The Seeds of Accounting Conservatism

Abstract

Why does the accounting principle of accounting conservatism persist, despite the criticism of 20th-century deductive accounting theorists? Accounting conservatism's etymology suggests that the traditional connotation of deliberate understatement began in America, circa 1900. Its genealogy, however, reaches much deeper into the past. This research adds to the work of Basu (1997, 2009) who reports evidence of accounting conservatism in medieval Europe and China, and to the work of Bloom (2018) and Watts (2003), who provide modern rationales for accounting conservatism. By using key elements derived from its definition, accounting conservatism's genealogy is traced from ancient times to the 20th century. A review of major works on accounting history and notable articles on accounting conservatism reveals that the seeds of accounting conservatism predate Pacioli, and were sown for largely pragmatic reasons. As long as accounting retains its pragmatic flavor, accounting conservatism will likely survive its critics. It has passed the test of time.