Internal adaptations to effects of changes in financial accounting standards

Managers of organizations may be expected to select actions which will lead to favorable performance evaluations. Evaluations which are based upon accounting measures may be affected by changes in financial accounting standards. These effects on performance evaluations may motivate managers to change selctions of actions in order to maintain favorable evaluations even though the new set of actions may not be in the best interests of the organization. A survey of current research reveals that these effects have been misclassified in assessing the effects of changes in accounting standards. This paper develops a conceptual framework for testing the proposition that firms which have failed to effectively adapt internally for the effects of changes in financial accounting standards may experience unintended side effects as a result of changed management actions.The major points of the paper are illustrated in a hypothetical case study involving Research and Development activity.