Regression Analysis: earnings quality of voluntary XBRL filers

1145 In the case of foreign shareholders equity FSH and lagged total accrual TA, these items have the negative relations to absolute discretionary accruals ADA, APDA and ACDA as various prior studies. According to the efficient monitoring theory, more sophisticated investors with analytical skills and information capabilities have strong monitoring power so that they suppress a firm‘s incentive to manage earnings Pound, 1988. Different with prior studies, major shareholders MSH fulfill their monitoring role very strongly. Dechow 1994 said that there is a negative relation between accrual and cash flow caused by different timing of actual cash flow from accounting numbers. But our results of cash flow OCFS are not consistent across three regression models. Especially the direction with Modified-Jones DA ADA supports the story of above, but other two models are not likely that. On the whole, other control variables show the consistent patterns in their directions and significances. . CONCLUSION We investigated what factors affect firms‘ choices to join in the voluntary program of XBRδ filing in Korea, and whether XBRδ voluntary filers‘ earnings quality are better than for their control group. We selected firm-specific variables for our empirical model, with regard both to three kinds of firms‘ incentives to participate in the voluntary program, and to the control matters of firms‘ characteristics. Considering the proper function of the XBRL system within the information process, we also checked the earnings quality of voluntary XBRL filers in Korea. 1146 Our empirical results show that voluntary XBRL adopters are more likely to have a lower level of firm performance, that is, continuous earnings growth. The results also show that voluntary XBRL adopters are more apt to do their external financing activities. The each relationship of the likelihood of early adoption with main auditors and audit report lag suggests that auditors can perform their work in a more efficient manner with the XBRL system. And also foreign shareholders, the only significant factor among governance proxies, play an important role in firms‘ voluntary adoption of XBRL system. We also examined whether the earnings quality of voluntary XBRL filers is better than the control group of companies which do not participate in the voluntary program. The empirical results show that the absolute discretionary accruals of XBRL filers computed with the modified-Jones Model, the performance-adjusted modified- Jones model and cash flow model are lower than those of the control group, suggesting that XBRL systems enhance the quality of accounting information. 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Journal of Accounting Research Vol.22: 59-82. 1152 TABLE 1 Sample Distribution by Industries Industry description Voluntary Filers of XBRL Matched Pair Group 1:3 Matching Services 8 24 Food products 11 33 Non-metallic products 4 12 Chemical products 38 114 Metallic products 23 69 Electronic, information and communication equipment 15 45 Transportation 9 27 Electricity, gas, steam and water supply 2 6 Construction 4 12 Retail 8 24 122 366 1153 TABLE 2 Descriptive Statistics Variables N Mean Median Min Q1 Q3 Max XBRL 488 0.261 0.000 0.000 0.000 1.000 1.000 FP 488 0.485 0.000 