| Pub. Date | : October, 2021 |
|---|---|
| Product Name | : The IUP Journal of Accounting Research and Audit Practices |
| Product Type | : Article |
| Product Code | : IJARAP101021 |
| Author Name | : Rajneesh Ranjan Jha |
| Availability | : YES |
| Subject/Domain | : Finance |
| Download Format | : PDF Format |
| No. of Pages | : 9 |
The paper reviews the literature on accounting conservatism and its different dimensions. In literature, accounting conservatism is classified into two classes, namely, conditional accounting conservatism and unconditional accounting conservatism. Accounting conservatism plays an important role in shaping the corporate governance of any firm. It also interacts with other dimensions like board structure and ownership structure to decide the firm level of corporate governance. Board structure and accounting conservatism act as a substitute to each other. Accounting conservatism literature mainly focuses on advanced or developed nations, while research on emerging nations needs more attention. As there are institutional differences between advanced and emerging nations, the results generated from advanced nations cannot be generalized for the emerging nations. There are many unattended research gaps in the context of emerging nations like India, where ownership structure is concentrated and business group affiliation is a rule rather than exception.
In a setting where the misconduct of a company's management is found to have been widespread, accounting conservatism could contribute to higher managerial liability. It may be due to the limitations of accountants to detect fraud and other misbehavior in multicorporation firms, leading directors and audit committees to believe that there is a lack of evidence, when all along there may actually be a host of concealed corporate crimes. In other words, the truth may be hidden in plain sight-and accounting conservatism could help conceal it. The effects of accounting conservatism on managerial liability are theoretically ambiguous. For example, if the costs to the firm of recognizing revenue prematurely are greater than the benefits of hiding it, accounting conservatism will lead to lower management liability because it makes revenue recognition more difficult. Theoretical ambiguity regarding accounting conservatism and managerial liability is partly due to conflicting views about how conservative accounting affects managerial incentives. Accounting conservatism is related to corporate governance, with corporate governance being closely associated with reduced