Disclosure of Extraordinary Items and Income Smoothing Behaviour in Malaysia

Shamsul Nahar Abdullah, Ku Nor Izah Ku Ismail, Nur Asma Lode

Abstract


This paper investigates disclosure practice of extraordinary items (EI) by listed companies in Malaysia during which the original standard on EI , SI8 - Unusual and Prior period Items and Changes in Accounting Policies was still in place. Until the adoption of the revised ('andard in j 997 (revised S1 8 and subsequ-ently replaced by'the MASB 3), the definition of EI given in the original Sf 8 ),vas very loose and it was opened to abuse. This paper also reports on whether EI disclosures were associated with income smoothing behaviour and the extent to which disclosure of EI was related to political costs, gearing and management interest. A total of 244 Kuala Lumpur Stock Exchange (KLSE) listed companies that disclosed EI at least once from 1991to 1995 were included in this study. The study found that the incidence of E1 was very high. However, the results showed no evidence of management using EI as a tool to smoothe income. Further; EI disclosures were not explained by political costs, gearing and management interest. As there was no evidence of the use of EI to smoothe income in Malaysia, the belief that the new standard (that restricts the definition of E1) would curb the practice of income smoothing is not relevant. The adoption of the new standard could only be expected to enhance the level of reporting comparability and consistency among Malaysian companies.

Abstrak

Kertas ini mengkaji amalan pendedahan item luar biasa oleh syarikat yang tersenarai di Bursa Saham Kuala Lumpur (BSKL) di mana ketika itu piawaian asal berkaitan item luar biasa iaitu SI 8 - Unusual and Prior Period Items and Changes in Accounting Policies masili digunakan. Definisi yang diberi oleh Sf 8 bagi item luar biasa adalab long gar dan terdedah kepada penyalahgunaan sehinggalali S1 8 yang disemak semula digunapakai dalam tahun 1997 dan diikuti oleli piawaian MASB 3. Artikel ini melaporkan sama ada pendedahan item. luar biasa ini metnpunyai hubungan dengan gelagat pelicinan pendapatan. Ia juga melaporkan sejauh mana pendedahan item luar biasa ini mempunyai hubungan dengan kos politik, penggearan dan pemegangan saham pengurusan syarikat. Kajian dilakukan ke atas 244 syarikai yang tersenarai di BSKL yang melibatkan syarikat yang telah membuat pendedahan item [liar biasa sekurang-kurangnya sekali di antara tahun 1991 hingga 1995. Kajian mendapati amalan pendedahan item luar biasa adalali tinggi. Walau bagaimanapun hasil kajian menunjukkan tiada bukti bahawa pengurusan syarikat menggunakan item luar biasa untuk melicinkan pendapatan. Pendedahan item luar biasa ini juga tidak dijelaskan oleh kos politik, penggearan dan pemegangan saham pengurusan syarikat. Oleh itu tang gapan bahawa piawaian yang diterima pakai sebagai alat untuk menghalang amalan pelicinan pendapatan adalati tidak relevan kerana di Malaysia tiada bukti bahawa item luar biasa digunakan untuk melicinkan pendapatan. Justeru itu, piawaian baru dijangka hanya boleh digunapakai untuk meningkatkan paras kebolehbandingan elan keseragaman pelaporan di kalangan syarikat di Malaysia.


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