0.000 0.000 1.000 1.000 FIN 488 0.553 1.000 0.000 0.000 1.000 1.000 MSH 488 0.333 0.321 0.059 0.187 0.458 0.681 SSH 488 0.368 0.362 0.134 0.248 0.476 0.668 FSH 488 0.115 0.048 0.000 0.004 0.189 0.471 OBODRD 488 0.370 0.000 0.000 0.000 1.000 1.000 BIG4 488 0.637 1.000 0.000 0.000 1.000 1.000 OARL 488 38.861 40.000 20.000 27.000 48.000 61.000 SIZE 488 19.290 19.056 17.412 18.332 20.009 22.236 OCFS 488 0.045 0.045 -0.114 0.003 0.092 0.184 CUR 488 1.893 1.454 0.535 0.999 2.295 5.638 CLEV 488 -0.007 -0.005 -0.315 -0.089 0.073 0.339 CSALES 488 0.034 0.029 -0.284 -0.067 0.120 0.441 TQ 488 1.102 0.942 0.569 0.778 1.276 2.451 FY 488 35.682 36.000 6.000 27.500 46.000 60.000 DEXP 488 0.008 0.000 0.000 0.000 0.000 0.117 A DA 488 0.054 0.039 0.003 0.016 0.079 0.180 A PDA 488 0.072 0.053 0.000 0.011 0.107 0.264 A CDA 488 0.059 0.043 0.003 0.016 0.086 0.206 LOSS 488 0.199 0.000 0.000 0.000 0.000 1.000 TA 488 -0.025 -0.021 -0.172 -0.065 0.022 0.107 XBRL: 1 if XBRL voluntary filers, or 0; FP: Firm performance, 1 if NI t NI t-1 , or 0; FIN: New external financing, 1 if [the issue of bonds or equities] t or t-1 , or 0; MSH: of major shareholders; SSH: of minor shareholders; FSH: of foreign shareholders; OBODRD: 1 if outside directors 25 or more, else 0; BIG4: 4 main audit firms in Korea; OARL: Audit delay, of calendar days from fiscal year- end to date of the auditor‘s report; SIZEμ Natural logarithm of total assets; OCFS: Cash flow from operating activities, scaled by total assets; CUR: Current ratio, current assets divided by current liabilities; CLEV: Change of debt ratioDR=total liabilities divided by total assets, DR t – DR t- 1 DR t-1 ; CSALES: Change of sales, total sales t -total sales t-1 total sales t-1 ; TQμ Tobin‘s Q, { of common-shares outstandingclosing price+total liabilities}total assets; FY: Listing period on a stock exchange; DEXP: Export dependence, foreign salestotal sales; ADA: Absolute value of DA from Modified-Jones model; APDA: Absolute value of DA from Performance-matched model; ACDA: Absolute value of DA from cash flow model; Loss: 1 if NI t 0, or 0; TA: Total accrual t-1 , NI t-1 – OCFS t-1 1154 TABLE 3 Univariate Tests Results: Voluntary Filers Compared to Matched Pair Group Voluntary filers of XBRL Matched Pair Group 1:3 Matching t FP 0.402 0.514 -2.170 FIN 0.632 0.513 2.740 MSH 0.346 0.328 0.950 SSH 0.360 0.371 -0.770 FSH 0.128 0.091 1.980 OBODRD 0.402 0.358 0.840 BIG4 0.705 0.613 1.880 OARL 37.082 39.488 -1.910 SIZE 19.452 19.020 1.827 OCFS 0.046 0.044 0.190 CUR 1.966 1.867 0.700 CLEV -0.009 -0.006 -0.110 CSALES 0.028 0.036 -0.450 TQ 1.192 1.005 1.950 FY 35.516 35.740 -0.150 DEXP 0.011 0.007 1.330 A DA 0.045 0.057 -2.670 A PDA 0.058 0.069 -1.810 A CDA 0.051 0.063 -2.150 LOSS 0.230 0.188 0.950 TA -0.023 -0.026 0.360 Notes: represent statistical significances at the 0.010.050.10 level. FP: Firm performance, 1 if NI t NI t-1 , or 0; FIN: New external financing, 1 if [the issue of bonds or equities] t or t-1 , or 0; MSH: of major shareholders; SSH: of minor shareholders; FSH: of foreign shareholders; OBODRD: 1 if outside directors 25 or more, else 0; BIG4: 4 main audit firms in Korea; OARL: Audit delay, of calendar days from fiscal year-end to date of the auditor‘s report; SIZEμ Natural logarithm of total assets; OCFSμ Cash flow from operating activities, scaled by total assets; CUR: Current