The Effect of Uncertainty Conditions on the Relationship between Conservatism and Errors of Earnings Forecast

Accounting standards have required the Forecast of earnings per share in financial reporting. The deviation is less earnings forecasts by management; investors’ confidence to invest in the company becomes greater. Previous research has shown that compliance with the more conservative accounting lead to reduced errors of the earnings forecasts. The purpose of this research is the effect of uncertainty conditions on the relationship between conservatism and errors of earnings per share forecast by management. We used Basu (1997) model for measurment of conservatism. Errors of Earnings per share forecast be defined as the difference between earnings forecast by management and reported actual earnings. The uncertainty conditions in firm can caused the damage in the management forecasts. In this research, the effect of environmental uncertainty is investigated by earnings volatility and operating cycle. To test the hypothesis, we used data on 162 companies listed in Tehran Stock Exchange during the period 1391-1381 as the sample by Panel Data. We selected Suitable models in Panel Data by Chow and Husman tests. The results of the study indicate that the conservatism and earnings forecast error by management, there is a significant negative relationship. Furthermore, the impact of conservatism on earnings per share forecast errors; in an environment of high uncertainty have increased. By increasing the operating cycle, the impact of conservatism on earnings per share forecast error has increased.