The quality of financial reporting refers to how close the financial statements are to economic reality. The CLOSER the financial statements are to economic reality, the higher is the quality of financial reporting. The less that management uses discretionary means to MANIPULATE EARNINGS, the higher the quality of financial reporting. Conservatism means that management should take great care not to overstate assets and revenues and not to understate liabilities and expenses. The more conservative management is in making accounting JUDGMENTS, the higher will be the quality of financial reporting.

The quality of financial reporting refers to how close the financial statements are to economic reality. The closer the financial statements are to economic reality, the higher is the quality of financial reporting. The less that management uses discretionary means to manipulate earnings, the higher the quality of financial reporting. Conservatism means that management should take great care not to overstate assets and revenues and not to understate liabilities and expenses. The more conservative management is in making accounting judgments, the higher will be the quality of financial reporting.