ratio, current assets divided by current liabilities; CLEV: Change of debt ratioDR=total liabilities divided by total assets, DR t – DR t-1 DR t-1 ; CSALES: Change of sales, total sales t -total sales t-1 total sales t-1 ; TQμ Tobin‘s Q, { of common-shares outstandingclosing price+total liabilities}total assets; FY: Listing period on a stock exchange; DEXP: Export dependence, foreign salestotal sales; ADA: Absolute value of DA from Modified-Jones model; APDA: Absolute value of DA from Performance-matched model; ACDA: Absolute value of DA from cash flow model; Loss: 1 if NI t 0, or 0; TA: Total accrual t-1 , NI t-1 – OCFS t-1 1155 TABLE 4 Pearson Correlation Analysis Panel A. Logistic Model: Determinants of Voluntary Filers of XBRL XBRL FP FIN MSH SSH FSH OBODRD BIG4 OARL SIZE OCFS CUR CLEV CSALES TQ FY DEXP 1.000 -0.099 0.034 0.045 -0.035 0.054 0.039 0.084 -0.088 0.013 0.009 0.033 -0.005 -0.020 0.012 -0.007 0.069 0.032 0.057 0.327 0.450 0.047 0.396 0.069 0.056 0.078 0.853 0.481 0.917 0.067 0.080 0.883 0.139 1.000 -0.083 -0.006 0.011 0.045 0.063 -0.103 -0.079 -0.016 0.187 0.037 -0.125 0.202 0.125 -0.053 0.012 0.074 0.901 0.815 0.332 0.175 0.026 0.087 0.735 .0001 0.422 0.007 .0001 0.007 0.251 0.788 1.000 -0.146 0.191 0.014 0.047 0.063 0.011 0.248 -0.180 -0.292 0.101 0.087 0.095 0.108 -0.004 0.002 .0001 0.763 0.312 0.172 0.804 .0001 .0001 .0001 0.029 0.061 0.039 0.020 0.935 1.000 -0.505 -0.060 -0.101 0.030 -0.168 -0.012 0.149 0.035 -0.007 -0.008 -0.099 -0.015 -0.017 .0001 0.194 0.029 0.516 0.000 0.789 0.001 0.455 0.888 0.855 0.033 0.748 0.708 1.000 -0.100 0.033 -0.086 0.163 -0.091 -0.279 -0.120 0.016 -0.022 0.195 -0.004 0.037 0.031 0.476 0.062 0.000 0.049 .0001 0.009 0.727 0.639 .0001 0.935 0.428 1.000 0.105 0.287 -0.220 0.527 0.305 0.086 -0.030 0.036 0.157 -0.004 -0.016 0.023 .0001 .0001 .0001 .0001 0.064 0.511 0.436 0.001 0.937 0.735 1.000 0.017 0.000 0.230 0.032 -0.084 0.031 -0.016 0.049 0.028 0.017 0.715 0.994 .0001 0.484 0.070 0.501 0.723 0.289 0.545 0.715 1.000 -0.223 0.349 0.126 -0.033 -0.006 0.031 -0.003 -0.013 -0.107 .0001 .0001 0.007 0.471 0.905 0.503 0.944 0.773 0.021 1.000 -0.272 -0.208 -0.129 0.084 -0.001 -0.017 0.109 0.068 .0001 .0001 0.005 0.071 0.991 0.706 0.018 0.139 1.000 0.251 -0.231 0.017 0.137 0.017 0.081 -0.012 .0001 .0001 0.707 0.003 0.716 0.081 0.801 1.000 0.125 -0.103 0.180 0.078 -0.086 -0.083 0.007 0.026 .0001 0.093 0.063 0.073 1.000 -0.203 -0.097 -0.073 -0.009 0.062 .0001 0.036 0.114 0.841 0.181 1.000 0.199 -0.023 0.035 -0.035 .0001 0.626 0.450 0.454 1.000 0.219 -0.036 -0.095 .0001 0.443 0.041 1.000 -0.201 -0.043 .0001 0.351 1.000 0.024 0.598 1.000 DEXP CLEV CSALES TQ FY OARL OCFS SIZE CUR SSH FSH OBODRD BIG4 XBRL FP FIN MSH 1156 XBRL: 1 if XBRL voluntary filers, or 0; FP: Firm performance, 1 if NI t NI t-1 , or 0; FIN: New external financing, 1 if [the issue of bonds or equities] t or t-1 , or 0; MSH: of major shareholders; SSH: of minor shareholders; FSH: of foreign shareholders; OBODRD: 1 if outside directors 25 or more, else 0; BIG4: 4 main audit firms in Korea; OARL: Audit delay, of calendar days from fiscal year- end to date of the auditor‘s report; SIZEμ Natural logarithm of total assets; OCFSμ Cash flow from operating activities, scaled by total assets; CUR: Current ratio, current assets divided by current liabilities; CLEV: Change of debt ratioDR=total liabilities