Measuring the Level of Accounting Conservatism Pre-and Post-IFRS

Adoption in Jordan: The Modified Role of the COVID-19 Pandemic

LAITH AKRAM AL-QUDAH

Department of Accounting and Accounting Information System,

Amman University College, Al-Balqa Applied University,

Amman, 11937,

JORDAN

Abstract: - The purpose of this study is to assess the level of accounting conservatism among Jordanian

industrial companies listed on the Amman Stock Exchange. Using the methodology utilized in this analysis, the

study compares the succeeding period to the time previous to the required use of International Financial

Reporting Standards (IFRS) (Basu, 1997). Furthermore, the study assesses the level of accounting conservatism

in the firms studied during the COVID-19 epidemic. A cross-sectional examination of time series data from

2002 to 2021 was used in this study. The study community included 54 Jordanian industrial companies

registered on the Amman Stock Exchange. To derive the findings, the study used an analytical-descriptive

technique to gather and analyze data. The findings show that the concept of accounting conservatism was used

for accounting profits prior to the mandated use of IFRS (2002–2008), although at a low level. The research

also found that the companies that were evaluated had implemented the concept of accounting conservatism for

accounting profits throughout the time after the compulsory use of IFRS (2009–2019), but to a high degree.

This was observed in the second part of the study. The study's results showed that accounting rules got stricter

after the COVID-19 epidemic hit in 2020 and kept going through 2021.

Key-Words: - Conservatism, International Financial Reporting Standard, Industrial Companies, (Basu, 1997)

model, Return, Jordan.

Received: October 7, 2019. Revised: September 7, 2022. Accepted: September 21, 2022. Published: October 21, 2022.

1 Introduction

Between 1973 and 2003, "the International

Accounting Standards Committee (IASC) issued

what is now known as International Accounting

Standards (IASs) through an agreement of the

leading professional accounting bodies in ten

countries: Australia, Canada, France, Germany,

Ireland, Japan, Mexico, the Netherlands, the United

Kingdom, and the United States". "They later

changed the name to the International Accounting

Standards Board (IASB) in 2000, [27]. The IASB

amends and develops all international accounting

standards, also known as international financial

reporting standards, which represent the

international set of accounting and financial

reporting rules and principles that must be followed

and adapted in accounting standards and disclosure

of financial statement elements". There are 41

international accounting standards, of which 28 are

active, while the rest have been canceled and

replaced by other criteria. In addition, 17

international financial reporting standards (IFRS)

have been released since 2001, and the latest IFRS

(No. 17) on "Insurance Contracts," was released in

May 2017, [43], [41].

Accounting conservatism constitutes one of the

accounting constraints that define the

characteristics of accounting information and its

role in decision-making by the various parties

related to the establishment. In light of the

continuous and successive changes in the business

environment and the growing interest in the

concept of the appropriateness of accounting

information, the increasing variables, and stock

markets, these factors have increased interest

surrounding the concept of accounting

conservatism, as the American Accounting

Principles Board (APB) indicated in Statement No.

4, that accounting conservatism is because assets

and liabilities are often measured in the context of

uncertainty, and managers, investors, and

accountants generally prefer to choose an

alternative, [1]. In the United States, the Financial

Accounting Standards Board (FASB) defines

accounting conservatism as delaying the

recognition of revenues when they are uncertain or

decreasing. This is done instead of overestimating

assets and profits in the current period and

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recognizing losses that may happen in the future,

[31].

"Enterprises committing to the principle of

accounting conservatism when preparing financial

reports have many advantages". "Many studies tend

to link accounting conservatism and the quality of

profits based on the continuity of profits in the

future. Penman & Zhang" (2002), [59] "found that

conservatism in announcing profits can be achieved

through the use of accounting policies that will

postpone the recognition of revenues (which will

give continuity profits in the future by generating

cash flows over a coming period)". Regardless of

their level of quality, profits are important inputs in

the investment decision-making process as well as

being used to predict and evaluate the current and

future performance of the enterprise; the quality of

profits provides details of how the enterprise can

predict future profits and losses, [24].

Globally, the COVID-19 pandemic and

international lockdowns have incurred significant

economic losses. The stock markets have

plummeted, with the Dow Jones and FTSE

recording their worst quarterly drops since the 1987

Black Monday crisis in the first three months of the

year, [18]. According to the International Monetary

Fund, global growth in 2020 will be 4.9 percent,

and global GDP in 2021 will be around 6.5 percent

lower than predictions provided before COVID-19,

[44]. There is considerable ambiguity about the

scope and length of the pandemic's economic

effects for businesses that are experiencing large

sales declines and employment losses to cut

expenses and avoid bankruptcy, [62]. A sharp drop

in the stock market, along with growing uncertainty

about companies' future earnings expectations, has

created a turbulent environment for potential

investors and owners. The COVID-19 pandemic

had a significant impact on equity markets, forcing

many businesses into a liquidity crisis, lowering

their cash flow and raising their default risk, [2]. As

a result of the COVID-19 crisis, businesses face an

unprecedented level of risk and uncertainty.

