The degree of conservatism associated with a firm's accounting choices will have a direct bearing on the relationship among share price,earnings,and the firm's equity book value.

Question

Quizplus · Accepted Answer

Conservative accounting practices tend to result in lower reported earnings and a lower equity book value, which may cause a decrease in share price. Conversely, more aggressive accounting practices may result in higher reported earnings and a higher equity book value, which may lead to an increase in share price. Therefore, the degree of conservatism in accounting choices can directly affect the relationship among share price, earnings, and equity book value.

The Degree of Conservatism Associated with a Firm's Accounting Choices