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Management incentives to overstate the firms performance

Question:

The conservatism principle arises because of concerns about management's incentives to overstate the firm's performance. Consider the statement: "We could get rid of conservatism and make accounting numbers more useful if we delegated financial reporting to independent auditors, rather than to corporate managers." Do you agree? Why or why not?

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Finance Basics: Management incentives to overstate the firms performance

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