The Impact of Accounting Standards on Conservatism in China

In 2006, the China´s new accounting standard changed many provisions contacted with accounting conservatism. In light of the fact that the accounting conservatism came from big bath behavior of loss firms in the past and the new accounting standard limited this behavior now, we predict and find that after the new accounting standard was promulgated, the level of accounting conservatism declined. The results imply that the new accounting standard limited listed companies to manipulate profits by using conservatism principle. Therefore, the high but false degree of conservatism in the past has been restored.