divided by total assets, DR t – DR t-1 DR t- 1 ; CSALES: Change of sales, total sales t -total sales t-1 total sales t-1 ; TQμ Tobin‘s Q, { of common-shares outstandingclosing price+total liabilities}total assets; FY: Listing period on a stock exchange; DEXP: Export dependence, foreign salestotal sales Panel B. Regression Model: Earnings Quality of Voluntary Filers of XBRL XBRL MSH FSH SIZE OCFS CUR CSALES ADA APDA ACDA LOSS TA 0.045 0.054 0.013 0.009 0.033 -0.020 -0.110 -0.034 -0.053 0.046 0.016 0.327 0.047 0.078 0.853 0.481 0.067 0.017 0.067 0.049 0.323 0.729 -0.060 -0.012 0.149 0.035 -0.008 -0.046 -0.041 -0.126 -0.018 -0.068 0.194 0.789 0.001 0.455 0.855 0.323 0.381 0.006 0.700 0.141 0.527 0.305 0.086 0.036 -0.064 -0.003 -0.065 -0.151 -0.040 .0001 .0001 0.064 0.436 0.164 0.954 0.163 0.001 0.392 0.251 -0.231 0.137 -0.143 0.004 -0.172 -0.231 0.049 .0001 .0001 0.003 0.002 0.939 0.000 .0001 0.295 0.125 0.180 -0.228 -0.075 -0.114 -0.444 -0.410 0.007 .0001 .0001 0.107 0.013 .0001 .0001 -0.097 -0.022 -0.055 0.105 -0.104 0.020 0.036 0.640 0.232 0.023 0.024 0.667 0.012 0.054 0.127 -0.221 0.104 0.790 0.241 0.006 .0001 0.024 0.306 0.289 0.197 0.040 .0001 .0001 .0001 0.392 0.085 0.139 0.003 0.067 0.003 0.955 0.062 0.046 0.183 0.325 -0.331 .0001 SIZE1 XBRL MSH FSH TA LOSS ACDA APDA 1.000 1.000 1.000 1.000 OCFS 1.000 1.000 1.000 ADA CSALES CUR 1.000 1.000 1.000 1.000 1.000 ADA: Absolute value of DA from Modified-Jones model; APDA: Absolute value of DA from Performance-matched model; ACDA: Absolute value of DA from cash flow model; XBRL: 1 if XBRL voluntary filers, or 0; SIZE: Natural logarithm of total assets; Loss: 1 if NI t 0, or 0; CUR: Current ratio, current assets divided by current liabilities; MSH: of major shareholders; FSH: of foreign shareholders; TA: Total accrual t-1 , NI t-1 – OCFS t-1 ; OCFS: Cash flow from operating activities, scaled by total assets; CSALES: Change of sales, total sales t -total sales t-1 total sales t-1 1157 TABLE 5 Logistic Analysis: Dependent var: XBRL1,0 Panel A. Financial Incentives Var. Estimate Wald ChiSq Pr ChiS q Estimate Wald ChiSq Pr ChiS q Estimate Wald ChiSq Pr ChiS q Intercept -1.512 17.650 0.000 -1.355 15.530 0.000 -2.056 18.225 0.000 FP -0.520 5.086 0.024 -0.510 4.916 0.027 FIN 0.177 8.544 0.015 0.145 7.371 0.024 SIZE 0.034 10.138 0.001 0.021 10.052 0.008 0.050 9.290 0.009 OCFS 0.524 0.099 0.753 0.776 0.226 0.635 -0.055 0.001 0.973 CUR 0.043 0.239 0.625 0.055 0.412 0.521 0.044 0.256 0.613 CLEV -0.133 6.032 0.058 -0.144 7.038 0.045 0.119 7.027 0.070 CSALES 0.137 0.038 0.846 0.112 0.026 0.873 -0.184 0.074 0.786 TQ 0.031 9.018 0.009 0.011 9.002 0.010 -0.007 9.001 0.010 FY -0.002 0.070 0.792 -0.003 0.121 0.729 -0.002 0.048 0.826 DEXP 5.390 2.266 0.132 5.404 2.284 0.131 5.039 2.018 0.155 ID Included Included Included Likelihood Ratio 145.090 .0001 132.410 .0001 136.550 .0001 XBRL: 1 if XBRL voluntary filers, or 0; FP: Firm performance, 1 if NI t NI t-1 , or 0; FIN: New external financing, 1 if [the issue of bonds or equities] t or t-1 , or 0; MSH: of major shareholders; SSH: of minor shareholders; FSH: of foreign shareholders; OBODRD: 1 if outside directors 25 or more, else 0; BIG4: 4 main audit firms in Korea; OARL: Audit delay, of calendar days from fiscal year- end to date of the auditor‘s report; SIZEμ Natural logarithm of total assets; OCFSμ Cash flow from operating