The Impact of IFRS 9 on the Reported Performance, Conditional

Conservatism, Investors’ Decisions, and Supervisory Rules

REPORT

The first accounting standard to combine risk management and accounting

while taking the anticipated consequences of future events into account was IFRS
9. It depends on whether historical cost or fair value is used when documenting
past economic events (Awawdah, 2019).

The researchers confirmed that when applying International Accounting

Standard No. (39), employees and accountants face great difficulties (Feras, 2017;
Chan, 2022). Therefore, the International Financial Reporting Standard (9) was
issued, which has a significant impact on the operations of the Jordanian stock
market and banks (Aboudlo, 2021; Moalla, 2023). Therefore, accountants and
employees must prepare for the challenges that they may face by increasing their
transparency in preparing financial reports, and forecasting and managing risks
(Moalla, 2023). Additionally, the impact of these investments on these
organizations' financial statements has been well demonstrated by the growing
demand from various corporate establishments for investments in shares, bonds,
and derivatives (HABAWAL, 2018).

Despite the importance of the topic, there is an obvious gap in research that
addressed the effect of applying International Financial Reporting Standard No. 9
on conditional conservatism, the reported performance, investors' decisions, and
supervisory rules of banks on the Amman Stock Exchange. In addition, research
addressing the difficulties of applying the requirements of IFRS 9 is insufficient.
Accordingly, the study will add an investigation into the effects resulting from the
application of International Financial Reporting Standards No. (9) On conditional
conservatism, the reported performance, investors' decisions, and supervisory rules
of banks on the Amman Stock Exchange. as well, the current study will be a rich
source of information related to the study's variables, which are represented to
students, researchers, and websites. Additionally, this study connects variables not
existing in previous studies in the same field.

The importance of the current study lies in clarifying the extent of the impact
of International Financial Reporting Standard 9 on both conditional conservatism
and declared performance in Jordanian banks. The study could also be useful in
developing guidelines in Jordan for implementing IFRS 9. In addition, no studies
have addressed the extent of the impact of IFRS 9 on both conditional
conservatism and stated performance in Jordanian banks.

This study is different from other previous studies because it will develop
theoretical knowledge about the extent of the impact of International Financial
Reporting Standard 9 on conditional conservatisms, declared performance in
Jordanian banks, investors’ decisions, and supervisory rules. On the other hand, the
results of this study may help raise awareness about the impact of IFRS 9 on both
conditional conservatism and reported performance. This study may also help
academic researchers and students find more information about this topic. This
study's significance also comes from how this standard's application affects
investors' choices on the ASE (Amman Stock Exchange). However, because this
study clarifies IFRS 9, it is seen to be significant for those who utilize financial
statements.

This study aims to clarify the impact of applying International Financial

Reporting Standard No. 9 on conditional conservatism, the declared performance,
investors' decisions, and supervisory rules of Amman Stock Exchange banks. The
study will adopt the accounting conservatism model developed by Khan and Watts
(1997), where the researchers will compare the level of conditional conservatism,
reported performance, investors' decisions, and supervisory rules in Amman Stock
Exchange banks before and after the adoption of International Financial Reporting
Standards No. 9 during the years (2016-2021) to achieve the objectives of the
study, which It was mentioned previously. Data will be collected and analyzed
using ordinary least squares (OLS) regressions. As well, the research will apply the
descriptive method by reviewing previous studies that related to the variables of
the research.

Conditional Conservatism

Since its introduction by Basu (1997), the idea of conditional conservatism

has spurred accounting research as well as offered fresh perspectives on the
practice of financial reporting. The definition of conservatism as an asymmetric
reaction to new information provides the concept of conditional conservatism with
its novel insight. In the past, conservatism was thought to be an unconditionally
asymmetric response to uncertainty, meaning that one should choose a low value
for stockholders' equity when presented with a range of potential book values
(Ball, 2013).

The result of accounting that reflects negative news more fully and sooner
than good news is conditional conservatism (Basu 1997). Previous research
indicates that conditional conservatism reduces the incentives and chances for
managing earnings by enforcing stricter verification standards for timely loss
identifications and gain recognition, which results in impairment and write-offs
being made on time. Similar to conditional conservatism, which lessens managerial
ability to "manipulate and overstate financial performance," conservatism plays a
significant role in preventing opportunistic financial reporting and countering
biases introduced by self-interested actors (Lara, 2020).

According to prior studies, conservatism raises the costs of profits

management by reducing the incentives for it. These arguments effectively address
the empirical data that associates conditional conservatism with favorable
economic results, including reduced costs of debt and equity as well as simpler
access to loan financing. Firms run the risk of losing these advantages if they
violate their historical conservative reporting standards. On the other hand,
conditional conservatism raises the earnings management's marginal advantages
because it makes performance compensation harsher and makes board
interventions easier, which incentivizes using earnings management to deceive the
board (Lara, 2020; Ball, 2013; Goh, 2011)

Reported Performance

The information required for organizational governance is provided by

performance measurements and a greater focus on results, which also fulfill
external demands for accountability and openness (HAMEEDI, 2021). Financial
reporting seeks to give relevant financial information about the company to the
stakeholders as a whole.

