This website uses cookies to ensure you have the best experience. Learn more

Conservation Essay

1707 words - 7 pages

1.0 Introduction
Conservatism is arguably one of the most prominent and prolonged characteristics in accounting practices (Basu, 1997). Over the centuries, many researchers have accomplished in-depth reports and thoughtful analysis regarding different focuses on conservatism. Literatures related are abundant and fruitful.

In next section, this paper will firstly give a brief review on a number of related literatures. Follows that, some of the most significant motivations to adopt conservatism such as contracting demand, litigation pressure, agency problem, tax implication, regulation concern and political economy will be discussed in section three. For the purpose of construction, ...view middle of the document...

The result that sensitivity of earnings to negative returns (bad news) is two to six times the sensitivity to positive returns (good news) evidently affirm the existence of conservatism in financial reporting.

Factors that affect accounting conservatism are also widely analyzed. Ball and Shivakumar (2005) proposed that conservatism helps to address agency problems. Lafoud and Roychowdhury (2008) found a negative correlation between managerial ownership and conservatism. Chi et al. (2009: 57) complemented their arguments by indicating that “conservative accounting serves as a substitute for other governance mechanisms in alleviating agency problems”.

From other perspectives, Bushman (2006) investigated the influence of legal and political institutions as incentives for conservative financial reporting. Li (2008) pointed out that the reduction in firms’ cost of debt and equity capital resulted from conservatism helped to explain the long existence of conservative reporting. And watts (2006) concluded that debt contracting is significantly associated with accounting conservatism.

As suggested by Watts (2003), accounting practices has become even more conservative in the last three decades. Clearly, this implies that the benefit of conservatism outweighs its shortcomings. Some of the motivations for firm to adopt conservatism will be identified and explained in the next section.

3.0 Motivation for accounting conservatism
3.1 Agency problem
As claimed by Watts (2002), the main objective for accounting conservatism is to alleviate agency problem (between shareholders and manager, or between shareholders and debt holders). For instance, if the owner or shareholders of a firm need to sign a contract with a manager, they must be in deep concern about whether the manager would acquire detectible overpayments or impair the company in pursue of his own interest because asymmetric information are inevitably involved between them (managers knows more about the firm than investors). As a result, investors (as well as debt holders) seek to be sheltered under a lower bound evidence of the effect of the manager’s actions. Fortunately, conservative reporting provides an estimation of the lower bound of net assets, which is a good proxy of the result of manger’s actions in the worst condition. Therefore, conservative reporting is partly a result from the agency problem and asymmetric information in the market.

3.2 Contracting explanation
Another motivation for conservatism is the contractual application of accounting measures. It is a fact that the court system can only enforce contracts which are written on verifiable information variables. Besides, one or more parties with asymmetric payoffs in the contract (e.g. debt holders can not benefit from the upward movement in firm value but must bear the downside risk) would demand higher verification requirements for good news. Consequently, for a contract to be optimally designed, verifiable...

Other Papers Like Conservation

David Tobin Question 3 Essay

611 words - 3 pages what the Environmentalist's Paradox is Over the past 40 years, human well-being has improved, BUT, Natural Ecosystems that provide us with goods and services have declined. -what types of environmental degradation were citizen becoming aware of in the 1950s Citizens were becoming aware of air and water pollution in the 50’s. Also the loss of soil was a concern in the 50’s. -what impact did the Great Depression have on conservation

Week Five Decisions In Paradise Business Part Three

1151 words - 5 pages conservation concerns, and citizens abilities along with its willingness to assist in construction. CEO Jonathan Reckford, the board of directors, and key staff members will have to be in agreement about continual need to remain in Kava. Another consideration is if there are available resources to do the construction, to run the tools to complete the construction, and to operate on a day-to-day basis. Habitat for Humanity needs to consider also if there

Scolar

3397 words - 14 pages Concerted Action, paragraph 103. Values and principles Despite the variety of religions and cultures around the world, all share common beliefs about the need to care for other people and the natural environment. Such beliefs are essential to a sustainable future. The world’s three major conservation groups – the World Conservation Union (IUCN), the Worldwide Fund for Nature (WWF) and the United Nations Environment Program (UNEP) – have

Eco561 Tootsie Roll

256 words - 2 pages energy increases, it becomes more important for a company to reduce energy usage. Every dollar saved by energy conservation is cost avoided. This can result in a more profitable business in the long term. Retrofitting plants with more energy efficient technology will help Tootsie Roll to stay profitable even with high energy cost peaks. The return on investment is around ten years depending on the price of energy. Software technologies can