activities, scaled by total assets; CUR: Current ratio, current assets divided by current liabilities; CLEV: Change of debt ratioDR=total liabilities divided by total assets, DR t – DR t-1 DR t- 1 ; CSALES: Change of sales, total sales t -total sales t-1 total sales t-1 ; TQμ Tobin‘s Q, { of common-shares outstandingclosing price+total liabilities}total assets; FY: Listing period on a stock exchange; DEXP: Export dependence, foreign salestotal sales 1158 Panel B. Corporate Governance Incentives Var. Estimate Wald ChiSq Pr ChiSq Estimate Wald ChiSq Pr ChiSq Estimate Wald ChiSq Pr ChiSq Estimate Wald ChiSq Pr ChiSq Estimate Wald ChiSq Pr ChiSq Intercept -0.668 16.093 0.000 -2.182 13.359 0.000 -1.742 10.866 0.000 -0.749 14.125 0.000 -1.671 15.802 0.000 MSH 0.684 0.894 0.344 0.586 0.874 0.350 SSH -0.034 0.001 0.970 -0.475 0.356 0.551 FSH 1.102 4.427 0.072 1.013 5.224 0.069 OBODRD 0.223 0.944 0.331 0.190 0.701 0.402 SIZE 0.041 3.150 0.099 0.041 3.206 0.065 0.037 4.167 0.028 0.022 3.042 0.084 0.022 4.055 0.041 OCFS -0.447 0.072 0.789 -0.072 0.002 0.964 -0.081 0.002 0.961 -0.151 0.009 0.926 0.171 0.011 0.915 CUR 0.029 0.111 0.740 0.054 0.397 0.529 0.049 0.322 0.570 0.032 0.131 0.717 0.054 0.408 0.523 CLEV -0.021 -5.800 0.008 -0.102 6.020 0.004 -0.095 5.017 0.010 -0.063 5.008 0.013 -0.077 4.011 0.015 CSALES -0.068 0.010 0.922 -0.195 0.082 0.775 -0.211 0.096 0.757 -0.133 0.038 0.846 -0.163 0.058 0.810 TQ 0.072 9.088 0.001 0.003 10.000 0.001 0.007 9.501 0.001 0.075 11.100 0.001 0.039 13.028 0.000 FY -0.002 0.069 0.792 -0.002 0.066 0.797 -0.002 0.071 0.790 -0.002 0.077 0.782 -0.002 0.094 0.759 DEXP 5.083 2.038 0.153 5.068 2.038 0.153 5.077 2.048 0.152 5.081 2.051 0.152 5.021 2.003 0.157 ID Included Included Included Included Included Likelihood Ratio 211.360 .0001 208.450 .0001 218.470 .0001 198.780 .0001 202.660 .0001 XBRL: 1 if XBRL voluntary filers, or 0; FP: Firm performance, 1 if NI t NI t-1 , or 0; FIN: New external financing, 1 if [the issue of bonds or equities] t or t-1 , or 0; MSH: of major shareholders; SSH: of minor shareholders; FSH: of foreign shareholders; OBODRD: 1 if outside directors 25 or more, else 0; BIG4: 4 main audit firms in Korea; OARL: Audit delay, of calendar days from fiscal year- end to date of the auditor‘s report; SIZEμ Natural logarithm of total assets; OCFSμ Cash flow from operating activities, scaled by total assets; CUR: Current ratio, current assets divided by current liabilities; CLEV: Change of debt ratioDR=total liabilities divided by total assets, DR t – DR t-1 DR t- 1 ; CSALES: Change of sales, total sales t -total sales t-1 total sales t-1 ; TQμ Tobin‘s Q, { of common-shares outstandingclosing price+total liabilities}total assets; FY: Listing period on a stock exchange; DEXP: Export dependence, foreign salestotal sales 1159 Panel C. Auditing Incentives Var. Estimate Wald ChiSq Pr ChiS q Estimate Wald ChiSq Pr ChiS q Estimate Wald ChiSq Pr ChiS q Intercept -0.279 8.018 0.001 -1.090 9.331 0.001 -0.259 10.016 0.000 Big4 0.445 3.173 0.075 0.493 3.976 0.046 OARL -0.016 3.921 0.011 -0.018 3.145 0.063 SIZE 0.063 4.403 0.003 0.024 5.062 0.001 0.013 4.020 0.009 OCFS -0.100 0.004 0.951 0.116 0.005 0.943 -0.068 0.002 0.966 CUR 0.016 0.035 0.851 0.042 0.236 0.628 0.025 0.080 0.777 CLEV -0.131 7.032 0.006 -0.083 8.013 0.001 -0.164 6.051 0.008 CSALES -0.093 0.019 0.892 -0.145 