The relation between conservativeness and transparency in financial reporting (Divided with Respect to Profit Smoothing and Non- Smoothing Companies)
Journal Title: International Research Journal of Applied and Basic Sciences - Year 2013, Vol 6, Issue 5
Abstract
Accounting conservativeness is as a part of a functional contractual technology which helps the decrease in essential losses due to representativeness issues. Based on this concept, conservative accounting, by influencing the transparency of financial reporting, works as in instrument to resolve the moral danger issue due to some groups (parties to a contract) which hold asymmetric information, asymmetric payments and limited horizons and responsibilities. In this research efforts have been made in order for the relation between conservativeness and transparency in financial reporting to be examined, divided with respect to profit smoothing and profit non- smoothing companies. In this regard the transparency and disclosure indexes based on the standard and Poor model and the Hayn and Givoly model were applied in order to assess the conservative index (based on operational discretionary accruals) and the Beaver and Ryan model was applied to assess the conservativeness index (based on the ratio of market value to book value). For this purpose 102 companies were examined with regard to the conditions of stock exchange in Tehran during years 2005- 2010. The results indicated that non- existence of a meaningful and linear relation between conservativeness (based on operational discretionary accruals) and transparency. In the next theory a meaningful and negative relation between the ratio of market value to book value (from conservativenessindexes) and transparency) was obtained. Eventually the effect of conservativeness index on transparency among profit smoothing companies and profit non- smoothing companies was investigated and we came to the conclusion that this relation is equal between profit smoothing and profit non- smoothing companies. In other words, the relation between the index of conservativeness and transparency in profit smoothing and profit non- smoothing companies is not different and the third theory of the project has not been confirmed.
Authors and Affiliations
Mohamadreza Abdoli| Department of Accounting ,Shahrood branch ,Islamic Azad University, Shahrood ,Iran, Mahboobeh Jalali| Department of Accounting , Shahrood branch , Islamic Azad University, Shahrood ,Iran, email:Jalali_mahbubeh@yahoo.com, Bahram Sattari| Faculty of Management, Osku Branch, Islamic Azad University, Osku ,Iran
Keywords
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