Differences in government accounting conservatism across jurisdictions, their determinants, and consequences: the case of Canada and the United States

Review of Accounting Studies, Forthcoming https://doi.org/10.1007/s11142-021-09663-z

59 Pages Posted: 12 Jul 2018 Last revised: 1 Mar 2022

See all articles by Johnathon Cziffra

Johnathon Cziffra

HEC Montréal

Steve Fortin

University of Waterloo - School of Accounting and Finance

Zvi Singer

HEC Montreal

Date Written: June 26, 2021

Abstract

We use the year-end adjustments to the provisions for student loan losses of state and provincial governments in the U.S. and Canada to study government accounting conservatism and how it varies between these adjacent and highly integrated countries. Building on Canada’s more conservative cultural attributes, we hypothesize and find that Canadian provincial governments report more conservative provisions for student loan losses than U.S. state governments. Moreover, the year-end adjustments to the provisions in Canada are excessively conservative; they are larger than the audit materiality threshold. We further find that the political ideology of the government, government reporting incentives, government debt, and political competition are important determinants of government accounting conservatism. Finally, we find a negative association between the year-end adjustment to the provision and future student lending. This result suggests that government accounting conservatism leads to credit rationing and bears significant societal consequences for students. Overall, our study highlights important aspects of the determinants and consequences of government accounting conservatism. To the best of our knowledge, our study is the first to examine government unconditional accounting conservatism.

Keywords: Audit market concentration, excessive conservatism, government audit, auditor reputation, monopoly

JEL Classification: H81, L13, L51, M41, M42, M48

Suggested Citation

Cziffra, Johnathon and Fortin, Steve and Singer, Zvi, Differences in government accounting conservatism across jurisdictions, their determinants, and consequences: the case of Canada and the United States (June 26, 2021). Review of Accounting Studies, Forthcoming https://doi.org/10.1007/s11142-021-09663-z, Available at SSRN: https://ssrn.com/abstract=3202959 or http://dx.doi.org/10.2139/ssrn.3202959

Johnathon Cziffra

HEC Montréal ( email )

3000, Chemin de la Côte-Sainte-Catherine
Montreal, Quebec H2X 2L3
Canada
514 340-3678 (Phone)

Steve Fortin

University of Waterloo - School of Accounting and Finance ( email )

200 University Avenue West
Waterloo, Ontario N2L 3G1 N2L 3G1
Canada

Zvi Singer (Contact Author)

HEC Montreal ( email )

3000, Chemin de la Côte-Sainte-Catherine
Montreal, Quebec H2X 2L3
Canada
514-340-1847 (Phone)

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