Is IFRS 9 Enough? The Moderating Role of Audit Committee Effectiveness in Loan Loss Provisioning

Inkariyani Yuli Astuti; Lulus Kurniasih

doi:10.70716/emis.v4i3.760

Authors

Inkariyani Yuli Astuti Master of Accounting, Faculty of Economics & Business, Sebelas Maret University, Surakarta, Indonesia Author
Lulus Kurniasih Master of Accounting, Faculty of Economics & Business, Sebelas Maret University, Surakarta, Indonesia Author

DOI:

https://doi.org/10.70716/emis.v4i3.760

Keywords:

loan loss provisions, earnings management, capital management, IFRS 9, audit committee effectiveness

Abstract

The implementation of International Financial Reporting Standard 9 (IFRS 9) has intensified the debate over whether principle-based accounting standards can effectively constrain managerial discretion in loan loss provisioning. This study investigates the effects of earnings management and capital management on Loan Loss Provisions (LLP). It examines whether the implementation of IFRS 9 and Audit Committee Effectiveness jointly influence these relationships. Using panel data from 42 Indonesian listed commercial banks over the period 2017–2024 (335 bank-year observations), this study employs the Fixed Effects Model (FEM) as the primary estimation method, with Feasible Generalized Least Squares (FGLS) and Dynamic Generalized Method of Moments (Dynamic GMM) used for robustness analysis. The findings reveal that earnings management significantly affects LLP, whereas capital management has no significant direct effect. IFRS 9 significantly weakens the relationship between earnings management and LLP but does not significantly moderate the relationship between capital management and LLP. Furthermore, Audit Committee Effectiveness significantly moderates the effect of IFRS 9 on both the earnings-management and capital-management channels, although in opposite directions, indicating that the effectiveness of the Expected Credit Loss framework depends not only on accounting standards but also on governance quality. These findings contribute to the accounting and banking literature by integrating managerial incentives, accounting regulation, and corporate governance into a unified empirical framework and provide practical insights for regulators and banking institutions seeking to enhance the credibility of financial reporting under IFRS 9.

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