Difference Between Conditional And Unconditional Conservatism

Knowledge about risks related to the company evaluated as part of the auditor 's client acceptance and retention evaluation; and the relative complexity of the company 's operations. ( Auditing Standard No. 9 //. (n.d.).

In order to calculate operating costs, we need to take into account the depreciation of the assets from the balance

Most economically, the important body of work is the role of conditional conservatism in markets. Indeed, there is a view that information needs of accountant is the main driver of the market demand for accounting conditional conservatism. At the present moment, US was the markets dominator to reflected in the accounting standards. However is if very difficult to predict how different US GAAP would be today in the absence of US markets.

generally accepted accounting standards for private-sector entities, including businesses and not-for-profit organizations. A recognized expert in forensic accounting, Mr. Siegel has 17 years of experience in diverse and global industries that include technology, media, telecommunications, healthcare, retail, and insurance. Prior to his appointment to the FASB, he led the Accounting Research and Analysis team at the RiskMetrics Group in Rockville, Maryland (FASB.org, 2009f).

2. Depreciation expense on assets other than A, B, and C totaled $55,000 in 2010.

This test has major significance in that it can alert the auditor to any falsification of sales for the year. Fictitious sales could easily be created by Lakeside since they prepare all sales invoices and other documents internally.

Operating Income = Sales – Variable manufacturing cost – variable non manufacturing cost – fixed manufacturing costs – fixed non manufacturing costs.

FASB (1981).Statement of Financial Accounting Standards No. 51. Retrieved on November 7, 2011 from: http://www.fasb.org/pdf/fas51.pdf

(1) bookkeeping or other services related to the accounting records or financial statements of the audit client;

It is often said that conservatism merely reflects the interests of the privileged and prosperous and though it can be argued that conservatism seeks to protect the inheritance of property and tradition, there have been instances in conservatism where the interests of the less privileged have been protected, this is known as paternalism or one nation conservatism.

The difference between conservative and aggressive accounting choices centers around how revenues, expenses, assets and liabilities are recorded as shown below:

IASB. 2010, "The Conceptual Framework for Financial Reporting" IFRS, pp. A21- A38, viewed 23 April 2014,

The auditor seeks to obtain some background information of the nature of the client’s business.

The literature on conservatism accounting is very limited. Watts (2003), has suggested that conservatism is related to debt contracts, while Gjesdal & Antle (2001) suggest that conservatism is the interaction between income measurement and dividend covenants. Even though conservatism may be most favorable, the result derives from shareholders trading off cash flows in different periods, not from the need to protect the interests of creditors.

In the underlying paper the author re-examines the conservatism principle and its asymmetric effects on earnings. With samples consisting of all firm-year observations from 1963 to 1990 with returns data on the CRSP NYSE/AMEX Monthly files and respective accounting data on the COMPUSTAT Annual Industrial and Research files, he formulates and tests four major hypotheses to find evidence for his predictions. At first he chracterizes “conservatism in accounting as the more timely recognition in earnings of bad news regarding future cash flows than good news”.1 In his first hypothesis he predicts a more sensitive response of earnings towards bad news in comparison to good news, proxied by negative and positve annual stock returns. His second prediction is that earnings are more timely than cash flow, indicating a stronger association of accruals to conservative accounting effects. Hypotheses three and four account for a test on the