Research On The Relation Between Accounting Conservatism Principle And Fair Value

As a fundamental principle in financial accounting, the conservatism principle has occupied a dominant position in China as well as other international countries. China went through relatively four large accounting system reforms successively and has standardized the application method of conservatism principle gradually by following the path of international conservatism policy. Meanwhile, with the improvement of economic development, the domestic companies put forward high requirement on the conservatism of accounting information. China issued the new accounting principle in February, 2006,which not only emphasized the application of conservatism principle, but introduce a new concept-fair value-into the accounting measurement model. However, two concepts bring out a series of contradiction and conflict on the theory with the mutual contradiction on the definition of fair value and conservatism principle. Furthermore, due to the developing accounting system in China, the relation between fair value and conservatism principle of different stages in the development is not completely identical. Therefore, based on the various development stages of the accounting system in China, to comb the relation between the fair value and conservatism principle as well as their mutual influence will provide great help to improve the application of fair value and improve the accounting information quality in China.This paper took the data of listed companies in Shenzhen & Shanghai Stock Exchange as the main source of research sample to conduct profound theoretical analysis on the fair value and conservatism according to the relevant provision on New Enterprise Accounting Code and then carried out deeper analysis on the relation between fair value and conservatism based on the dynamic development of accounting system. Based on the theory and concept of comprehensive suggestions, the empirical research was adopted to analyze and study the correlation between fair value and conservatism principle under different accounting periods in China. This paper aims to provide powerful evidence for the balance between fair value and conservatism principle and then offer reliable data reference for the national policy-making.This paper aims to prove the following arguments. At first, according to the development history of the accounting system in China, though the introduction of fair value affected the conservatism to some extent, no objective evidence can prove that the fair value is the main reason for the decline on the accounting information conservatism of listed companies. With complex economic environment and diversified influential factors, the decline on conservatism may be lead by other accounting factors or may the combined effect of various reasons. Therefore, this paper firstly proved that the concept of fair value was introduced by China based on its conformity to the decision-making utility perspective; then the asymmetry between conservatism accounting information and high-quality accounting information as well as the proper combination between conservatism and fair value have a good effect on the quality of accounting information to generate the effective accounting information.