ABSTRACT A long‐standing debate exists between neutrality and conservatism in financial reporting. This debate has gained momentum following the 2010 FASB decision to remove the term conservatism from its Conceptual Framework. While neutrality is now promoted as a cornerstone of faithful representation, conservatism remains embedded in numerous accounting standards. We revisit the conceptual and practical tensions between these two principles. We introduce the idea of a spectrum of reporting bias, ranging from aggressive to conservative, with neutrality as the aspirational midpoint. Drawing on the evolution of the FASB's framework, historical episodes, and recent standard‐setting developments, we examine the economic rationales behind conservatism and assess whether it supports or conflicts with the goal of neutral financial reporting. We identify implications for standard setters and practitioners and outline a research agenda to advance the understanding of this important tenet in financial reporting.
Jafri et al. (Mon,) studied this question.