This study makes an important contribution to

research in measuring conservatism accounting

levels through the application of the model (Basu,

1997). It provides value as a reference for

researchers in all countries of the world dealing

with the measurement of conservatism accounting

levels before and after the application of

international accounting and financial reporting

standards. Its contribution comes through

measuring the actual contribution of the study by

measuring conservatism accounting levels during

the COVID-19 pandemic, as well as the formation

of research frameworks for future researchers

across the globe to examine the impact of the

COVID-19 pandemic on conservatism accounting

levels. This study is also a scientifically-oriented

addition to the bodies and institutes specializing in

issuing international accounting and financial

reporting standards, to address and develop

solutions during the current period. The main

conclusion of this study shows the increasing

accounting conservatism practices during the

Corona pandemic.

Several studies have confirmed that the transition to

international financial reporting standards has led

to a decrease in the levels of profit management, an

increase in the levels of accounting conservatism,

and levels of information asymmetry Latridis and

Rouvolis, (2010), [54], Hellman., (2008) [39], Chi

and Wang, (2010), [25]. Other studies, such as

Karampinis and Hevas, (2011), [49], Wang et al.,

(2008), [63], showed that the transition to

international financial reporting standards led to a

decrease in the levels of accounting conservatism.

Thus, the problem of the study is represented by the

following main question: Measuring the Level of

Accounting Conservatism Pre-and Post-IFRS

Adoption in Jordan: The Modified Role of the

COVID-19 Pandemic? The remainder of the paper

is structured as follows: The second portion

examines related literature and develops the study's

three key hypotheses. The third section explains

how the sample was chosen, how variables were

measured, and how the analysis was carried out.

The results are discussed and analyzed in the next

section. The conclusion is detailed in the final

section.

2 Literature Review and Hypotheses

Development

2.1 Accounting Conservatism

Many previous studies dealt with the concept of

accounting conservatism and its types. The notion

of conservatism is a very important accounting

principle. According Basu (1997), [17], described

conservatism as a way of acting that shows a

different reaction to bad news and good news. For

example, the bad news is quickly written down as a

loss in financial statements, but good news isn't

written down until later. Conservatism is a way of

making decisions that result in fewer assets and less

money when there is a lot of uncertainty [36], [61],

[5]. Conservatism is defined by Beatty et al. (2008),

[19], as the use of accounting methods that reduce

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reported cumulative earnings by delaying income

recognition, speeding up expense recognition,

decreasing asset valuations, and raising liability

valuations.

Hereby, accounting conservatism is divided into

two types: firstly, conditional conservatism requires

immediate recognition of expected economic losses

which is called asymmetric timing of gains and

losses. Recognition of economic income is held

back until it can be proven that the expected gains

are real, [52], [51], [17]. The second type of

conservatism is called, "unconditional

conservatism". This is when assets are understated

and liabilities are overstated, no matter what the

economy does. It doesn't help you make decisions

and isn't very important to contracting, [60].

To date, the literature has identified five key

conservative measures: (1) Basu's (1997), [17],

asymmetric timeliness of earnings measure ("AT"),

(2) Ball and Shivakumar's (2005), [10],

asymmetric-accruals-to-cash flow measure

("AACF"), (3) "the widely recommended market-

to-book ratio measure model (the theoretical frame

developed by Beaver & Ryan" (2000) [21], "used by

a few studies like those of Ahmed & Duellman,

(2007) [3], Jain & Rezaee, (2004) [45], LaFond &

Royohowdhury", (2008) [53] ("MTB"), (4) Penman

and Zhang's (2002), [59], Hidden Reserves

Measure ("HR"), and (5) Givoly and Hayn's (2000),

[36] Negative Accruals ("NA"). The model (Basu,

1997), [17] used in this study was The Basu (1997),

[17], model, which has been widely accepted and

spread among researchers as the most important

measure of accounting conservatism. Many studies

that used the Basu (1997), [17], model within

previous studies will be mentioned and will be

addressed. "The basic idea of this model is that the

market is faster than the accounting system in

responding to good and bad news, as it reaches the

market with multiple sources of information".

Following Basu (1997), [17], studies have stressed

the relevance of conservatism as a key criterion of

accounting quality in an international environment

Ball et al. (2000), [14], Ball et al. (2003), 12],

Watts 2003a and b, [66],[67], Ball et al. (2008),

[11], and Barth et al. (2008), [16]. There are many

opinions on using the Basu model in terms of pros

and cons. Dietrich et al. (2007), [26], show that the

Basu specification produces data compatible with

accounting conservatism even when accounting

conservatism is not present; that is, Basu (1997),

[17] exaggerates the prevalence of accounting

conservatism. Patatoukas and Thomas (2011), [58]

further support the views espoused by Dietrich et

al. (2007) ,[26], by claiming that the scale variable

in Basu's regressions, [17], has a biasing impact on

the Basu estimate. Givoly et al. (2007), [37] argue

that Basu's (1997)/ [17], metric understates

accounting conservatism, in contrast to these

perspectives.

