Board monitoring efficiency and the value of conservative accounting

Journal of Management and Governance - This paper provides a theoretical explanation for the observation that firms with strong corporate governance exhibit more conservative accounting. We study...     

Vorsichtige Rechnungslegung und Informationsgehalt

This paper contributes to the current and controversial debate about costs and benefits of conservatism in financial reporting. It presents a formalization of conservatism of an information system and shows that, holding precision constant, an increase of the probability of bad signals reduces their information content. This can make the interpretation of bias as conservative or aggressive ambiguous. It has also consequences for the association of market returns and earnings, which is used in empirical estimates of accounting conservatism. The paper discusses several models that show economic benefits of conservatism.     

Discussion of “Decision-usefulness of ideal cost- and ideal value accounting for valuation and stewardship”

This discussion summarizes the paper by Hachmeister et al. (Z Betriebswirtschaft, 2012) and highlights several issues that are useful to put the results in perspective. I discuss the main result that ideal cost accounting is superior to ideal value accounting by questioning the fairness of a comparison of the two idealized accounting systems. I review the main assumptions and information requirements of the model, and I consider the potential contribution of the paper to the current standard setting debate about measurement bases in financial reporting.