| Summary: | 博士 === 國立臺北大學 === 會計學系 === 103 === Past studies follow the definition of accruals by Healy (1985), but the definition is only about working capital accruals. Richardson et al. (2005) develop a comprehensive definition of accruals differs from conventional definition. Following Richardson et al. (2005), I investigate the relation between conservatism and persistence of accrual components and examine whether investors understand the phenomenon.
Under conservatism and persistence of accrual components, I find some evidence that unconditional conservatism leads to lower persistence of accrual components in some unreliable balance sheet accounts, but conditional conservatism decreases the persistence of accrual components only in non-current operating assets and non-current operating liabilities. The results may be because of the characteristic of conditional conservatism and unconditional conservatism. Unconditional conservatism occurs by the consistent under-recognition of current and non-current accounting net assets. Conditional conservatism depends on news events, such as impairment loss in non-current operating assets . Li and Zhang (2010) find that conservatism reduces the persistence of reliable accruals, but not that of unreliable accruals. Our results are different from theirs.
Based on different verifiability in current (easy-to-verify information) and non-current operating assets (difficult-to-verify information) , I also find that unconditional conservatism and conditional conservatism both decrease the persistence of non-current operating assets more.
Under conservatism and mispricing, I find that investors don’t understand unconditional conservatism leads to lower the persistence of the change in non-cash working capital and the persistence of the change in net non-current operating assets. Investors understand conditional conservatism incrementally decreases the persistence of accruals. The results may be beacuse conditional conservatism is about bad news, and will be immediately recognized or disclosed in financial statements. But it is difficult to identify unconditional conservatism in financial statements, investors can not easily find the information that unconditional conservatism decreases the persistence of the change in non-cash working capital and the persistence of the change in net non-current operating assets. .
The IASB has excluded conservatism from the notion of faithful presentation. The empirical results, that conservatism leads to lower persistence of less reliable accrual components and increases more costs, in this paper are consistent with this IASB decision .
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