FINANCIAL REPORTING QUALITY

Chapter 11

CONCEPTUAL REVIEW

Financial Reporting Quality

earning
s
(results)
quality

low
High
Low financial reporting quaity
impedes assesment of earning
quality and impedes valuation
Low

high
HIGH financial reporting
quality enable asessment.
HIGH earnings quality
increases company value
HIGH financial reporting
quality enable asessment.
LOW earnings quality
decreases company value

High quality reports contain information that is relevant,

complete, neutral and free from error
Lowest quality report, much of fabrication

GAAP, decisionuseful,
sustainable and
adequate
return
GAAP, decisionuseful but low
sustainable
Within GAAP
but biased
choices
Within GAAP, but
earnings management
Real EM
Accounting EM

Nocompliant
accounting
Fictious
transactions

GAAP decision-useful, sustainable

and adequate return
Generally accepted accounting
principles of the jurisdiction, such as
IFRS
Decision-useful information
Can adequate level of return on
investment and derive from activites
tht company will likely be able to
sustain in the future

GAAP, decision-useful but

sustainable?
Refers to circumtances in which high
quality reporting provides useful
informaation
But the information reflects results or
earning that are not sustainable
(lower earnings quality)

Biased accounting choices

The financial reports that do not
faithfully represent economic
phenomenon
The problem is impedes an investors
ability to correctly asses a company
past performance to accurately
forecast future performance

Within GAAP, but earnings

management
Making intentional choice that create
biased financial reports
A difference between biased
accounting is : a matter of intent
EM deliberate actions to influence
reported earnings and interpretation

No compliant accounting, departure

from GAAP
Considered low quality
Impossible to assess because
comparison with earlier period cant
be made
Example: enron

Differentiate between conservative

and aggressive accounting
Unbiased financial reporting is the ideal, but
investor may prefer conservative rather than
aggressive accounting choices
Aggressive Accounting choice: decrease the
companys reported performance and financial
position in later period, creates sustainability
issue
Conservatives accounting choice: decrease the
companys reported performance and financial
position in current period, but no sustainability
issue

CONTEXT FOR ASSESSING

FINANCIAL REPORTING
QUALITY

Motivations
Managers may be motivated to issue
financial reports that are not high
quality to mask poor performance, such
as loss market
To meet market expectations
Career concern and incentive
compensation

Conditions conducive to issuing lowquality reports

Three conditions exist when low
quality reports are issued:
Opportunity: the result of internal
condition (poor internal control,
ineffective directors)
Motivation can result from pressure to
meet personal reason (bonus)
Rationalization: concern about a choice,
needs to be able to justify it

Mechanisms That Discipline

Financial reporting quality
Market regulatory authorities
National regulations and the regulators establish and
enforce rules so they can play a significant role of
reporting quality

Auditors
Audit opinions provide financial statement users with
some assurance that the financial reporting presented
fairly

Private Contracting
Parties that have contractual arrangement with a
company will ensure the financial report company are
high quality

DETECTION OF FINANCIAL
REPORTING QUALITY
ISSUES

Accounting choices and

estimate
Not always something complex, ex:
shipping terms can make difference
between revenue and profit
How accounting choice&estimate
affect earnings and balance sheet
Choice of inventory method
Estimate of DTA

How choice affect the cash flow

statement

Warning Sign
The choices management makes to
achieved desired results leave trail, so
the warning sign can indicate
information manipulation (biased in
revenue/expense recognition)

Alert investor/analyst should do for

the following warning sign
Pay attention of the revenue
Pay attention to signals from
inventories
Pay attention to capitalization
policies and deferred cost
Pay attention to the relationship of
cashflow and net income
Other potential warning sign

2015

2014

2013

naik/turun 2014 ke naik/turun 2013 ke

2015
2014

Net Revenue
Cost of revenue
Gross profit

14,352,700

12,768,973

11,900,354

12.40%

7.30%

-11,026,182

-9,743,041

-9,053,464

13.17%

7.62%

3,326,518

3,025,932

2,846,890

9.93%

6.29%

Peningkatan net revenue Y-O-Y tersebut mencerminkan tingkat

efektivitas dan efisiensi yang lebih tinggi sebagai hasil strategi
merchandising dan pengelolaan persediaan yang lebih baik
pengeluaran pada segmen makanan dan promosi untuk
memperluas basis pelanggan.

Inventory Method
berdasarkan nilai yang
lebih rendah antara
harga perolehan dan
nilai realisasi bersih.
Harga perolehan
ditentukan dengan
menggunakan metode
rata-rata bergerak.

Harga perolehan
persediaan untuk dijual
terdiri dari biaya
pembelian persediaan
barang dagang dan
biaya distribusi dari
gudang utama ke geraigerai yang dapat
diatribusikan

Nilai realisasi bersih

adalah estimasi harga
penjualan dalam
kegiatan usaha normal
dikurangi taksiran beban
penjualan

 Manajemen Perseroan yakin bahwa jumlah provisi atas persediaan

telah memadai untuk menutupi kerugian yang timbul. Tidak terdapat
persediaan yang dijaminkan.
pada 31 Desember 2015 sebesar US$ 231,81 juta atau setara dengan
Rp 3.197.870 (2014: US$ 208,9 juta atau setara dengan Rp
2.598.786) oleh manajemen dianggap telah memadai untuk menutupi
kerugian yang mungkin timbul dari risiko-risiko seperti bencana alam,
kebakaran, kerusuhan, sabotase, pengerusakan dan gangguan usaha
lainnya

Deferred tax aset

Aset pajak tangguhan diakui apabila
besar kemungkinan jumlah
penghasilan kena pajak di masa
mendatang akan memadai untuk
dikompensasi dengan kerugian pajak
yang tidak digunakan dan perbedaan
temporer yang dapat dikurangkan

Manajemen yakin bahwa jumlah laba fiskal pada masa datang akan
memadai untuk mengkompensasi perbedaan temporer yang dapat
dikurangkan
Pada tanggal 31 Desember 2015, Perseroan memiliki akumulasi rugi
pajak tahun 2014 dan 2015, masing-masing sebesar Rp 130.823 dan Rp
24.091 yang belum terpakai yang akan kadaluarsa pada tahun 2019 dan
2020