Did removing prudence from the Conceptual Framework impact accounting conservatism?

Journal article


Conway, E. 2020. Did removing prudence from the Conceptual Framework impact accounting conservatism? International Journal of Banking Accounting and Finance. https://doi.org/10.1504/IJBAAF.2020.110309
AuthorsConway, E.
Abstract

The International Accounting Standards Board (IASB) removed explicit reference to the concept of prudence within the Conceptual Framework (CF) with effect from September 2010. This paper examines whether practitioner concerns that the removal of prudence might lead to a decrease in accounting conservatism and an increase in earnings management or overstated results were justified. It takes a sample of firms from the UK FTSE350, Australian ASX 300 and the South African JALSH (Johannesburg All Share) and evaluates three popular measures of accounting conservatism over the fourteen-year period of 2003-2016 (seven years pre and post the removal of prudence from the CF). The measures of accounting conservatism used were asymmetric timeliness of earnings, market-to-book ratio and total/non-operating accruals. Using all three measures, there was no evidence that the level of accounting conservatism has reduced during the period following the removal of prudence in the CF in those countries using IFRS. Despite this, the debate around prudence has continued and the IASB has since decided to reinstate it in the 2018 revised CF, effective 1 January 2020.

Keywordsconceptual framework, prudence, accounting conservatism, conditional conservatism, unconditional conservatism, IFRS.
Year2020
JournalInternational Journal of Banking Accounting and Finance
PublisherInderscience
ISSN17553830
17553849
Digital Object Identifier (DOI)https://doi.org/10.1504/IJBAAF.2020.110309
Web address (URL)http://hdl.handle.net/10545/625267
hdl:10545/625267
Publication dates24 Apr 2020
Publication process dates
Deposited16 Oct 2020, 15:00
Accepted01 Apr 2019
ContributorsUniversity of Derby
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