Factors Influencing the Level of Accounting Conservatism in the Financial Statements

Allam Mohammed Hamdan, Mohammed Hasan Abzakh, Mahmud Hosni Al-Ataibi

Abstract


This study aims to evaluate the role of the public sector in regulating   Accounting Standards in Kuwait through examining its ability to oblige those companies listed in Kuwait Stock Exchange (KSE) to present a reasonable level of accounting conservatism when preparing financial statements. In addition, the study examines the factors that affect the level of accounting conservatism in those companies with regard to company size, debt contracts, and the type of sector the company belongs to. To achieve these goals, two different methods were used to measure conservatism level and the factors influencing it. The methods are: Basu (1997) model and Book-to-Market approach. The sample of the study comprises of (225) companies listed in (KSE). Findings of the study showed that the public sector of regulating accounting standards succeeded in forcing Kuwait companies to present a reasonable level of accounting conservatism. The study also found out that the financial statements of small companies were conservative, while those of the big ones were not. In addition, the debt contracts left an impact upon financial reports of accounting conservatism. Thus, companies with lower debts were more conservative than those of higher ones. Moreover, the financial statements of the financial sector in Kuwait Stock Exchange were the most conservative. The findings of the study showed how significant the accounting information in Kuwait was.


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International Business Research  ISSN 1913-9004 (Print), ISSN 1913-9012 (Online)

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