Furthermore, Ball et al. (2011), [13], refute

Patatoukas and Thomas (2010), [58], claims,

appealing that the bias in the Basu estimator is

generated by the connection between predicted

profits and return. To adjust for this, Ball et al.

(2011), [13] recommends using fixed effects in

the Basu (1997) regression, [17]. Basu's (1997),

[17], reverse regression model makes a significant

contribution and has considerable impact. Many

academics utilize this paradigm to analyze and

investigate situations, [10]. Following that, most of

the research utilizes the Basu model to verify

capital market conservatism in many nations and

extends the Basu model to investigate variables

determining conservatism levels [33], [34], [10],

[15]. [20].

The advantages of conservatism are still

debatable; conservatism may avoid disagreements

between management and shareholders by limiting

managers' activities to exaggerating earnings or

assets [4]. Basu (1997), [17], on the other hand,

claims that conservatism is a skewed accounting

system since it acknowledges and evaluates assets

with the lowest values and obligations with the

highest values, and it loses assets quickly and

profits slowly. As a result, low-quality earnings,

and less meaningful reporting follow.

2.2 International Financial Reporting

Standard (IFRS)

Adoption of IFRS has continued to grow since

2005, following the European Union's

implementation of IFRS for listed entities in the EU

jurisdictions", [23]. "The broad acceptance of IFRS

is one of the elements aiding its implementation. In

terms of measurement and assessment of

accounting assets and liabilities, IFRS is considered

to make accounting information more comparable,

relevant, reliable, transparent, and standardized,

resulting in a broader range of acceptability

throughout the globe" [28], [42].

IFRS "promotes openness by improving the

quality of financial data, allowing consumers of

financial statements to make sound financial

decisions". "The International Financial Reporting

Standards (IFRS) also increase accountability by

bridging the information gap between shareholders

and management [6], [46]. Financial statements

from throughout the world may be compared using

IFRS, making it easier for investors to spot

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possibilities and dangers. As a result, economic

efficiency can be improved. Furthermore, IFRS can

save capital costs and other international reporting

requirements, [56].

" According to Van Tendeloo and Vanstraelen

(2005), [63], the adoption of IFRS has four

advantages. Firstly, such adoption will improve

investors' ability to make informed financial

decisions by removing the confusion that arises

from the existence of multiple ways to measure

status and financial performance in different

countries, resulting in lower risk for investors and

lower capital costs for businesses". "Secondly, it will

result in lower costs associated with the creation of

financial data in accordance with many sets of

standards. Third, it will result in increased foreign

investment incentives and forth, it will enable a

more efficient global distribution of financial

resources".

Jordan has been on the IASC board of directors

since 1988, [41]. "By its Board of Management's

Decision number 54 on March 13, 1989, the Jordan

Association of Certified Public Accountants

(JACPA) advised the adoption of IAS for the fiscal

years 1988 and 1989, but mandated them for 1990

and beyond, [9]. Jordan's government passed

Company Law No. 22 in 1997 and Securities Law

No. 76 in 2002". Unless there is a disagreement

between these standards and Jordanian legislation,

both laws require all Jordanian public shareholding

firms to utilize AS/IFRS. Otherwise, national law

will supplant the Directives on Disclosure,

Auditing, and Accounting Standards published

under No. 1 for 1998, [47].

"Jordanian regulatory bodies in 2005 stated that

Jordanian listed companies were to adopt IFRS

from January 1, 2005. It is widely accepted that

accounting is the language of business that enables

communication among financial information users

and providers. Just as each nation has its language,

not surprisingly, different countries have different

accounting standards. The International Financial

Reporting Standards" (IFRS) were made mandatory

for the first time for all companies, banks, and

financial institutions in 2009, [29]. Consequently,

the following three hypotheses emerged:

H01: There are no differences in the level of

accounting conservatism during the period (2002–

2008) preceding the obligation to apply IFRS in

industrial companies in Jordan.

HO2: There are no differences in the level of

accounting conservatism during the period (2009-

2019) after the obligation to apply IFRS in

industrial companies in Jordan.

HO3: There are no differences in the level of

accounting conservatism during the period (2020-

2021) after the obligation to apply IFRS in

industrial companies, using the COVID-19

pandemic in Jordan. Feltham, G. A., & Ohlson, J.

A. (1995) in [30] present the Valuation and clean

surplus accounting for operating and financial

activities. In [46], Jinadu, O., Oluwafemi, S.,

Soyinka, M., & Akanfe, K. described the effects of

International Financial Reporting Standards (IFRS)

on Financial Statements Comparability of

Companies.