Reported performance is one of the main processes used by an organization

to provide viewers of financial statements with crucial information about the
company's strategies, past events, and current state. The quality of each component
disclosures and information about the business's operations, management choices,
and details about the selection and application of accounting rules determines how
well the reporting process performs (Patterson, 2018).
 One of the primary procedures in an organization that gives users of
financial statements important details about the company's strategies, historical
events, and present situation is reported performance. The process of reporting
performance is contingent upon the caliber of each component, including
disclosures and data about the business's dealings, management decisions, and
information regarding the choice and implementation of accounting rules
(Rathnayake, 2021).

Investors’ Decisions

Investors are the most prominent users of corporate financial statements. The
conceptual framework for the preparation and presentation of financial statements
indicates that investors are the party that provides the capital and they are the most
risk-tolerant. Therefore, providing investors with the information they need to
make investment decisions will meet other users' needs for financial statements.
The process through which based on an administrative decision certain allocation
whether fixed assets or cash are set to achieve long-term objectives for the benefit
of a particular project is investment decisions.

There is an impact on the compliance of companies listed on ASE with the

recognition of financial transactions and operations by the IRFS 9 requirements on
investors’ decisions. Standard 9 has transferred the framework relating to the initial
recognition from standard 39 and added an item about the recognition of profits
and losses in the sale and purchase; therefore, enhancing the quality of information
and improving the quality of investors’ decisions.

For either individual or institutional investor, maximizing return on investment

while staying within a reasonable risk threshold is the primary goal of their
investment decisions. Investors are the primary users of business financial
statements because their ability to manage their investments determines whether
they will succeed in achieving their aims. Therefore, the majority of other users'
needs for financial statements will be satisfied if investors are given the data, they
require to make investment decisions (HABAWAL, 2018).

Supervisors’ Rules

The supervisor's overarching responsibilities include effectively

communicating organizational needs, monitoring staff performance, offering
direction and support, identifying areas in which employees need to grow, and
managing the mutually beneficial relationship between the organization and its
personnel (Farkas, 2016).

In order to control banks' appetite for risk and hence improve financial
stability, bank regulators have access to a variety of instruments. Thus, information
that is helpful to a variety of users of financial statements, such as creditors,
investors, and regulators, is the primary goal of financial reporting. The main goals
of supervisors are to preserve financial stability and lower the amount of risk that
depositors are exposed to. To control banks' abilities for risk and hence improve
financial stability, bank regulators have access to a variety of instruments.
Supervisors have the power to assess how well banks manage risks and, if they
believe a bank's capitalization is insufficient, to set stricter capital requirements
(Bundesbank, 2019).
A study entitled "The Impact of Applying IFRS (9) on Investors' Decisions:
An Applied Study on the Companies Listed on Amman Stock Exchange (ASE)"
conducted by HABAWAL and ALOKDEH (2018) aimed to examine the impact of
applying IFRS (9) in the preparation of financial reports by taking into
consideration the scope, recognition, classification, and measurement of the
decisions of investors from the viewpoint of brokerage managers, investment
managers, and financial analysts in companies listed on the Amman Stock
Exchange. The descriptive analysis methodology is used, and the questionnaire is
also used as a tool for collecting data for this research. Questionnaires have been
distributed to a sample consisting of 33 investment firms listed on the Amman
Stock Exchange (ASE). The research finds that applying IFRS 9 affects the scope,
recognition, classification, and measurement of investors’ decisions.
As well, FARKAS (2015) has confirmed that IFRS No. 9 is highly
compatible with banking supervision, as it contributes to alleviating procyclical
tendencies and improves transparency, which may lead IFRS No. 9 to enhance
financial stability.
Neamah (2024) asserted that implementing the fair value accounting model
by the International Financial Reporting Standard (IFRS9) can lead to results that
truly reflect the financial performance and position of the research sample,
instilling confidence in the financial statement outputs.
Another study for Chan (2022), found that the influence of IFRS 9 on the
conditional conservatism of non-financial firms is positive, therefore, firms face a
greater impact on conditional conservative accounting for companies with higher
auditing quality.
According to the mentioned previous studies, there is a clear effect of IFRS
9 on the four variables (conditional conservatism, reported performance,
supervisory rules, and investors' decisions). All the previous studies differ in their
methods from our study because we will use the accounting conservatism model
developed by Khan and Watts (1997) during the years 2016–2021. Data will be
collected and analyzed using ordinary least squares (OLS) regressions. As well, the
research will apply the descriptive method by reviewing previous studies that relate
to the variables of the research. Additionally, no study collects the four variables in
the same article, so our study will be different and have rich and valuable
information.
During reviewing the previous studies, most of the studies that investigate
the extent of the impact of IFRS 9 on the four variables mentioned previously
focused only on two to three years before and after the implementation of IFRS 9
in banks, which led to creating difficulty in determining its comprehensive impact
on the variables of the study. As well, due to the lack of previous studies that
collect the four variables (reported performance, conditional conservatism,
supervisory rules, and investors’ decisions) in the same article, the researchers
faced difficulty on collecting information.

References

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