RELATION BETWEEN ACCOUNTING CONSERVATISM AND DIFFERENCE OF REAL AND PREDICTED PROFIT

Abstract

Importance of predicted profit depends on its deviation from real profit. The prediction will be more precised when this deviation is less. Researches indicate that fulfillment of expectations is really important for market and it reacts as they are not fulfilled. On the other hand, accounting conservatism is an effective contractual mechanism for limiting baised behavior of manager in profit exaggeration; also shareholders need useful data for making correct and appropriate decisions. Amongst existed information, data related to profit of each share and profit of predicted stocks is a criterion which is considered so important and relevant by users.
In this regard, accounting conservatism is one of the effective cases which its effects on difference of real and predicted profit is studied in 105 enterprises which are accepted in Tehran Stock Exchange from 2006 to 2012. Results show that accounting conservatism has reductive effect on difference of real and predicted profit which means that the relationship  between accounting conservatism and difference of real and predicted profit inverse. Also, in this research effect of some variables which can be influential in mentioned relationship is controlled. These variables are: size of enterprise, proportion of debt to earning, proportion of gross profit to sales and changing management.