The Effect of IFRS Convergence on Accounting Pay for Performance Sensitivity with the Role of Audit Committee as Moderate Variable

Abstract

This research aims to investigate the impact of IFRS convergence on accounting pay for performance sensitivity. This research uses samples 515 firm-years of non-financial public companies listed in Indonesia Stock Exchange for the period 2012-2016. For comparability with previous studies which using only dummy variable for pre and post IFRS adoption as a measurement of IFRS convergence, we use a more reliable measurement in the degree of convergence by looking at three types of difference in adopting IFRS standards such as differences in terms of transition, difference in effective date, and difference on text-based on Mita (2015). The result of this study is that IFRS convergence can positively influence accounting pay for performance sensitivity. This positive effect is likely due to a principle-based IFRS framework that raises the chance of directors to improve their compensation through earnings management. The result of this study is also that the effectiveness of the Audit Committee does not influence the positive effect of IFRS convergence on accounting pay for performance sensitivity. This may be because the audit committee oversight is less able to limit management actions at the time of IFRS implementation.