2.3 The Concept of Accounting

Conservatism and IFRS

Through a review of previous studies, we note that

many studies have linked accounting conservatism

to international financial reporting standards

(IFRS). In this study Fulana et al., (2017), [35], the

researchers sought to demonstrate the impact of the

IFRS implementation requirement on unconditional

accounting conservatism. Among the findings of

the study were that the application of the

International Financial Reporting Standards (IFRS)

had no effect on the unconditional accounting

conservatism in listed companies in Spain. Whereas

the study by Fouad (2016), [32] sought to

demonstrate the impact of the IFRS commitment on

accounting conservatism in practice and its impact

on financial statement quality.

The study by Zhang (2011), [68] was applied in

New Zealand and demonstrated the impact of the

adoption of international financial reporting

standards (IFRS) on accounting conservatism using

the Basu (1997), [17], model, to test the impact of

adopting international accounting and reporting

standards on accounting conservatism. The study

also showed that accounting conservatism had

increased after the adoption of international

accounting and financial reporting standards in

New Zealand in 2007. According to a study

conducted by Juniarti et al., (2018), [48],

conservatism was highest before the advent of

IFRS. Furthermore, before the advent of IFRS,

accounting earnings were more susceptible to

negative than positive returns. However,

susceptibility to negative yield diminished after

adoption. This suggests that the International

Financial Reporting Standards (IFRS) have made it

less likely that things will stay the way they are.

Ke et al., (2013), [50], investigated the influence

of mandated IFRS adoption on accounting

conservatism. Basu (1997), [17], estimated

conditional conservatism using a cross-sectional

regression model. They conducted their research

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utilizing a broad sample of publicly traded

companies from seventeen European nations that

required the adoption of IFRS between 2005 and

2008. As a result of implementing IFRS, there was

a decrease in accounting conservatism. According

to a study Arabiat & Khamees, (2016), [8], which

investigates the impact of the mandatory adoption

of IAS/IFRS in Jordan on conditional conservatism,

the results show that after adopting IAS/IFRS,

firms that report intangible assets and goodwill

impairment on their balance sheets saw a bigger

drop in conditional conservatism than those that did

not.

Another set of previous studies indicated that

accounting conservatism decreased after the

introduction of the International Financial

Reporting Standards (IFRS), [55]. Many of the

research findings come from European nations.

According to Hung and Subramanyam (2007), [40],

empirical evidence in Germany demonstrates that

the level of accounting conservatism falls with the

adoption of IFRS. Accounting conservatism

decreases as a result of the adoption of a fair value

measuring model. After the implementation of the

International Financial Reporting Standards (IFRS)

in Europe, André et.al., (2015), [7] found a general

decrease in conservatism, based on the above, and

so the fourth main hypothesis appears:

HO4: There are no differences in the level of

accounting conservatism in industrial companies in

Jordan between the subsequent period and the

period preceding the mandatory application of

IFRS.

3 Methodology

3.1 Sample Selection

The study population consists of all Jordanian

industrial companies listed on the Amman Stock

Exchange and their numbers, according to the 2021

corporate directory (77 companies). The study

sample includes all Jordanian public shareholding

industrial enterprises listed on the Amman Stock

Exchange after the following companies were

removed, according to the Amman Stock

Exchange's website: Companies that went bankrupt

or merged during the research period, as well as

those that did not publish their financial records

regularly, were omitted. Based on these rules, the

final sample size was 54 firms, which is 70.1% of

the size of the community.

3.2 Variable Measurement and Research

Model

The descriptive analytical methodology was relied

on in data collection to use in the statistical analysis

program, Minitab. The model of Basu (1997), [17],

will be used to measure the level of accounting

conservatism before and after the obligation to

apply IFRS. It is a model for measuring accounting

conservatism that depends on studying the

relationship between accounting profit and both

prices and stock returns, as it focuses on the

informational content of both profits and market

prices of stocks.

The model (Basu) relied on the inverse regression

of the equation, [22], which is based on the use of

market returns as a representative of good and

unpleasant news, so the establishments are

distinguished according to the sign of the returns

they achieve, as shown by the following regression

function:

t) +

t*DR

t + β

t+β

1= α+ β-t

t /P

Where:

"Xit: is the year's earnings per share".

"Pit-1: represents the share price at the start of

the fiscal year".

"Rit: is return on the share over the fiscal year t"

"DRit: is a dummy variable, taking a value of 1

if Rt < 0, and 0 otherwise".

"Rit*DRit: The product of the binary variable

multiplied by the return".

"Uit: The number of random changes that the

model does not explain".

"β: Regression coefficients for the independent

variables".

The earnings variable (Xit) measures the company's

earnings per share (i) at the end of the period (t)

divided by "the share price at the beginning of the

period (Pit-1). Dividing the profit by the price is a

necessary process to eliminate the effect of the

difference in the share price due to the difference in

the nominal value of each company on the earnings

per share. The market returns per share in the case

of bad news are compared to the effect of the

market returns per share in the case of good news

(Rit*DRit). It expresses the company's annual

earnings per share (i) at the end of a period (t). The

annual dividend per share is calculated at the end of

each" year using the following formula:

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 

11 /)(   itititit PdPP

Where (Pit) is the share price and (dit) is the cash

dividend per share during the year. In the case of

negative returns, it means that the market received

bad news and dealt with it immediately before the

earnings report, while positive returns mean that

the news received by the market during the period

was good news. Here, the binary measure of news

is used. If the return sign at the end of the period (t)

is negative, then the news received by the market

during the period is generally considered bad news,

and in this case, the variable is given a value of (1).

