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Impact of Accounting Conservatism on Income Smoothing: Empirical Evidence from Algeria

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  • Kimouche Bilal

    (University of 20 Août 1955-Skikda, Faculty of Economics, Commerce and Management Sciences, Finance and Accounting Department, Algeria)

  • Charchafa Ilyes

    (University of Setif 1, Faculty of Economics, Commerce and Management Sciences, Finance and Accounting Department, Algeria)

Abstract

This paper investigates the impact of accounting conservatism on income smoothing as a proxy for accounting manipulation. The study used 993 observations for 133 Algerian companies from 2012 to 2020, where income smoothing was measured by the variations in cash flows relative to earnings. However, conservatism was measured through non-operating accounting accruals, accruals-to-earnings ratio before extraordinary items, and allowances. The results showed that total accruals do not impact income smoothing versus positive impacts from non-operating accruals and allowances to income smoothing. Therefore, the study concluded that accounting conservatism facilitates income smoothing in Algerian companies by extending the discretionary room available for managers to manipulate earnings. These results require accounting regulators to consider the role of conservatism in manipulation when setting or amending accounting standards. They also imply that auditors should give more attention to conservative accounting practices to limit the opportunistic behavior of managers and increase the reliability of financial information.

Suggested Citation

  • Kimouche Bilal & Charchafa Ilyes, 2024. "Impact of Accounting Conservatism on Income Smoothing: Empirical Evidence from Algeria," Studia Universitatis „Vasile Goldis” Arad – Economics Series, Sciendo, vol. 34(1), pages 37-55, March.
    • Handle: RePEc:vrs:suvges:v:34:y:2024:i:1:p:37-55:n:2
    DOI: 10.2478/sues-2024-0002
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    References listed on IDEAS

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    More about this item

    Keywords

    Accounting conservatism; Income smoothing; Accounting accruals; Cash flow from operations; Allowances;
    All these keywords.

    JEL classification:

    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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