Measured At Fair Value And Accounting Conservatism

Fair value has always been a hot issue of the International Accounting, and it not only gets more attention from the accounting profession as the financial crisis becomes more and more fierce, but also causes extensive discussion out of the profession as well. This paper discusses the effect of fair value accounting on the accounting conservatism.Firstly, this paper described fair value and accounting conservatism respectively, then sums up the models and empirical of accounting conservatism research in empirical literatures. Secondly, on the basis of economy environment's uncertainty, this paper illustrates the two relationships between uncertainty and fair value, accounting conservatism. The result of their relationships turned out to be that conservatism is unilateral asymmetric reflect to uncertainty, but fair value shows bilateral asymmetric reflect. Then, this paper makes predictions on the relationships between fair value and accounting conservatism in different economy environment.Based on above, this paper chooses a sample of A-shares listed companies during the period of 2006-2008, and uses the accrual-cash flow measure of accounting conservatism. The empirical results indicate that:When the economic cycle is at the expansion stage, the application of fair value accounting will reduce the measured degree of accounting conservatism. On the contrary, when the economic cycle is at the contraction stage, the application of fair value accounting will increase the measured degree of conservatism.In the end, this paper gives investors and creditors suggestions in different economy situations under fair value accounting model, and provides the improvements to adopt fair value and conservatism in China currently.