It is assumed that good news was received by all

markets. The variable has a value of (zero) if it's

positive at the end of the period, or if it doesn't

change at all.

In this study, the Basu model (1997) was modified

with the introduction of the International Financial

Reporting Standards (IFRS) variable, and thus the

modified Basu model number-1 used in this study

became as follows:

Modified Basu model number-1:

) + β

*DR

+ β

+β

= α+ β

1-it

X+

* DR

1 -it

IFRS

+ β

* R

1-it

IFRS

+β

1-it

IFRS + Uit

*DR

* R

1-it

IFRS

The Basu model (1997) was modified with the

introduction of the International Financial

Reporting Standards (IFRS) and coronavirus

(covid-19), and thus the modified Basu model

number-2 used in this study became as follows:

Modified Basu model number-2:

Xit /Pit-1= α+ β1 Rit+β2 DRit + β3(Rit*DRit) + β4

IFRSit-1* Covid-19it-1 +β5 IFRSit-1* Covid-19it-1

* Rit + β6 IFRSit-1* Covid-19it-1 * DRit + β7

IFRSit-1* Covid-19it-1 * Rit*DRit + Uit

This variable (IFRS) will be measured through the

use of the binary measurement method, where the

variable will be given a value of 1 for the period

following the mandatory implementation (2009-

2019) and (2020-2021), and a value of 0 for the

period prior to the mandatory implementation

(2002-2008), to measure the level of conservatism

accounting for industrial companies before and

after the application of international financial

reporting standards.

4 Empirical Results

This part of the study examines the normal

distribution of the data in addition to testing the

existence of the phenomenon of the multiple linear

correlation through the Darbun-Watson test and

descriptive statistics for the study variables.

4.1 Normal Distribution

To verify the extent to which the data are close to

their normal distribution, the Anderson-Darling

(Anderson-Darling) parametric test was used, and

the decision basis was to accept the null hypothesis

(H0: the data are normally distributed) if the

probability of the (Anderson-Darling) test is greater

than (0.05), [38].

The normal distribution of data will be tested as

follows:

"H0: The data is normally distributed (Skewness=0) "

"Ha: The data is not normally distributed".

Table 1. Validity tests for statistical data

Variable

Anderson-Darling (AD)

P-value

Skewness

Kurtosis

)

XEPS (

1.334

0.000

2400.0

5.3242

)

1-it

PPrice (

4.550

0.000

. 39110

86.344

)

(P Price

0.7600

0.000

0.1553

40.7606

)

RReturn (

0.5656

0.000

0.2816

14.9847

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From Table 1, we note that the probability of

choosing an Anderson-Darling parametric greater

than 0.05 indicates that all the variables in the study

follow a normal distribution, and this result

indicates that the (skewness) is approaching zero,

while others (kurtosis) are approaching (3), which

confirms the approach of the study data to the

normal distribution.

4.2 Autocorrelation Test

It's worth mentioning that the DW value is derived

using a complicated relationship that cannot be

discussed in detail and is also produced using

statistical tools. After calculating the value (DW), it

is compared to the two tabulated values (dL), which

represents the lowest amount of autocorrelation,

and dV, which represents the highest amount of

autocorrelation, for each level of significance,

based on the number of observations and

independent variables in the model. Alternatively,

depending on some mathematical criterion, will

may reject one of the two assumptions. The median

(DW) value is (2), and the correlation coefficient is

0 when there is no autocorrelation. Based on

statistical comparisons, the null hypothesis (H0) is

accepted or rejected.

Table 2. Autocorrelation test in the study model.

Durbin-Watson(d)

Variable

1.915

1-it

Α=0.05

1.718=

, d1.802

d Watson tables:-From Durbin

From Table No. (2), we find that the value of (DW

= 1.915) and, by testing its significant values (α =

0.05), the value of (dL = 1.718) and the value of

(dV = 1.802). We note that the value of (DW) does

not fall within the range, since (dL<dV) and,

accordingly, the model does not suffer from the

problem of autocorrelation.

4.3 Timeline of Accounting Conservatism

pre-and post-IFRS Adoption in Jordan

The study utilized a timeline of accounting

conservatism in Jordan before and after IFRS

implementation to depict figure 1. The figure

indicates that prior to the compulsory usage (before

to 2002), the notion of accounting conservatism

was not employed for accounting profitability, but

only for audit committee judgments. Nonetheless,

prior to the compulsory adoption of IFRS (2002-

2008), the notion of accounting conservatism was

applied for accounting profits, albeit at a low level

with disclosure management and cost timeframes.

