The Impact Of Firms' Accounting Policy Choice On Earnings Conservatism

Accounting policy is not only the principles of financical accounting, but also the foundation of accouting information's forming. The complexity of economic matters makes enterprises face many different accounting business. In order to ensure the same accounting business' reasonable reflecting in different situations, the standard-setters give some spaces to companies. And then the choice of accounting policy generates. The choosing space of accounting policy offered managers opportunities to manipulate earnings. They may take advantage of accounting policy choice to interfere the measurement of losses and gains, which will affect accounting information quality. As one of accounting information quality, earnings conservatism is bound to be affected by managers' accounting policy choice behavior.Based on the theory of accounting police choice and earnings conservatism, this article will take the combination of normative and empirical method to study the relationship between accounting policy choice and earnings conservatism. Specifically, we will take fixed assets depreciation, inventory valuation and provision for bad debts as examples to explore the relationship between single and combination accounting policy choice and earnings conservatism by using the modified surplus-stock returns model and the modified accrual-cash flow model. The datas we used are from 2007 to 2013 with 711 listed manufacturing companies in A shares market. At last, the results revealed the impact mechanism between the accounting policy choice and the earnings conservatism.The results show that earnings conservatism is existed in our country's manufacturing listed companies from 2007 to 2013, and accounting policy choice has an important impact on earnings conservatism. Specifically, accelerated depreciation method is more beneficial than the straight-line method to enhance conservatism in depreciation of fixed assets. Compared with the weighted average method, FIFO method will reduce the earnings conservatism in the inventories valuation method. And in method of provision for bad debts, the offset function between the balance percentage method and conservatism is not obvious. However, we find that the impact of fixed assets depreciation has been improved, the influence of inventory valuation and the provision for bad debt has been weakened, when we examining the effect on mixed accounting policy choice and earnings conservatism. The results also tell us that, enterprises should not evaluate policies in isolation, but should be put in accounting policy combination when they are choosing accounting policies.The above conclusions are helpful to enrich the theory of accounting policy choice and earnings conservatism. Meanwhile, it also has some practical significance for optimizing corporate policy choice and improving earnings conservatism.