Empirical research on accounting choice

We review research from the 1990s that examines the determinants and consequences of accounting choice, structuring our analysis around the three types of market imperfections that influence managers’ choices: agency costs, information asymmetries, and externalities affecting non-contracting parties. We conclude that research in the 1990s made limited progress in expanding our understanding of accounting choice because of limitations in research design and a focus on replication rather than extension of current knowledge. We discuss opportunities for future research, recommending the exploration of the economic implications of accounting choice by addressing the three different reasons why accounting matters.     

Discretionary accounting choices: the case of IAS 19 pension accounting

Based on a sample of 3207 firm-year observations for the years 2005–2013, we investigate how stock-listed companies in France, Germany and the UK use two discretionary choices in their accounting for defined benefit pension plans under International Accounting Standard (IAS) 19 Employee Benefits. We first analyse companies’ decision whether to voluntarily early adopt the equity method of accounting for actuarial gains and losses. Second, we analyse companies’ choice to present pension interest cost and expected return on plan assets, or, in 2013, net pension interest cost, in operating or financial income. Our findings provide evidence that companies’ decisions to early adopt the equity method in 2005, the first year this accounting choice was available, were motivated by short-term effects on equity. Our analyses also indicate that the choice regarding where to present interest cost and expected return on plan assets in the income statement is associated with the resulting effect on Earnings before Interest and Tax. Finally, we document country-specific differences in the use of the discretion provided under IAS 19, suggesting that discretionary pension accounting choices may impede comparability.     

Robust anomalies? A close look at accrual‐based trading strategy returns

The last 40 years have seen an extensive literature documenting so‐called anomalies in major capital markets. Evidence of ‘abnormal’ returns associated with trading strategies based on readily observable phenomena such as accounting‐based data involves experimental design choices that can be expected to influence the results. We show how evidence of an accrual anomaly in Australia is sensitive to research design specifications such as the choice of proxy for total accruals; the definition of abnormal returns (i.e. the return generating model); the impact of data trimming as a response to exceptionally large returns; and the choice between value and equal weighting of returns. We show that research design choices do matter and help reconcile conflicting prior evidence of any accrual anomaly in Australia. More broadly, our results suggest the need for caution in drawing inferences from trading strategy tests which claim to identify anomalies.     

When time is (not) money: preliminary guidance on the interchangeability of time and money in laboratory-based risk research

The familiar adage that ‘time is money’ may not be entirely accurate according to research involving hypothetical choice: People’s decisions are less sensitive to temporal expenditures and outcomes than monetary ones. We provide a novel examination of whether similar patterns of risky choice are found for time and money when choices are consequential (i.e. monetary outcomes are obtained and temporal outcomes are experienced) – both for one-shot and repeated choices, over gains and losses. On the aggregate, across decision contexts (described and experienced), choices are similar for time and money. However, on the level of the individual, little relationship between risk preferences for time and money are observed. We discuss the theoretical and practical implications of these findings.     

A possible explanation of the gender gap among accounting academics: evidence from the choice of research field

Despite the significant increase in the number of women in accounting research over past decades, the percentage of female full professors in accounting is still low. One of the problems may relate to the research area(s) they choose to specialize in. Is the relatively slow promotion of women due to their decision to concentrate in ‘nonmainstream’ fields of research? In this study, we collect data on 1,042 male and female accounting academics. Using the research interests declared on each academic web page, we find that accounting researchers show no significant gender differences in their choice of research fields. Hence, we conclude that the underpromotion of women cannot be attributed to their choice of ‘nonmainstream’ fields.     

Influences on the supply of accounting graduates in Australia: a focus on international students

This paper examines the influences on the potential supply of accounting graduates in Australia with reference to the personal and social influences on the decision to major in accounting using the Theory of Reasoned Action and focusing on differences between local and international students. Responses from 437 accounting majors’ found that personal attitudes linked to ‘intrinsic interest’ and ‘extrinsic interest’ was influential in choice of major. ‘Reference groups’ were an important social influence for international students. The findings have implications for government policy and the accounting profession in terms of attracting students and particularly international students, who are sufficiently interested in accounting as a career choice to address the skill shortage in Australia.     

TIME SERIES ANALYSIS OF ACCOUNTING POLICY CHOICE: REPLY

Taylor (1992) argues that accounting policy choices in any year are not assessed independently of policy choices adopted in previous years. This independence assumption is a maintained hypothesis of Anderson and Zimmer (1992). Although Taylor acknowledges that our results remain robust to his suggested adjustments for non-independence, we argue in this reply that such adjustments are unnecessary because temporal independence of accounting policy choices is consistent with the implications of costly contracting between the firm and its claimholders. We develop the arguments that (1) accounting choices are temporally independent and our research design is therefore, appropriate (2) to the extent that there is an independence problem of the type proposed by Taylor (1992) it also applies to cross-sectional studies of accounting policy choice.     