The figure also revealed that the evaluated

companies had accepted the concept of accounting

conservatism for accounting profits throughout the

time after the compulsory use of IFRS (2009-

2019), but to a greater extent because the notion

enters conditional conservatism from the

governances. Finally, the figure revealed that

accounting conservatism emerged between 2020

and 2021, as a result of the COVID-19 pandemic

and its impact on information asymmetry, earning

quality, and ownership. Therefore, the anxiety of

predicted losses leads to an increase in accounting

conservative practices.

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Fig. 1: Timeline of accounting conservatism

Descriptive Statistics4.4

In this part of the study, we address the description

of the study variables after the validity of the data

has been verified to test the hypotheses. The

process of describing the variables is based on the

use of statistical measures that show the most

important key characteristics of the dependent and

independent study variables.

From Table No. (3), we notice that the arithmetic

mean of EPS is 0.687 and the standard deviation is

0.91. The arithmetic mean is 0.26, and the

minimum value of the EPS is 0.014 and the

maximum value is 4.6. The arithmetic means of

returns (R) equals 0.246 and standard deviation

0.3502, and the minimum value of returns is 0.016.

The maximum value is 7.65, and the arithmetic

mean is 87.9.

4.5 Testing the Hypotheses

First hypothesis test: H01: There are no differences

in the level of accounting conservatism during the

period (2002–2008) preceding the obligation to

apply IFRS in industrial companies in Jordan.

The following are the statistical results for the

period preceding the mandatory application of

International Accounting and Financial Reporting

Standards (2002–2008).

Table 3. Descriptive statistics for the main variables in the study

R(it)

(EPS)

Variable

0.246

0.687

Mean

0.3502

0.91

St. Dev

0.016

0.014

Min

87.9

0.26

Median

7.65

4.6

Max

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Table 4. Statistical results for the period preceding the obligation to apply international accounting and

financial reporting standards (2002–2008)

The response coefficients for the variables (DR,

R*DR) and constant are expected to be positive.

Furthermore, the expected ratio (β 2 + β 3)/ β2 is

greater than the correct one. The previous indicator

measures the ratio of the sensitivity of earnings to

bad news compared to the sensitivity of their

response to good news. If the value of the index is

greater than one, this indicates that bad news is

recognized more than good news. We also note in

Table No. 4 that the response coefficient for the

variable (constant) is 0.430 and the response factor

for the variable (R*DR) is positive, which is what

we would expect, because it is 0.276.

On the other hand, the response factor to the

variable (DR) is negative and equal to (-0.54). "In

addition to the above, the results indicate that the

indicator does not indicate a fundamental change in

the level of conservatism in the period preceding

the issuance of the obligation, as the results indicate

that the response factor for the years 2002–2008 to

the variable (R*DR) is positive and not statistically

significant as (P-value = 0.125).

Since (β2+ β 3) / β2 between 2002-2008 is equal to"

0.276)/ -0.54) = 0.4888} +-0.54 {

"The sensitivity of earnings to bad news is about

three times greater than the sensitivity of earnings

to good news. From the above, it can be concluded

that there is a level of accounting conservatism for

the period (2002–2008), and in the period between"

(2002–2008), "the explanatory power of the model

is 9.7%.

Second hypothesis test: H02: There are no

differences in the level of accounting conservatism

during the period (2009-2019) after the obligation

to apply IFRS in industrial companies in Jordan".

"The following table shows the statistical results for

the period following the mandatory application of

international accounting and financial reporting

standards" (2009–2019).

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Table 5. Statistical results for the period following the obligation to apply international accounting and

financial reporting standards (2009-2019)

It is also noted in Table No. (5), for the period after

the obligation to apply international accounting and

financial reporting standards, that the response

coefficients to the variables (DR, R*DR) and

(Constant) are positive- as expected. Moreover, the

results of the regression coefficient for the period

(2009–2019) show caution, as the response

coefficient for the variable (R*DR) is positive and

equal to (0.7577), and it has a significant statistical

value. The results indicate a fundamental change in

the level of caution and caution in the period after

the issuance of the obligation. For the years 2009–

2020, international accounting and financial

reporting standards were used. The results show

that the response coefficient (R*DR) for the

variable R*DR is positive, and that the P-value is

(0.029).

Since (β2+ β 3) / β2 between 2009-2019 is equal to

{(0.7577+ 0.743) / 0.743) = 2.0197}

The sensitivity of earnings to bad news is

approximately 20 times the sensitivity of earnings

to good news. From the foregoing, we conclude

that there is an accounting reservation for the

period 2009-2020. The results indicate that for the

period (2009-2019) 2.0197 = (β 2 + β 3) / β2 takes

a value greater than the right one, indicating that

bad news is recognized ore quickly compared to

good news . As for the period between 2009-2019,

the explanatory power (R2) of the model is equal to

(19.2%). These results indicate that there is a speed

in the profit response to the unpleasant news about

the good news after the application of the

obligation from the first period before the

application of the obligation.