Causes Of Social Injustices And Inequalities In The South

1027 words - 5 pages wildlife hunting. Besides being a deliberate strategy to force local people to become part of the reserve labour pool to generate capital for developing settlers, Forestry conservation has greatly disadvantaged the communities that live within and around reserved forests in Zimbabwe such as the residents of Gwayi/mbembesi Forests. The forest has a long history of settlement by largely Ndebele speaking people, stretching way back before state

Ecotourism

1418 words - 6 pages Eco-Tourism Eco-Tourism is the natural ecological conservation and tourism combine as a way to travel. When the conservationists have learned that eco-tourism and the tourism industry linked and affecting the environment, we should focus on the concept of eco-tourism. We can easily find out the negative impact brought by eco-tourism. It shows the ecological impact of the improper human activities. The eco-tourism has undoubtedly become a part

Tour1000

645 words - 3 pages from tourism? 19. Explain the effect of leakage on a tourism destination. 20. What is the multiplier effect with respect to tourism? Explain the key features of the tourism multiplier effect, giving examples. 21. In what ways can tourism contribute to the conservation of natural resources? 22. What is the environmental impact sequence? What are the environmental stressors resulting from tourism development? 23. What is ecotourism? How

Proposal

259 words - 2 pages An initiative program where student can imply their basic and individual knowledge to make themselves aware about the sanitation and conservation of environment making school as their practice home. Student will directly be attached with the environment through various activities, trainings and workshops. Apart from group work, they will be directed to do the individual works so that they can take care of anything themselves. Programs: 1

Skjdhkjsdssdsdadsds

326 words - 2 pages originated in France and launched China in 2007. As the idea of environmental-friendly becomes prevalent, more and more people participate in environemntal conservation in order to make their own contributions to the society. It was reported by China daily that a man attacked three nurses and a pregnant woman with a knife following a plastic surgery dispute in Hunan. According to the man, the red mark left by his bear implant surgery near

Manage Risk

334 words - 2 pages included a new policy regarding compliance with the Toowoomba by-law on water conservation. The dual flush toilets are ordered and in stock. The 5 star rated (WELS) dishwasher was installed. The application to make-good by Goldsmith Partners on behalf of MacVille, was accepted by the Toowoomba City Council. A water tank had been built in to the courtyard. There is a weekly water usage monitor in the staff room Banking risk – theft of cash left on

How Haji Abbas Came To Be

324 words - 2 pages sea level atmosphere Thickness, porosity and water saturation are found by petrophysicists. Rate: Darcy’s law => k=permeability Rocks with permeability of 1 darcy collates to… Permeability: how thick, pressure change (Pe-Pw), Mu viscocity, Material balance: law of conservation of mass, if I know what my pressure change is and how much oil and gas ive taken out a reservoir I can estimate how big a reservoir is. * Tank model equation

Related Essays

Chapt 10 Essay

348 words - 2 pages "Conservation biology - The science concerned with preserving biodiversity Threatened species - Species that are at risk for extinction; various threat levels have been identified ranging from "least concern" to "extinct." Keystone species - A species that impacts its community more than its mere abundance would predict Single-species approach - A conservation strategy that focuses on protecting on particular species Flagship species

Enviromental Science Final Project Essay

1948 words - 8 pages Learning Ways to Deal with Energy Conservation Talesha Binns SCI/275 November 10th-2013 Shannon Gumtau Learning how energy conservation really works Over the past nine weeks, I have learned some wonderful things about science. Things like Different kinds of environmental issues, conservation vs. preservation and different resources plans for the environment. From all the reading and my own research, I

Energy Resource Plan Essay

323 words - 2 pages . Renewable technologies will save money and boost our economy in the process. Each of you can help save energy indoors by: 1. turning off lights and electronics when not in use 2. use energy saving light bulbs 3. insulating your doors, and windows and the environment by: 4. plant trees 5. recycle 6. drive less The government effort in conservation has many applications for helping our environment. “Opportunities for energy conservation are

American Political Hwk Essay

262 words - 2 pages how careful government planning could dramatically improve the social and economic welfare of an underdeveloped region. Legislation Purpose Emergency Banking Relief Act Enlarged federal authority over private banks Government loans to private banks Civilian Conservation Corps Unemployment relief Conservation of natural resources Federal Emergency Relief Administration Direct federal money for relief, funneled through state and local