The Impact of Accounting Conservatism on Earnings Management Forecasting Error

Subject Areas : Management Accounting

Ahmad Lotfi ¹ , MEISAM HAJI POR ²

1 - (نویسنده مسئول و طرف مکاتبات
2 - ندارد

Received: 2010-05-07 Accepted : 2010-06-21 Published : 2010-03-21

Keywords: accounting conservatism, Earnings Forecasting Error, earnings management,

Abstract :

Earnings is one of the important and essential components of financial statementsthat is of particular interest to financial statements users. The information which isissued with a company and as a results earnings , is based on past events but investorsneed information about firm’s future. Firm’s Managements who have enoughinformation and resource, hasten the efficiency of financial market by earningsforecast . Prior researches has indicated that managements forecasts have effect onstock price, stock markets liquidity and analysts forecasts . On the other hand, theaccuracy or error of predicted earnings is affected by size, age , structure of companyand etc . Also it’s confirmed that managements psychological bias has impact ontheir forecasts . further empirical researches show that accounting policies areconservative and become more conservative from thirty past years (Watts,2003).Basu(1997) and following him found evidence of accounting conservatismdevelopment. Li(2007), also, find that in times of growth in investment, accountingconservatism leads to a downward bias in reported earnings and net assets. In thispaper, we examine the effect of accounting conservatism on management earningsforecasting error. Empirical findings are according to a sample from 88 companies ofTehran stock exchange during the period of 1998-2008 support our hypotheses. Inother words companies which have more conservative policy have less earningsforecasting error .