Third hypothesis test: HO3: There are no

differences in the level of accounting conservatism

during the period (2020-2021) than after the

obligation to apply IFRS in industrial companies

during the COVID-19 pandemic in Jordan.

The following table shows the statistical results for

the period following the mandatory application of international accounting and financial reporting

standards (2020–2021).

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Table 6. Statistical results for the period following the obligation to apply international accounting and

financial reporting standards (2020-2021) during the COVID-19 pandemic in Jordan.

The modified Basu model (No. 2), after adding the

variable (IFRSit-1 x Covid-19it-1) to the basic

model, was tested using observations from

Jordanian industrial companies between 2020 and

2021, and the most important variable in the

equation is (IFRSit-1 Covid-19it-1 RDR).

After adding the variable (IFRSit-1 x Covid-19it-1)

to the modified Basu model (No.2), the regression

equation of the modified Basu model was tested

based on the observations of industrial companies

in Jordan for the period between (2020- 2021); and

the most important variable in the equation is

(IFRSit-1× Covid-19it-1×R×DR).

Whereas interactive regression coefficients (β3, β7)

measure earnings response to bad news in

comparison to good news between the post-period

and the pre-mandatory period during the COVID-

19 pandemic.

"β3: Regression coefficient of the variable (R×DR)

"β7: Regression coefficient of the variable (R×DR×

IFRSit-1× Covid-19it-1)

As expected, the response coefficient (7) for the

variable (R×DR×IFRSit-1× Covid-19it-1) is

positive, and it is clear from the above model that

the explanatory power of the second modified Basu

model increased to 17.7% during the COVID-19

pandemic for the years (2020–2021). As compared

to the pre-commitment period (2002–2008), the

explanatory power of the Basu model was 9.7%.

Compared to the post-commitment period (2009–

2019), the explanatory power of the Basu model

was 13.4%.

"It is also clear from the above result that

accounting conservatism has increased during the

years 2020 and 2021 after the emergence of the

covid-19 pandemic", "but it does not have

significant statistical differences from the period

following the obligation to apply international

accounting and financial reporting standards for the

period" (2009–2019), " It explains that this is a

result of the negative effects of the spread of the

covid-19 pandemic, primarily on companies and

business institutions and everything associated with

them, as well as the fear of expected losses that

Jordanian industrial companies have, which has

been accompanied by an increase in the practices of

accounting conservatism. Furthermore, the

Jordanian economy has been impacted by Covid-

19. affecting the world economy in general and the

Jordanian market in particular, the establishment of

a state of stagnation. the closure of several

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businesses worldwide as a result of Covid-19 and

its effects on Jordan. The deployment of several

measures, such as accounting reservations for fear

of insolvency and anticipated losses owing to the

negative impacts of Covid-19, was coupled with

this worry about companies failing.

Fourth hypothesis test H04: There are no

differences in the level of accounting conservatism

in industrial companies in Jordan between the

subsequent period and the period preceding the

mandatory application of IFRS

The above hypothesis can be tested using the

alternative approach, which is based on the

modified Basu model.

"Xit /Pit-1= α+ β1 Rit+β2 DRit + β3(Rit*DRit)+ β4

IFRSit-1+β5 IFRSit-1* Rit + β6 IFRSit-1 * DRit +

β7 IFRSit-1* Rit*DRit + Uit"

The binary measurement method will be used

where the variable (IFRS) is given a value of 1 for

the period following the mandatory application of

International Accounting and Financial Reporting

Standards, and a value of 0 for the period prior to

the mandatory application of IFRS. As the variable

(IFRS) is determined based on the year of

obligation, the other variables (R, DR, and R*DR)

are defined in advance, and they are the same

variables adopted in the basic Basu (1997) model.

Table 7. The regression equation of the modified Basu model by adding (IFRS) using all data in industrial

companies in Jordan during 2002-2020

The regression equation of the modified Basu

model (1997) was tested based on the

observations of the Jordanian industrial

companies for the period between (2002-2020),

and the most important variable in the equation is

(R*DR*IFRS). Whereas, the interactive

regression coefficients (β3, 7β), measure earnings

response to bad news compared to good news,

between the subsequent period and the period

prior to mandatory IFRS implementation.

β3: regression coefficient of the variable(R*DR).

β7: regression coefficient of the variable

(R*DR*IFRS).

The results are shown in Table No. (7) above, as

it is expected that the regression coefficient (β7)

for the variable (R*DR*IFRS) is positive. Since

its value is (0.5715) and the calculated (t) value is

(1.46), it is not a significant statistical value since

(P-value =0.149). Therefore, unexpectedly, this

non-significant value, for the variable

(R*DR*IFRS), indicates that there is no clear

effect of accounting conservatism for the period

after the mandatory application of International

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Accounting and Financial Reporting Standards

(IFRS).

