Accounting System Robustness, Earnings Robustness And Earnings Management

Ever since1990s, Chinese accounting standards have experienced four major large magnitude reforms, including1992"The Corporate Accounting Standards",1998" The Accounting Standards for the Limited Corporations",2000"The Corporate Accounting Standards " and2006"Corporate Accounting Standards". The former three reforms increased the weight on the principle of conservatism, while the latest2006"Corporate Accounting Standards", which emphasizes fair value, decreased the weight on the principle of conservatism. We need to evaluate the effects of accounting standards reform in order to adjust it according to national conditions. However, So far, the studies of the effects resulting from the reforms of accounting standards on the conservatism have been quite rare and most of them ignored the factor of earning management. So the reforms of accounting standards in China provide us with a good opportunity and platform to enrich the literatures about the explanations for the existence and the change of conservatism.Using a sample of all listed A-shares firms in SH and SZ stock exchanges from1994to2011with available data, this paper examines the relationship among conservatism of accounting regulations, conservatism of earnings and earnings management.The findings reveal that regardless of the earnings management factor, the conservatism of accounting regulations has positive influence on the conservatism of earnings.There exists earnings conservatism during1998-2000and2001-2006when I use the full sample, however, After eliminating discretionary accruals or using the sustainable profitable sample only, the conservatism disappears, which means earnings management behavior influent the measurement of earnings conservatism.What’s more, this paper finds that enhancing the conservatism principle can reduce the over-estimation of earnings, vice versa. Besides, enhancing the conservatism principle will increase the under-estimation of earnings.