Factors Influencing Asset Revaluation by Indonesian Listed Companies in IFRSs Implementation

Abstract

The purpose of this study is to examine the effect of financial factors on companies’ decision to apply assets revaluation method or to stay with cost model during the mandatory implementation of IFRSs in Indonesia. The adoption of IFRSs accounting standards and non IFRSs-based accounting standards differs in emphasis on applying asset revaluation. Non-IFRSs accounting standards do not require asset revaluation. The implementation of IFRSs-based standards requires companies to use asset revaluation method to value their fixed assets. Therefore, all listed companies must apply asset revaluation. In fact, not all listed companies in Indonesia apply asset revaluation. This study intends to test firms’ decision to implement asset revaluation or to stay with cost model under the condition of the company has implemented IFRSs. This study uses a standards logistic model to examine the effect of financial factors on firm decision to revalue their fixed assets. Sample firms used in this study are the firms listed on Indonesia Stock Exchange for the periods 2013 – 2016. Sample firms consist of 850 firms stay with cost model and 262 firms choose asset revaluation. Therefore, the observation is relatively large 1112 firms – years. The results show that the companies that implement asset revaluation are the companies with higher leverage and lower investment opportunities two years before the companies applied asset revaluation. The findings also present that the companies decide to implement asset revaluation when their financial liquidity and fixed assets intention one year before are higher. From the firm size perspective, bigger firms are more likely to choose asset revaluation. However, smaller firms stay with cost model to revalue their fixed assets. As general, this finding has succeeded to support the hypothesis and previous literatures. Keywords— Financial determination; Asset revaluation; Cost model, IFRSs