The Role of Accounting Conservatism in a well-functioning Corporate Governance System

This paper analyses accounting related to corporate governance and is organized as\nfollows. The first section deals with understanding the concept of accounting\nconservatism. In the second section we analyzed the Relevance of Accounting\nConservatism in Corporate Governance to the modern corporate world. The third section\nincludes a Case Study on Ericsson, a Swedish Telecommunications company and\nconservatism in strong governance firms versus weak governance firms. The fourth part\nis devoted to the conclusion of our research efforts.\nFrom this study, we conclude that there are several reasons to use accounting\nconservatism in corporate governance and that current empirical evidence indicates that\nconservatism has increased in the last decades.\nThe value of β3 in Table 1 indicates that there is a positive significant level of\nconservatism in accounting practices followed by Ericsson. When the dependent variable\nis earnings (X), the asymmetric timeliness of earnings coefficient β3 in Table 2 provides\nan estimate of the level of conservatism. We observe that strong governance firms are\nmore conservative than weak governance firms (0.13 versus 0.04).