0.045 0.832 -0.151 0.049 0.825 TQ 0.019 13.006 0.001 0.016 10.005 0.001 0.027 12.013 0.001 FY 0.000 0.000 0.998 -0.002 0.048 0.827 0.000 0.001 0.981 DEXP 6.445 3.157 0.076 6.025 2.791 0.095 5.634 2.484 0.115 ID Included Included Included Likelihood Ratio 178.110 .0001 167.205 .0001 188.640 .0001 XBRL: 1 if XBRL voluntary filers, or 0; FP: Firm performance, 1 if NI t NI t-1 , or 0; FIN: New external financing, 1 if [the issue of bonds or equities] t or t-1 , or 0; MSH: of major shareholders; SSH: of minor shareholders; FSH: of foreign shareholders; OBODRD: 1 if outside directors 25 or more, else 0; BIG4: 4 main audit firms in Korea; OARL: Audit delay, of calendar days from fiscal year- end to date of the auditor‘s report; SIZEμ Natural logarithm of total assets; OCFSμ Cash flow from operating activities, scaled by total assets; CUR: Current ratio, current assets divided by current liabilities; CLEV: Change of debt ratioDR=total liabilities divided by total assets, DR t – DR t-1 DR t- 1 ; CSALES: Change of sales, total sales t -total sales t-1 total sales t-1 ; TQμ Tobin‘s Q, { of common-shares outstandingclosing price+total liabilities}total assets; FY: Listing period on a stock exchange; DEXP: Export dependence, foreign salestotal sales 1160 TABLE 6 Regression Analysis: Dependent var: Earnings Quality Dep. Var. ADA APDA ACDA Variable Parameter t Value Pr |t| Parameter t Value Pr |t| Parameter t Value Pr |t| Intercept 0.138 3.150 0.002 0.008 3.130 0.006 0.212 4.300 .0001 XBRL -0.013 -2.570 0.011 -0.007 -2.880 0.008 -0.006 -2.050 0.029 SIZE -0.004 -1.720 0.087 -0.003 -2.790 0.004 -0.007 -2.640 0.009 LOSS 0.016 1.930 0.054 0.034 2.850 0.005 0.004 2.450 0.007 CUR 0.000 -0.080 0.936 -0.002 -0.710 0.480 0.005 2.210 0.027 MSH -0.001 -2.100 0.092 -0.009 -2.470 0.064 -0.032 -2.140 0.033 FSH -0.029 1.990 0.014 -0.007 -2.250 0.010 -0.013 -2.600 0.006 TA -0.018 4.400 .0001 -0.088 5.340 .0001 -0.003 -5.060 .0001 OCFS 0.112 1.310 0.021 -0.063 0.880 0.380 -0.074 -1.370 0.173 CSALES 0.019 1.370 0.171 0.020 0.980 0.328 0.059 3.880 0.000 ID Included Included Included F 3.210 .0001 3.300 .0001 3.010 .0001 Adj R-Sq 0.078 0.082 0.072 ADA: Absolute value of DA from Modified-Jones model; APDA: Absolute value of DA from Performance-matched model; ACDA: Absolute value of DA from cash flow model; XBRL: 1 if XBRL voluntary filers, or 0; SIZE: Natural logarithm of total assets; Loss: 1 if NI t 0, or 0; CUR: Current ratio, current assets divided by current liabilities; MSH: of major shareholders; FSH: of foreign shareholders; TA: Total accrual t-1 , NI t-1 – OCFS t-1 ; OCFS: Cash flow from operating activities, scaled by total assets; CSALES: Change of sales, total sales t -total sales t-1 total sales t-1 1161

4.2 Islamic Accounting, Banking and Finance

ACCOUNTING AND ACCOUNTABILITY IN ISLAMIC RELIGIOUS BASED ORGANIZATIONS: THE CASE OF PESANTREN IN INDONESIA Hasan Basri, Universitas Syiah Kuala AK Siti-Nabiha, Universiti Sains Malaysia Abstract Religious-based organizations, especially, Islamic based organizations have long played a very significant role in providing a lot of services for society. One of the most important organizations, in Indonesia, is called pesantren [Islamic boarding school] that provide education services at minimal cost for students. They received a lot of funds either from government or from society