestinian listed companies were required to prepare their financial
statements in accordance with IFRS in year 2007. Therefore, to identify the
influence of IFRS on accounting quality, the ten-year period of the study was
divided into two equal periods, the IFRS pre-adoption period and IFRS post-
adoption period.
Based on prior literature, this study used three measurement tools for
accounting quality which are earnings management (assessed through four
metrics), timely loss recognition (assessed through one metric) and value
relevance (assessed through four metrics). The methodology of this study is based
on multiple linear regression models to explain different accounting quality
metrics for the IFRS pre-adoption period and IFRS post-adoption period.
In line with previous studies, the results of this study show mixed results
as five out of the nine metrics indicate an improvement in accounting quality,
while four metrics indicate a decline in accounting quality. Specifically, one out
of the four metrics of earning management improved while the other three
declined, the metric of timely loss recognition declined and the four metrics of
value relevance improved. Overall, the results suggest that firms that adopt IFRS
show more evidence of earnings management, less timely recognition of losses
and greater value relevance.
VII

ABSTRACT IN ARABIC
ﺓﺩﻮﺟ ﻰﻠﻋ (IFRS) ﺔﻴﻟﻭﺪﻟﺍ ﺔﻴﻟﺎﻤﻟﺍ ﺮﻳﺭﺎﻘﺘﻟﺍﺮﻴﻳﺎﻌﻣ ﻖﻴﺒﻄﺗ ﺮﺛﺃ ﺺﺤﻓ ﻰﻟﺇ ﺔﺳﺍﺭﺪﻟﺍ ﻩﺬﻫ ﻑﺪﻬﺗ
