Examining the relationship between differences in accounting and fiscal profit and other financial performance metrics

Oct 13, 2025 by magicalceylontours.com 135 views

The Influence of the Difference Between Accounting Profit and Fiscal Profit on the Persistence of Earnings in Manufacturing Companies Listed on the Indonesia Stock Exchange

Introduction

The Indonesia Stock Exchange (IDX) is one of the largest stock exchanges in Southeast Asia, with a vast number of manufacturing companies listed on it. The persistence of earnings is a crucial aspect of a company's financial performance, as it indicates the company's ability to maintain its profits over time. However, the difference between accounting profit and fiscal profit can have a significant impact on the persistence of earnings. This study aims to analyze the role of differences between accounting profit and fiscal profit in predicting the persistence of earnings for the next period in manufacturing companies listed on the IDX for the period 2005 to 2007.

The Effect of Differences

This study uses a quantitative approach with multiple regression analysis to examine the relationship between differences in accounting profit and fiscal profit and the persistence of earnings. The data used in this study are the financial statements of each company published through the website www.idx.co.id. The sampling technique used is purposive sampling, where the sample is selected based on specific criteria. The variables used in this study are profit before tax for the next period as the Y variable and profits before tax in the current period as the X variable. This study also uses differences in accounting and fiscal profit as a moderation variable.

Differences in Accounting and Fiscal Profit

Accounting profit is the profit reported in the company's financial statements, which are calculated based on applicable accounting standards. Fiscal profit, on the other hand, is a profit used to calculate company income tax obligations, which are calculated based on taxation rules. The difference between the two types of profits arises because of differences in accounting standards and tax rules. Accounting profit is calculated based on the accrual method, which recognizes revenue and expenses when they are earned or incurred, regardless of when the cash is received or paid. Fiscal profit, however, is calculated based on the cash method, which recognizes revenue and expenses when the cash is received or paid.

Profit Persistence

Profit persistence refers to the company's ability to maintain the same or similar level of profit in the future. Companies with persistent profits tend to have more stable and predictable profits. Profit persistence is an important aspect of a company's financial performance, as it indicates the company's ability to maintain its profits over time. Companies with persistent profits are more likely to attract investors and maintain their market value.

Analysis of Research Results

The results of this study indicate that companies with differences in accounting profits and large fiscal profits tend to have less persistent profits. This can be caused by several factors, including:

Uncertainty: Differences in large accounting and fiscal profit can show uncertainty in calculating company profit. This can make investors less confident in the company's ability to maintain the same level of profit in the future.
Management Action: Companies may use differences in accounting and fiscal profit to manipulate profits and generate better profits. However, this action can have a negative impact on long-term profit persistence.
Tax Regulations: Changes in tax regulations can also affect differences in accounting and fiscal profit, thus affecting earnings persistence.

Implications

This study has several implications for company stakeholders, including:

Investor: Investors need to consider differences in accounting and fiscal profit when assessing company performance. Large differences can be a signal that company profits may be less persistent.
Management: Management must pay attention to differences in accounting and fiscal profits and ensure that the differences are not too large.
Regulator: Regulators need to continue to monitor differences in accounting and fiscal profit and ensure that tax regulations do not encourage companies to manipulate profits.

Conclusion

This study shows that differences in accounting and fiscal profit have a significant negative effect on the persistence of earnings in manufacturing companies on the IDX. This indicates that large differences can be a sign of danger for investors and show the potential for lack of long-term profit persistence. Therefore, investors, management, and regulators need to pay attention to differences in accounting and fiscal profit when assessing company performance and making decisions.

Recommendations

Based on the findings of this study, the following recommendations are made:

Investors: Investors should consider differences in accounting and fiscal profit when assessing company performance. Large differences can be a signal that company profits may be less persistent.
Management: Management should pay attention to differences in accounting and fiscal profits and ensure that the differences are not too large.
Regulator: Regulators should continue to monitor differences in accounting and fiscal profit and ensure that tax regulations do not encourage companies to manipulate profits.

Limitations

This study has several limitations, including:

Sample size: The sample size of this study is limited to manufacturing companies listed on the IDX for the period 2005 to 2007.
Data availability: The data used in this study are limited to financial statements published through the website www.idx.co.id.
Methodology: The methodology used in this study is limited to multiple regression analysis.

Future Research Directions

Future research directions include:

Examining the relationship between differences in accounting and fiscal profit and other financial performance metrics.
Investigating the impact of differences in accounting and fiscal profit on company value.
Analyzing the effect of differences in accounting and fiscal profit on company risk.

By understanding the influence of differences in accounting and fiscal profit on the persistence of earnings, investors, management, and regulators can make more informed decisions and improve company performance.
Frequently Asked Questions (FAQs) About the Influence of Differences in Accounting and Fiscal Profit on the Persistence of Earnings

Q: What is the difference between accounting profit and fiscal profit?

A: Accounting profit is the profit reported in a company's financial statements, calculated based on applicable accounting standards. Fiscal profit, on the other hand, is a profit used to calculate company income tax obligations, calculated based on taxation rules.

Q: Why is profit persistence important?

A: Profit persistence is an important aspect of a company's financial performance, as it indicates the company's ability to maintain its profits over time. Companies with persistent profits tend to have more stable and predictable profits.

Q: What are the implications of differences in accounting and fiscal profit on profit persistence?

A: The results of this study indicate that companies with differences in accounting profits and large fiscal profits tend to have less persistent profits. This can be caused by several factors, including uncertainty, management action, and tax regulations.

Q: What are the implications for investors?

A: Investors need to consider differences in accounting and fiscal profit when assessing company performance. Large differences can be a signal that company profits may be less persistent.

Q: What are the implications for management?

A: Management must pay attention to differences in accounting and fiscal profits and ensure that the differences are not too large.

Q: What are the implications for regulators?

A: Regulators need to continue to monitor differences in accounting and fiscal profit and ensure that tax regulations do not encourage companies to manipulate profits.

Q: What are the limitations of this study?

A: This study has several limitations, including a limited sample size, limited data availability, and a limited methodology.

Q: What are the future research directions?

A: Future research directions include examining the relationship between differences in accounting and fiscal profit and other financial performance metrics, investigating the impact of differences in accounting and fiscal profit on company value, and analyzing the effect of differences in accounting and fiscal profit on company risk.

Q: What are the practical implications of this study?

A: The practical implications of this study are that investors, management, and regulators need to pay attention to differences in accounting and fiscal profit when assessing company performance and making decisions.

Q: Can differences in accounting and fiscal profit be used as a signal for investors?

A: Yes, differences in accounting and fiscal profit can be used as a signal for investors. Large differences can indicate that company profits may be less persistent.

Q: Can management manipulate profits by using differences in accounting and fiscal profit?

A: Yes, management can manipulate profits by using differences in accounting and fiscal profit. However, this action can have a negative impact on long-term profit persistence.

Q: What are the tax implications of differences in accounting and fiscal profit?

A: Changes in tax regulations can affect differences in accounting and fiscal profit, thus affecting earnings persistence.

Q: Can regulators prevent companies from manipulating profits by using differences in accounting and fiscal profit?

A: Yes, regulators can prevent companies from manipulating profits by using differences in accounting and fiscal profit by monitoring tax regulations and ensuring that they do not encourage companies to manipulate profits.

Q: What are the implications of this study for company stakeholders?

A: The implications of this study for company stakeholders are that investors, management, and regulators need to pay attention to differences in accounting and fiscal profit when assessing company performance and making decisions.