A Comparative Study on the Difference of Accounting Conservatism of Korea and the United States

[Purpose]Accounting conservatism has been described as a protection of shareholders and creditors through the results of several previous studies, and this can be considered as an important protective measure to estimate the usefulness of accounting information for investors. So the purpose of this study is to analyze whether there is a difference in accounting conservatism between Korea and USA. Korea adopts International Financial Reporting Standards, but the US currently has applied its own national standards. So there seems to be a difference in the quality of accounting information according to different accounting standards. [Methodology]Data from Korean companies were obtained from the KISVALUE database, all of which are listed companies, and US companies were obtained from Wharton research data services (WRDS), using the COMPUSTAT annually updated data. These are all NYSE and NASDAQ listed companies. The sample period is from 2007 to 2016. The research models for examining the difference of accounting conservatism are three Ball and Shivakumar's(2005, 2006). [Findings] First, both Korean firms and US firms showed accounting conservatism in the overall sample. However, Korean firms were generally less conservative than US firms. Second, Korean firms showed a less conservative tendency before IFRS adoption, but the accounting conservatism after IFRS was strengthened. On the other hand, US firms showed a strong tendency to be conservative in total period. And for both pre and post IFRS, US firms are more conservative than Korean firms. [Implications]The contribution of this study is that it analyzes the difference of two countries' accounting quality in terms of accounting conservatism. Therefore, it can give meaningful implications to information users who are considering of investment in Korea and US companies, which have different standards. It is also important to point out that the analysis of the effect of IFRS on conservatism is also significant for US companies that are in the process of introducing IFRS.