Disclosure of extraordinary items and income smoothing behaviour in Malaysia
This paper investigates disclosure practice of extraordinary items (EI) by listed companies in Malaysia during which the original standard on EI, SI 8 – Unusual and Prior Period Items and Changes in Accounting Policies was still in place. Until the adoption of the revised standard in 1997 (revise...
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| Main Authors: | , , |
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| Format: | Article |
| Language: | English |
| Published: |
Penerbit Universiti Kebangsaan Malaysia
2002
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| Online Access: | http://journalarticle.ukm.my/2474/1/JP21-03.pdf http://journalarticle.ukm.my/2474/ http://www.ukm.my/penerbit/jurus.htm |
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| Summary: | This paper investigates disclosure practice of extraordinary items (EI) by
listed companies in Malaysia during which the original standard on EI, SI
8 – Unusual and Prior Period Items and Changes in Accounting Policies
was still in place. Until the adoption of the revised standard in 1997 (revised
SI 8 and subsequently replaced by the MASB 3), the definition of EI given
in the original SI 8 was 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 1991
to 1995 were included in this study. The study found that the incidence of EI
was very high. However, the results showed no evidence of management
using EI as a tool to smooth 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 smooth income in Malaysia, the belief that
the new standard (that restricts the definition of EI) 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 |
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