ﺔﺟﺭﺪﻣ ﺔﻴﻨﻴﻄﺴﻠﻓ ﺔﻛﺮﺷ 32 ﻦﻣ ﺔﻨﻴﻌﻟ ﺔﻳﻮﻨﺴﻟﺍ ﺔﻴﻟﺎﻤﻟﺍ ﺕﺎﻧﺎﻴﺒﻟﺍ ﻰﻠﻋ ﻞﻴﻠﺤﺘﻟﺍ ﺪﻤﺘﻌﻳ .ﻦﻴﻄﺴﻠﻓ ﻲﻓ ﺔﻴﻟﺎﻤﻟﺍ ﺕﺎﻧﺎﻴﺒﻟﺍ
ﺎﻬﺗﺎﻧﺎﻴﺑ ﺮﻴﻀﺤﺘﺑ ﺔﺟﺭﺪﻤﻟﺍ ﺔﻴﻨﻴﻄﺴﻠﻔﻟﺍ ﺕﺎﻛﺮﺸﻟﺍ ﻊﻴﻤﺟ ﺖﻣﺰﻟﺃ .2012 ﺔﻨﺳ ﻰﻟﺇ 2003 ﺔﻨﺳ ﻦﻣ ﺓﺮﺘﻔﻟﺍ ﻝﻼﺧ
ﺮﻳﺭﺎﻘﺘﻟﺍﺮﻴﻳﺎﻌﻣ ﺮﻴﺛﺄﺗ ﺪﻳﺪﺤﺘﻟ ﻭ ،ﻚﻟﺫ ﻰﻠﻋ ًﺍءﺎﻨﺑ .2007 ﺔﻨﺳ ﻲﻓ ﺔﻴﻟﻭﺪﻟﺍ ﺔﻴﻟﺎﻤﻟﺍ ﺮﻳﺭﺎﻘﺘﻟﺍﺮﻴﻳﺎﻌﻤﻟ ًﺎﻘﻓﻭ ﺔﻴﻟﺎﻤﻟﺍ
ﺎﻣ ﺓﺮﺘﻓ ،ﻦﻴﺘﻳﻭﺎﺴﺘﻣ ﻦﻴﺗﺮﺘﻓ ﻰﻟﺇ ﺔﺳﺍﺭﺪﻠﻟ ﺔﻌﺿﺎﺨﻟﺍ ﺓﺮﺘﻔﻟﺍ ﻢﻴﺴﻘﺗ ﻢﺗ ،ﺔﻴﻟﺎﻤﻟﺍ ﺕﺎﻧﺎﻴﺒﻟﺍ ﺓﺩﻮﺟ ﻰﻠﻋ ﺔﻴﻟﻭﺪﻟﺍ ﺔﻴﻟﺎﻤﻟﺍ
.IFRS ﻖﻴﺒﻄﺗ ﺪﻌﺑ ﺎﻣ ﺓﺮﺘﻓ ﻭ IFRS ﻖﻴﺒﻄﺗ ﻞﺒﻗ
ﺕﺎﻣﻮﻠﻌﻤﻟﺍ ﺓﺩﻮﺠﻟ ﺱﺎﻴﻗ ﺕﺍﻭﺩﺃ ﺙﻼﺛ ﺔﺳﺍﺭﺪﻟﺍ ﻩﺬﻫ ﺖﻣﺪﺨﺘﺳﺍ ،ﺔﻘﺑﺎﺴﻟﺍ ﺔﻴﺑﺩﻷﺍ ﺕﺎﻌﺟﺍﺮﻤﻟﺍ ﻰﻠﻋ ً ﺍءﺎﻨﺑ
ﻢﺗ ﻲﺘﻟﺍ) ﺎﻬﺘﻗﻭ ﻲﻓ ﺮﺋﺎﺴﺨﻟﺍ ﺕﺎﺒﺛﺇ ﻭ ،(ﺮﻴﻳﺎﻌﻣ ﺔﻌﺑﺭﺃ ﺔﻄﺳﺍﻮﺑ ﺎﻬﺳﺎﻴﻗ ﻢﺗ ﻲﺘﻟﺍ) ﺡﺎﺑﺭﻷﺍ ﺓﺭﺍﺩﺇ ﻲﻫ ﻭ ﺔﻴﺒﺳﺎﺤﻤﻟﺍ
ﺔﻴﺠﻬﻨﻣ ﺖﻨﻤﻀﺗ ﺪﻗ ﻭ .(ﺮﻴﻳﺎﻌﻣ ﺔﻌﺑﺭﺃ ﺔﻄﺳﺍﻮﺑ ﺎﻬﺳﺎﻴﻗ ﻢﺗ ﻲﺘﻟﺍ) ﺔﻤﻴﻘﻟﺍ ﺔﻴﻤﻫﺃ ﻭ (ﺪﺣﺍﻭ ﺭﺎﻴﻌﻣ ﺔﻄﺳﺍﻮﺑ ﺎﻬﺳﺎﻴﻗ
ﺕﺎﻣﻮﻠﻌﻤﻟﺍ ﺓﺩﻮﺟ ﺱﺎﻴﻘﻟ ﺔﻔﻠﺘﺨﻤﻟﺍﺮﻴﻳﺎﻌﻤﻟﺍ ﻞﻴﻠﺤﺘﻟ ﺔﻴﻄﺧ ﺕﺍﺭﺍﺪﺤﻧﺍ ﺝﺫﺎﻤﻧ ﺔﻋﻮﻤﺠﻣ ﻡﺍﺪﺨﺘﺳﺍ ﺔﺳﺍﺭﺪﻟﺍ ﻩﺬﻫ
.IFRS ﻖﻴﺒﻄﺗ ﺪﻌﺑ ﺎﻣ ﺓﺮﺘﻓ ﻭ IFRS ﻖﻴﺒﻄﺗ ﻞﺒﻗ ﺎﻣ ﺓﺮﺘﻔﻟ ﺔﻴﺒﺳﺎﺤﻤﻟﺍ
ﺕﺎﻣﻮﻠﻌﻤﻟﺍ ﺓﺩﻮﺟ ﻦﺴﺤﺗ ﻰﻟﺇ ﺮﻴﺸﺗ ﺎﻬﺼﺤﻓ ﻢﺗ ﻲﺘﻟﺍ ﺮﻴﻳﺎﻌﻣ ﺔﻌﺴﺘﻟﺍ ﻦﻣ ﺔﺴﻤﺧ ﻥﺃ ﺔﺳﺍﺭﺪﻟﺍ ﺞﺋﺎﺘﻧ ﻦﻴﺒﺗ
ﺔﻴﺒﺳﺎﺤﻤﻟﺍ ﺕﺎﻣﻮﻠﻌﻤﻟﺍ ﺓﺩﻮﺟ ﻲﻓ ﻊﺟﺍﺮﺗ ﻰﻟﺇ ﺮﻴﺸﺘﻓ ﻯﺮﺧﻷﺍ ﺮﻴﻳﺎﻌﻣ ﺔﻌﺑﺭﻷﺍ ﺎﻣﺃ ،IFRS ﻖﻴﺒﻄﺗ ﺪﻌﺑ ﺔﻴﺒﺳﺎﺤﻤﻟﺍ
ﺓﺭﺍﺩﺇ ﺱﺎﻴﻘﻟ ﺔﻣﺪﺨﺘﺴﻤﻟﺍ ﺮﻴﻳﺎﻌﻣ ﺔﻌﺑﺭﻷﺍ ﻦﻣ ﺪﺣﺍﻭ ﺭﺎﻴﻌﻣ ﻦﺴﺤﺗ ﺞﺋﺎﺘﻨﻟﺍ ﺮﻬﻈﺗ ،ﺪﻳﺪﺤﺘﻟﺎﺑ .IFRS ﻖﻴﺒﻄﺗ ﺪﻌﺑ
ﻦﺴﺤﺗ ﻭ ﺎﻬﺘﻗﻭ ﻲﻓ ﺮﺋﺎﺴﺨﻟﺍ ﺕﺎﺒﺛﺇ ﺱﺎﻴﻗ ﺭﺎﻴﻌﻣ ﻲﻓ ﻊﺟﺍﺮﺗ ﻭ ،ﻯﺮﺧﻷﺍ ﺔﺛﻼﺜﻟﺍ ﺮﻴﻳﺎﻌﻤﻟﺍ ﻊﺟﺍﺮﺗ ﻭ ﺡﺎﺑﺭﻷﺍ
ﺔﻴﻟﻭﺪﻟﺍ ﺔﻴﻟﺎﻤﻟﺍ ﺮﻳﺭﺎﻘﺘﻟﺍﺮﻴﻳﺎﻌﻣ ﻖﺒﻄﺗ ﻲﺘﻟﺍ ﺕﺎﻛﺮﺸﻟﺍ ﻥﺃ ﻦﻴﺒﺗ ﺔﻴﻠﻜﻟﺍ ﺔﺠﻴﺘﻨﻟﺍ .ﺔﻤﻴﻘﻟﺍ ﺔﻴﻤﻫﻷ ﺮﻴﻳﺎﻌﻣ ﺔﻌﺑﺭﻷﺍ
ﺔﻴﻤﻫﺃ ﺓﺩﺎﻳﺯ ﻭ ﺎﻬﺘﻗﻭ ﻲﻓ ﺮﺋﺎﺴﺨﻟﺍ ﺕﺎﺒﺛﺇ ﺔﻠﻗ ﻭ ،ﺡﺎﺑﺭﻷﺍ ﺓﺭﺍﺩﺇ ﻲﻓ ﺓﺩﺎﻳﺰﻟﺍ ﻰﻠﻋ ﺔﻟﺩﺃ ﺮﺜﻛﺃ ﻲﻄﻌﺗ (IFRS)
.ﺔﻤﻴﻘﻟﺍ