The Influence of Country,Industry, and Topic Factors on IFRS Policy Choice

This paper proposes a framework for understanding management's decision‐making on observable accounting policy choices. The framework is used to hypothesize how country, industry, and topic factors influence policy choice under International Financial Reporting Standards (IFRS). The hypotheses are tested on the choices made by the largest firms from 10 jurisdictions on a comprehensive set of IFRS policy topics, which are hand‐collected from the financial statements. The results are consistent with the framework: country factors are particularly influential when the choice does not affect an important accounting number; and industry and topic factors influence the choice on some topics. Overall, we find that country factors have the greatest influence on IFRS policy choice.     

Accounting for Intangibles: A Theoretical Perspective

This paper uses a transactions theory approach to analyse some of the measurement and disclosure issues involved in accounting for goodwill and other intangibles. The recent professional and academic literature is reviewed and the traditional economic theory approach to interpreting accounting issues in these areas is criticised. A form of transactions theory called ‘Statistical Transactions Theory’ is then used to investigate several conceptual problem areas, notably: the definition of goodwill and fair values; the distinction between goodwill and other intangibles; and capitalisation, amortisation and valuation issues. The authors conclude that the most fruitful course of action in dealing with these issues would be a substantial research effort designed to investigate the distributional properties of accounting numbers relating to the subject of intangibles measurement, including goodwill as defined in this paper. They call for more analytic and empirical work in this field.     

Contagion of accounting methods: evidence from stock option expensing

I examine how a firm’s accounting methods can be influenced by the choices of other firms, which I label contagion. I model accounting method choice as a combination of intrinsic propensities to adopt a method and contagion effects. I predict contagion of accounting methods occurs for two reasons: (1) adoption decisions of other firms are informative for the adoption decision, and (2) prior adoptions change the net benefits of the decision. I test these predictions in the stock option expensing setting where firms had the choice to use the intrinsic or fair value method. Using a firm-level diffusion model, I document evidence consistent with my predictions.     

Capitalized customer acquisition costs and earnings quality: A case study of PhotoWorks,Inc

This case examines issues related to accounting method choice, earnings management, and earnings quality. Specifically, the case examines a company (PhotoWorks, Inc.) that chose the less conservative approach of capitalizing and then amortizing a certain type of advertising expenditure rather than expensing the costs as incurred. The primary purpose of this case is to illustrate the role of judgment in accounting method choice and how it provides potential opportunities for earnings management. The case also allows students to explore the multi-dimensional nature of financial reporting decisions and to develop a greater appreciation for how their accounting coursework relates to important “real-world” issues. After completing this case, students should be able to do the following: (1) describe factors that are involved in accounting method choice and support the appropriateness of an accounting method choice based on a search of the accounting standards; (2) understand and evaluate the effects of accounting method choice on the financial statements; (3) describe the conflicting motivations managers face when deciding on financial accounting methods versus tax accounting methods; (4) explain what is meant by earnings management, factors that motivate managers to manage earnings, methods they can use to manage earnings, and how earnings management affects earnings quality; and (5) describe the role of auditors in analyzing a company’s accounting method choices and in assessing the quality of a company’s earnings.     

Accounting for financial instruments with characteristics of debt and equity: finding a way forward

Accounting for compound financial instruments, that is those with characteristics of both debt and equity, has challenged accounting standard setters for decades. The principles developed to distinguish liabilities and equity and the application of these principles in IAS 32 have been widely criticised. In 2016–2017, the IASB was engaged in a project to improve IAS 32. Our study presents research that is relevant to the issues faced by standard setters, related to improving the definitions and enhancing presentation and disclosure of liabilities and equity. We discuss studies investigating the effects of the accounting classification requirements on firms’ financing choices and on users’ decision‐making, to examine the question, ‘Does the distinction matter?’ We then explore various approaches that may be pursued by the standard setters to improve accounting in this area and identify areas for future research.     

DETERMINANTS OF ACCOUNTING POLICY CHOICE IN THE AUSTRALIAN PROPERTY INDUSTRY: A PORTFOLIO APPROACH

The objective of this research is to explain accounting policy choice in the Australian property industry by reference to costly contracting theory. This paper makes three departures from the predominant literature. First, instead of focusing on a single policy choice, it focuses on a portfolio of 15 choices. Second, instead of measuring each policy choice dichotomously, it measures the dollar effect of each policy choice. Finally, the research focuses on the impact of policy choices on owners' equity as well as income. The results confirm the importance of compensation arrangements as a determinant of accounting policy choice but fail to provide evidence that debt constraints or political costs are significant determinants of accounting policy choice. These results suggest that including property firms in a more heterogeneous sample may reduce the power of tests on the debt constraints and political costs hypotheses. More generally (when compared to previous research) the results suggest that the determinants of policy choice are likely to be industry specific.     

Industrial Cost Accounting Developments in Britain to 1830: A Review Article

Haydn Jones's Accounting, Costing and Cost Estimation (1985) uses the surviving records of numerous Welsh companies, engaged principally in metal manufacture between 1700 and 1830, to demonstrate the use made by managers of accounting data, as the basis for planning, decision making and control. This article relates the results of Jones's research to existing views regarding the development of industrial cost accounting, particularly because his findings call into question ‘single variable’ explanations for the development of management accounting, such as the level of industrialisation, the relative impact of fixed and variable costs, and the organisational structure of business activity. Jones's findings also require a reappraisal of established ideas concerning the relative sophistication of financial and management accounting procedures in use in earlier times, and our perception of the contributions of accountants and their techniques to business developments.     