at large. However, there are concerns that accounting and accountability practices in this kind of organizations are less than satisfactory. Thus, the aim of this paper s to explain the accounting and accountability practices in pesantren in Indonesia. A case study of a pesantren is undertaken the data generated from interviews people inside and outside the organization and also review of documents. An overview of the management of pesantren is provided. This is followed by a discussion of the accountability relationship as well as the accounting and its role in the organization. Finally, the financial arrangement and the role of board in enhancing accountability were also discussed in this paper INTRODUCTION There has been growth in research in religious organizations as noted by many researchers see Laughlin, 1988, 1990; Walker, 2002; Booth, 1993; Rahim and Goddard, 1998; Lewis, 2001, 2006, but there are only few researches that examined the issues of accounting in religious organization Booth, 1993. Most researches in this area have been focused primary on economic and political factors. Only recently, researchers are beginning to look at some of the broader managerial issues of non profit organization. Consequently, there are growing numbers of literature on non profit organizations that attempts to understand accounting and accountability as an organizationally situated practice. However, only limited number of researchers examined Islamic religious organizations, specifically educational institutions. Furthermore, the issue of accounting 1162 and accountability in Islamic religious organizations have been generally unexplored in accounting academic literature see, Ezzamel, and Carmona, 2006. In Indonesia, the country with the largest Muslim population, religious organization, particularly, Islamic religious institutions have provided a lot of services for society. One of the most important institutions is Islamic boarding school or in Indonesia is called ―pesantren‖ that provides education services at minimal costs for students. Currently, there are 14,656 pesantren operating in the country see Directorate of Religious Education and Pesantren, 2005, p. 18. In the NAD 184 province in which this case study conducted and the only part of Indonesia which has the legal right to apply Islamic law shari‘a, there are 85β Dayah they are typically called pesantren elsewhere in Indonesia in 2007 185 . These pesantren are mainly owned by foundation and private owners. As such, their operations depend mainly on public support and trust. Due to the lack of information regarding financial accountability in these organizations, a lot of anecdotal evidence suggests the lack of public accountability and transparency in these organizations. A study is needed to examine accounting and accountability practices in Islamic religious organizations. As such, the objective of this paper is to investigate and to provide detailed information about one of Islamic boarding school in Indonesia. It focuses on the finding of the research pertaining to accounting information and accountability relationship in a single case study. METHODOLOGICAL APPROACH 184 NAD is the abbreviation of Nanggroe Aceh Darussalam. It refers to the name of a province in Indonesia 185 Sources, the Department of Religious Affair, Banda Aceh-Indonesia.