Analysis Of Accounting Conservatism And Value Relevance

Conservatism also means prudence or prudential, it have an important impact onaccounting theory and accounting practices. In order to carry out the accounting policy ofconservatism, our country have the accounting policies reformed four times in last tenyears and increased the requirements of the conservatism of accounting informationgradually. In addition, the ‘Enterprise Accounting Standards’ issued in2006not onlyemphasis on the principle of conservatism but also increased the use of fair value. Underthe two opposite “force”, the change of the accounting surplus’s conservatism also we areconcerned. The intention of the accounting standard setters want to improve the companiesreporting profits and accounting information.In this paper, we use the Chinese A-share listed companies to examine the accountingconservatism and the value relevance, we interested in the use of conservatism policieswhether means the high-quality reporting information. Specifically, this paper measures theaccounting conservatism first and examines the effect of the conservatism with the valuerelevance. Finally, the paper examines the change of the accounting policies whether havean impact on the relationship between the accounting conservatism and the valuerelevance.The main conclusions are as follows: The earnings information has the characteristicof conservatism but the use of the fair value reduces it. The accounting conservatism andthe value relevance shows a significant negative correlation, it means that conservatismdoes not means high quality reporting information, but the use of the new accountingstandard weakened the relationship between the accounting conservatism and the valuerelevance. The results show that the prudential accounting policies does not equivalent tothe higher quality of accounting information, the new accounting standards have a goodeffect on improving the quality of accounting information.