Information Asymmetry And Accounting Conservatism: Evidence From Taiwan

Two important features of conservative accounting are asymmetric timeliness in recognition of accounting gains versus losses and systematic understatement of net assets, features which result from asymmetries in information and loss functions among the contracting parties, and the uninformed ones' inability to verify the information provided by the informed ones .There is a place for conservatism (i.e., prudence) in financial accounting and reporting, because business and economic activities are rife with uncertainty. Due to this importance, accounting convention demands a higher degree of verification for the establishment of recognized assets than that of liabilities.