Impact of Accounting Conservatism on Income Smoothing: Empirical Evidence from Algeria

Kimouche Bilal () and Charchafa Ilyes ()
Additional contact information
Kimouche Bilal: University of 20 Août 1955-Skikda, Faculty of Economics, Commerce and Management Sciences, Finance and Accounting Department, Algeria
Charchafa Ilyes: University of Setif 1, Faculty of Economics, Commerce and Management Sciences, Finance and Accounting Department, Algeria

Studia Universitatis „Vasile Goldis” Arad – Economics Series, 2024, vol. 34, issue 1, 37-55

Abstract: This paper investigates the impact of accounting conservatism on income smoothing as a proxy for accounting manipulation. The study used 993 observations for 133 Algerian companies from 2012 to 2020, where income smoothing was measured by the variations in cash flows relative to earnings. However, conservatism was measured through non-operating accounting accruals, accruals-to-earnings ratio before extraordinary items, and allowances. The results showed that total accruals do not impact income smoothing versus positive impacts from non-operating accruals and allowances to income smoothing. Therefore, the study concluded that accounting conservatism facilitates income smoothing in Algerian companies by extending the discretionary room available for managers to manipulate earnings. These results require accounting regulators to consider the role of conservatism in manipulation when setting or amending accounting standards. They also imply that auditors should give more attention to conservative accounting practices to limit the opportunistic behavior of managers and increase the reliability of financial information.

Keywords: Accounting conservatism; Income smoothing; Accounting accruals; Cash flow from operations; Allowances (search for similar items in EconPapers)
JEL-codes: M40 M41 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://doi.org/10.2478/sues-2024-0002 (text/html)

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

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:vrs:suvges:v:34:y:2024:i:1:p:37-55:n:2

DOI: 10.2478/sues-2024-0002

Access Statistics for this article

Studia Universitatis „Vasile Goldis” Arad – Economics Series is currently edited by Florin Cornel Dumiter

More articles in Studia Universitatis „Vasile Goldis” Arad – Economics Series from Sciendo
Bibliographic data for series maintained by Peter Golla ().