The conservatism (or prudence) principle arises because of concerns about management’s incentives to overstate the firm’s performance.

/in /by

The conservatism (or prudence) principle arises because of concerns about management’s incentives to overstate

the firm’s performance. Joe Banks argues, ‘‘We could get rid of conservatism and make accounting numbers

more useful if we delegated financial reporting to independent auditors rather than to corporate

managers.’’ Do you agree? Why or why not?

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