Factors Affecting Accounting Conservatism: A Literature Review

Abstract

ABSTRACT

Purpose — Accounting Conservatism refers to the accounting principle that tends to recognize revenues and gains only when they are actually realized or certain, while losses or potential losses are recognized earlier, even if they have not yet fully occurred. The principle of conservatism requires accountants to take careful steps in making estimates or decisions that can affect the financial statements, especially when there is uncertainty. This study aims to examine the research phenomenon that occurs in accounting conservatism and present a literature review of the factors that influence accounting conservatism.

Design/methodology/approach — This research method uses the systematic literature review (SLR) method. The data obtained comes from the results of searching for selected journals from the Google Scholar site in the Sinta and Garba Digital Reference (Garuda) indexes by reviewing 15 journals published between 2020 and 2024.

Findings — The results of this literature review indicate that the phenomenon that occurs in accounting conservatism is the large number of fraud cases in Indonesia due to the lack of application of the principle of accounting conservatism. The factors that influence accounting conservatism include financial distress, capital intensity, company size, leverage (Debt to Asset Ratio), and Profitability (Return on Asset, Debt to Asset Ratio).

Practical implications — Knowing the factors that influence accounting conservatism can help to anticipate risks by recording losses earlier than potential profits. With conservative practices, companies can minimize excessive profit expectations and manage financial risks better. In addition, this research was conducted for further research.

Originality/value — The novelty element of this literature study discusses the phenomenon of accounting conservatism and discusses the factors that influence accounting conservatism.

Keywords — Accounting conservatism, accounting principles, financial statements, literature study,

Paper type — Literature study.