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http://ssrn.com/abstract=1931732
 
 

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The Effects of Accounting Conservatism on Financial Statements and Financial Statement Users: A Review of the Literature


George W. Ruch


University of Alabama - Culverhouse School of Accountancy

Gary K. Taylor


University of Alabama - Culverhouse College of Commerce & Business Administration

May 1, 2014


Abstract:     
We review and analyze the accounting literature that examines the effects of accounting conservatism on financial statements and financial statement users. We begin by analyzing how conservatism affects the reported numbers on the financial statements. These studies primarily evaluate how conservatism affects earnings quality, including earnings persistence and the presence of earnings management. Next, we assess the effect of accounting conservatism on the users of the financial statements. We identify three primary users of the financial statements: (1) equity market users (2) debt market users and (3) corporate governance users. Within each of these categories we analyze the findings of prior research and explore unanswered research questions. By analyzing the effects of accounting conservatism from a diverse range of research topics, we inform the discussion on the costs and benefits of accounting conservatism.

Number of Pages in PDF File: 45

Keywords: Accounting conservatism, financial reporting quality, earnings quality, market returns, contracting

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Date posted: September 22, 2011 ; Last revised: September 9, 2014

Suggested Citation

Ruch, George W. and Taylor, Gary K., The Effects of Accounting Conservatism on Financial Statements and Financial Statement Users: A Review of the Literature (May 1, 2014). Available at SSRN: http://ssrn.com/abstract=1931732 or http://dx.doi.org/10.2139/ssrn.1931732

Contact Information

George W. Ruch
University of Alabama - Culverhouse School of Accountancy ( email )
Tuscaloosa, AL 35487
United States
Gary Kenneth Taylor (Contact Author)
University of Alabama - Culverhouse College of Commerce & Business Administration ( email )
Box 870223
Dept. of Accounting
Tuscaloosa, AL 35487-0223
United States
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