Investigating the Impact of Accounting Conservatism on the Financial Reporting Readability

Document Type : Research Paper

Authors

Department of Accounting, Faculty of Social Sciences and Economics, Alzahra University, Tehran, Iran.

Abstract

Objective: Accounting conservatism can affect the quantitative information presented in financial statements. It also functions as a corporate governance mechanism and reduces agency costs. Conditional conservatism refers to accounting reporting processes that reduce book value only under unfavorable conditions. In this paper, the authors focus on the qualitative information presented in financial statements and investigate the impact of accounting conservatism on financial reporting readability.
 
Method: This research is applied in terms of purpose and employs a multiple regression analysis approach with panel data in terms of methodology. The study period covers 2017 to 2022. The statistical population includes all companies listed on the Tehran Stock Exchange, from which 129 listed companies (774 firm-year observations) were selected as the sample using the systematic elimination method.
 
Results: The findings indicate that accounting conservatism has a negative and significant effect on financial reporting readability, and the research hypothesis is accepted at the 95% confidence level. The results for the control variables also showed that financial leverage and company size have a negative and positive effect on financial reporting readability, respectively. Finally, the findings related to the specification tests demonstrated that the estimated model was able to explain the dependent variable appropriately and comprehensively using the independent variables.
 
Conclusion: The evidence suggests that applying conditional accounting conservatism procedures leads to lower readability of financial reports in Iranian companies. In other words, the existence of a conservative accounting system leads to reduced information transparency and lower market understanding.

Keywords

Main Subjects

References

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  • Receive Date: 25 September 2024
  • Revise Date: 01 April 2025
  • Accept Date: 03 May 2025

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