Conservatism in Accounting

Conservatism in Accounting - Shu-Ya Peng Conservatism in...

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Shu-Ya Peng Conservatism in Accounting It’s is an old saying that accountants are more conservative than the finance people and most of the other business people. In this article, the author explains the possible reasons in different angles: Including the contractual explanations, litigation explanation, income tax explanation and regulatory explanation, with most comprehensive explanation in contracting. In my opinion, I am more favor the explanation of management bias and litigation. Generally, management and auditors have somewhat different interest. Although both management and auditor face litigation risk, management face great pressure not able to meet the earning forecast. Also, manage is influence by the compensation contracts. Managers may exert effort to overstate earnings for contractual reasons or afraid of not meeting the expectation. They may have the attitude of caring less about litigation because the need to meet the forecast is urgent. Nevertheless, earning management may not necessary violate GAAP. On the other hand, for the
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Conservatism in Accounting - Shu-Ya Peng Conservatism in...

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