Conservatism is one of the attributes of accounting quality. Conservatism is also one of the major reasons for international differences in financial reporting. The objective of this paper is to examine earnings quality proxied by earnings conservatism in transitional economies of Central and Eastern Europe, where financial reporting environment and accounting legislation has been changing rapidly. This is especially important because of fast changing economic and political environment of firms when these countries have joined European Union. Financial reporting had a minor role in planned economy. During transition towards market economy a great challenge for firms is to offer reliable and high quality accounting information to be able to attract non-governmental sources of finance. Reliability of financial reporting has been and still is a severe problem in these countries. Financial reporting practices have been closer to continental tradition, but lately accounting standards have been developed towards International Accounting Standards to meet the information needs of foreign investors. This study importantly contributes to the existing literature by examining earnings quality in transitional economies and especially, by focusing on the extent to which the stage of economic and political transition affects earnings quality. Our empirical results of analyzing listed companies in transitional economies of Central and Eastern Europe during the period from 1999 to 2005 show that there are differences in the degree of conservatism between countries at different stage of transition process.