As for the F-test, it was used to test the statistical

significance and compare the significance of the

difference between the regression coefficients for

the period before and after the obligation to apply

international accounting and financial reporting

standards. In the final result, the value of the

response coefficient (β7) for the variable

(R*DR*IFRS) equals 0.571"", which is a positive

value as expected, as it indicates a positive impact

on profits after the mandatory application of

International Accounting and Financial Reporting

Standards (IFRS) compared to before". It is

mandatory to apply, but this value is not

significant as (P-value=9.140).

From the above table, it appears that the level of

accounting conservatism has improved since the

period after the mandatory application of the

(IFRS), "but not with significant statistical

differences. In conclusion, the accounting

reservation exists for the two periods between the

subsequent period and the period preceding the

mandatory application of (IFRS) ". "We also

reported that the level of accounting conservatism

increased during the period following the

mandatory application of the international

accounting and reporting standards adopted in the

modified Basu model", "by adding the variable

(IFRS) to each selected sample. This shows the

improvement in the quality of accounting

information after the mandatory application of

IFRS, due to the enhancement, improvement, and

increase in the level of accounting conservatism".

5 Conclusion

The main objective of the study was to measure

the level of accounting conservatism in the

industrial companies listed on the ASE in the

subsequent period and the period before the

mandatory application of IFRS in 2009. Also,

there was scope to identify the impact of the

COVID-19 pandemic on the level of accounting

conservatism in Jordanian industrial companies".

The growing significance of capital markets

in various economic, social, and political

endeavors is one of the factors that demonstrates

the study's relevance to real-world applications.

This study has the potential to provide the

companies in question with information by

defining what the concept of accounting

conservatism is and determining the degree to

which industrial companies listed on the ASE

adopt this concept. Because accounting

information is used as an important basis in

making investment and credit decisions by

investors, shareholders, credit providers, analysts,

the financial state, and other parties that use this

information, accounting conservatism is

important in protecting investors, creditors, and

owners of capital. This is due to the fact that

accounting information is used as an important

basis in making investment and credit decisions.

The study used the Basu model (1997) to

measure the extent of the difference in the level of

accounting conservatism in general after the

obligation to apply IFRS for the first time in

2009, compared to the level of accounting

conservatism before the application of IFRS was

obligatory. The study produced several results.

This means that the industrial companies, listed

on the Amman Stock Exchange, adopted the

concept of accounting conservatism for

accounting profits during the period preceding the

mandatory application of IFRS (2002–2008) and

in a low manner. Another thing that came out of

this study was that industrial companies on the

Amman Stock Exchange used the concept of

"accounting conservatism" for accounting profits

in the years after the IFRS were made mandatory

in 2009 and 2019. Furthermore, increasing the

levels of accounting conservatism in industrial

companies after the Corona pandemic.

We conclude from the above-mentioned results

that it is necessary to provide accounting

information that is characterized by

appropriateness and reliability so that those

concerned can make sound economic decisions.

Which begs the question of the role of accounting

conservatism, its impact on financial statements,

and its implications for the appropriateness and

reliability of accounting information. It is

reflected in the investment decisions in this sector

that it is the subject of research or in the rest of

the sectors whose shares are listed on the Amman

Stock Exchange. Hence, the idea of the research

was centered on measuring the level of

accounting conservatism in an important sector of

the Jordanian economy, as one of the developing

countries before and after the adoption of

international accounting and reporting standards.

Based on past results, the study recommends

that there is a necessity for the authorities

concerned with issuing accounting standards to

pay attention to the concept of accounting

conservatism in terms of significance and content,

by issuing guidelines to accountants that can be

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practically applied to achieve the desired degree

of accounting conservatism, in line with

international standards and local laws and

legislations. Future research could also be

conducted to investigate whether the impact of

the coronavirus is the same for the industrial

companies' sectors of other developing countries

as it is for the Jordanian industrial companies. By

studying the impact of the coronavirus on

conservatism for developing countries, the sample

size can also be increased due to the availability

of more financial data.

This paper suggests a number of prospective

research areas to future scholars, including

investigating the influence of accounting

certification on financial report quality. In

addition, the influence of accounting reservations

on investment efficiency during the corona

epidemic is being investigated. Furthermore, the

influence of accounting reservations on profit

management methods during the Corona

epidemic is being investigated, as well as

investigating the effect of accounting reservations

on share market value during the Corona

epidemic. Moreover, investigates the effect of the

accounting reserve on voluntary accounting

information disclosure. and carrying out the

present title of this study as a comparison study

between many nations (a sample of developing

countries, and a sample of European Union

countries).

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Contribution of Individual Authors to the

Creation of a Scientific Article (Ghostwriting

Policy)

Laith Qudah was responsible for the introduction

and theoretical aspects of the study, for extracting

and preparing the financial measures of the study

and was responsible of Statistics. and the

discussion and conclusion and recommendations.

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WSEAS TRANSACTIONS on BUSINESS and ECONOMICS

DOI: 10.37394/23207.2022.19.153

Laith Akram Al-Qudah

E-ISSN: 2224-2899

1705

Volume 19, 2022