In the early 20th century, lenders were the most important users of company financial statements. Over time, shareholders and potential buyers of stock became more important. Historically, lenders were believed to have favored “conservative” accounting, and U.S. accounting used to have a conservative bias. Now, the FASB and IASB say they want accounting to be neutral.

A. Why would lenders have favored conservative accounting?

B. Would current shareholders want accounting to be conservative? Why or why not?

C. Would potential shareholders want accounting to be conservative?

Why or why not?

D. Would tax authorities want companies to use conservative accounting?

E. Would labor unions want employers to use conservative accounting?