Accounting losses and earnings conservatism: evidence from Australian Generally Accepted Accounting Principles

Harishankar Balkrishna, Jeffrey J. Coulton and Stephen L. Taylor

Accounting and Finance, 2007, vol. 47, issue 3, pages 381-400

Abstract: We provide evidence on three important aspects of Australian financial reporting; namely, the characteristics of losses, the extent to which Australian firms' earnings are conditionally conservative (i.e. bad news is reflected in earnings more quickly than good news) and the extent to which losses reflect incrementally greater conditional conservatism. We find evidence that loss incidence in Australia is frequent, with around 40 per cent of the sample firm-years from 1993 to 2003 being losses. Losses are also surprisingly persistent, and the probability of loss reversal declines monotonically as the history of losses extends. Although conditional conservatism is also shown to be a pervasive aspect of Australian Generally Accepted Accounting Principles, we demonstrate that it is more evident among loss observations. This result is robust across different methods of capturing conditional conservatism, and supports the conclusion that the relatively high frequency of losses is, at least in part, a reflection of conservative reporting. Copyright (c) The Authors
Journal compilation (c) 2007 AFAANZ.

Downloads: (external link)
http://www.blackwell ... 67-629X.2007.00218.x link to full text (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0810-5391

Access Statistics for this article

Accounting and Finance is edited by Robert Faff

More articles in Accounting and Finance from Accounting and Finance Association of Australia and New Zealand
Series data maintained by Christopher F. Baum ().