Can knowledge based systems be designed to counteract deskilling effects?

Recent calls in the information systems research community argue that we know intelligent systems deskill users, and future research should focus on how to design systems that do not deskill, rather than continue to examine whether the phenomenon occurs. This should be a wakeup call for public accounting firms focused on implementing restrictive audit support systems, which leads to de-skilling of novice accounting professionals. Our research focuses on redesigning knowledge-based systems to facilitate expertise development and counteract the de-skilling effects that result from use of such systems. Specifically, we manipulate the design of the system interface by providing information cues in a screen format consistent with expert knowledge representations and manipulate automatic provision versus voluntary use of explanations for users during task completion. Results show that after using the knowledge-based system to complete a series of reenacted client engagements over a three-day period, both the interface design manipulation and automatic provision of explanations had a positive effect on novice accounting professionals’ development of expert-like knowledge structures. The results of the study have important implications for the development of knowledge-based systems intended to support accounting professionals’ (and other knowledge workers’) expertise development processes.     

Pathways to Homeownership: An Analysis of the Residential Location and Homeownership Choices of Black Households in Los Angeles

Recent studies have documented substantially depressed levels of homeownership among African-American households. While prior analyses have focused largely on racial disparities in household financial characteristics, few studies have assessed the potential role of location choice and locational attributes in the homeownership choice decision. This research applies individual-level Census data from the Los Angeles area to explicitly model the residential location and tenure choice decisions of African-American households. Research findings indicate that there is substantial variation across African-American and white households in the determinants of locational choice among South Central LA, other parts of Los Angeles, and Inland Empire (San Bernardino County) areas. In addition, African-American and white households are found to differ in how location characteristics impact in their tenure choices. Overall, after accounting for location, the empirical analysis served to explain three-fourths of the 23 percentage point gap in homeownership rates between Los Angeles white and black households, whereas models that lack controls for location accounted only for about one-half of the observed gap.     

Constructing an ‘efficient frontier’ of accounting journal quality

This paper reports the construction of an ‘efficient frontier’ of the perceived quality attributes of academic accounting journals. The analysis is based on perception data from two web-based surveys of Australasian and British academics.The research reported here contributes to the existing literature by augmenting the commonly supported single dimension of quality with an additional measure indicating the variation of perceptions of journal quality. The result of combining these factors is depicted diagrammatically in a manner that reflects the risk and return trade-off as conceptualised in the capital market model of an efficient frontier of investment opportunities. This conceptualisation of a ‘market’ for accounting research provides a context in which to highlight the complex issues facing academics in their roles as editors, researchers and authors.The analysis indicates that the perceptions of the so-called ‘elite’ US accounting journals have become unsettled particularly in Australasia, showing high levels of variability in perceived quality, while other traditionally highly ranked journals (ABR, AOS, CAR) have a more ‘efficient’ combination of high-quality ranking and lower dispersion of perceptions. The implications of these results for accounting academics in the context of what is often seen as a market for accounting research are discussed.     

Improving accounting education through the use of action research

Action research is a systematic investigative research method that educators can use to improve aspects of their educational practice. Originally adopted in school situations, action research is becoming increasingly used within higher education. First, the paper explains the action research process. Second, the action research process is applied to a small-scale project undertaken by the authors in order to assist in the development of students’ research skills by encouraging them to read primary documents for themselves. Finally, the paper discusses the use and appropriateness of action research within accounting education. Some possible implications for accounting academe are also identified. It is argued that action research, with its emphasis on continuous improvement and the promotion of scholarly activity, is consistent with the accreditation standards issued by The Association to Advance Collegiate Schools of Business (AACSB).     

The index fund rationality paradox

Mutual funds that track the S&P 500 are popular because they have significantly lower costs than the average, actively managed equity fund. However, a measurable number of investors select index funds with excessive fees and uncompetitive returns. We call this observation the Index Fund Rationality Paradox because it conflicts with the belief that index fund investors are making a rational, low-cost choice in their ‘type of fund’ decision. In our analysis of this paradox, we find that both retail and institutional index investors tended to make better choices in recent years, but the cost of poor choices among both groups continues to be significant. In fact, we are able to identify an arguably naïve group of retail investors that seem to be unduly influenced by brokers and financial advisors. These investors are largely responsible for the remaining paradox.     

论会计政策选择目标

会计政策选择作为特定主体的一种理性行为,必然存在一定的目标。会计政策选择的目标不直接等同于会计目标。宏观会计政策选择的目标应当是基于资源优化配置的以决策有用的真实收益为核心的目标体系,微观会计政策选择的目标为企业价值最大化。宏观会计政策选择与微观会计政策选择目标的不一致,决定了会计目标的实现形式。