The Case of PSAK 24 Revision


University of Indonesia


This study examines the firms’ adoption timing decision using the case of PSAK 24 revision that was released in June 2004. Even though this revised standard became effective immediately, its mandatory adoption is extended to 2005, thus allowing multiyear adoption period. The purpose of this study is to determine the firms’ economic motives of adoption timing decision. This study hypothesizes that the early adopters have characteristics that differentiate them from the late adopters, which explain the motives of their early adoption decision.

Overall, the statistical test on hypothesis using logistic regression able to identify firms characteristics that determine PSAK 24 adoption timing decision, including size of the firms, implementation cost, earning management and audit firm. This study concludes that larger firms and firms with less PSAK 24 implementation cost are more likely to adopt early. Higher reported ROE due to PSAK 24 adjustment also motivates firm to adopt early. Another finding is that size of audit firm influences the firms’ adoption timing decision, due to the auditor’s familiarity with PSAK 24. This study fails to explain the economic motives of adoption timing decision based on debt hypothesis.

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Keywords: Accounting Choices, Adoption Timing, Employee Benefit, PSAK 24


Accounting choices has been an area that gains a lot of research interest. Accounting standards provide leeway to managers to choose among alternatives of accounting method that would best match the firms’ economic characteristics. For some subsequently released or revised standards, managers also have flexibility to choose to adopt the standards early or wait until the standard becomes mandatory. For example, FAS 52 on foreign currency allowed a three-year adoption period, FAS 87 on pensions allowed a five-year adoption period, and FAS 106 on employee benefits allowed a three-year adoption period. FASB justification for this extended adoption period is mainly due to the firms’ implementation cost (Langer & Lev, 1993). This extended adoption period gives managers more flexibility to choose the adoption timing for their own motives, as widely believed in earnings management literature. It is therefore interesting to examine characteristics of firms that take advantage of the multi-year adoption period and test whether managers use the timing decision to manage earnings.

Study by Ayres (1986) is among the first studies in this issue by using the case of adoption of FAS 52 on foreign currency translation. Ayres study indicates that early adopters have distinguished characteristics compared to those that adopt later. Sami and Welsh (1992) and Langer and Lev (1993) study on adoption timing of FAS 87 indicates that firm adoption timing decision is motivated by earning management to increase earnings. Amir and Livnat (1996) study on FAS 106 provides strong support for the FASB’s implementation cost justification. Another study on FAS 106 by Costello et al. (1994) does not support earning management hypotheses, however does not support FASB justification as well. To reconcile these mixed results, further research is required using a different set of samples, particularly samples originating from countries other than United States.

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* Simposium Nasional Akuntansi 10 – Makassar

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