Effect of Principles-Based Versus Rules-Based Standards and Auditor Type on Financial Managers’ Reporting Judgments

Jamal, Karim; Tan, Hun‐Tong

doi:10.2139/ssrn.1429184

Cited by 13 publications

(10 citation statements)

References 21 publications

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“…Under IFRS, flexibility in making accounting choices can lead to aggressive reporting. For example, using financial managers as the subjects, Jamal and Tan () found that the aggressive behavior of individuals is contingent on auditors adopting a principles‐oriented mindset. This flexibility in accounting choices is likely to impose costs on financial statement users because the report preparers have the freedom to determine the type of information provided.…”

Section: Studies That Classify the Judgment And Decision‐making Factomentioning

confidence: 99%

Judgment and Decision-Making Research in Auditing and Accounting: Future Research Implications of Person, Task, and Environment Perspective

Mala

Chand

2015

Account Perspect

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The discipline of accounting and auditing has increasingly recognized judgment and decision making (JDM) as highly important attributes in the profession because individuals such as managers, auditors, financial analysts, accountants, and standard setters make pivotal judgments and decisions. Many studies undertaken in this domain of research also substantiate the significance of JDM in accounting and auditing. This study evaluates all the papers published in 10 accounting journals among the leading ones from 1980 to 2010 that fall within the domain of JDM research. The categorization of the studies reviewed in this paper is based on Bonner's (1999) three major determinants of JDM: Person, Task, and Environment variables. The review highlights the progress in the literature over the past three decades and also identifies the methodological limitations of previous research. The identified limitations will be useful for improving the research method of future JDM studies in accounting and auditing. The review also draws inferences on how JDM research in auditing, which is well established, could usefully guide future JDM research in financial accounting.Les disciplines de la comptabilit e et de l'audit reconnaissent plus que jamais l'importance capitale des attributs de la profession que sont le jugement et la prise de d ecisions, compte tenu de l'incidence d eterminante des jugements que portent les gestionnaires, les auditeurs, les analystes financiers, les comptables et les autorit es de r eglementation, ainsi que des d ecisions qu'ils prennent. Maintes etudes r ealis ees dans ce champ de recherche confirment aussi l'importance du jugement et

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Section: Studies That Classify the Judgment And Decision‐making Factomentioning

confidence: 99%

Judgment and Decision-Making Research in Auditing and Accounting: Future Research Implications of Person, Task, and Environment Perspective

Mala

Chand

2015

Account Perspect

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“…Next, the auditor becomes impotent, auditing becomes commodified, and a mentality of literal rule compliance starts to pervade accounting practice. The standard-setting boards may also have underestimated the ability of management to develop self-serving rationalizations even when accounting rules are very precise (Jamal and Tan, 2008). Managers are very clever at developing rationalizations regardless of the level of precision of accounting rules (Nelson, 2003).…”

Section: What Does the Periodic Wave Of Bubble And Fraud In Stock Marmentioning

confidence: 99%

“…The current proposal from the Canadian Accounting Standards Board (AcSB) to align Canadian accounting standards with international accounting standards (IAS) (and not U.S. standards) is a move in the right direction. At least with IAS, there is a possibility of restraining improper accounting judgements of management (Jamal and Tan, 2008). Since many Canadian companies are cross-listed on U.S. exchanges, offering Canadian companies a choice of IAS GAAP and U.S. GAAP also offers a fascinating opportunity to observe how companies (and investors) react to the choices offered (Sunder, 2002).…”

Section: What Does the Periodic Wave Of Bubble And Fraud In Stock Marmentioning

confidence: 99%

Mandatory Audit of Financial Reporting: A Failed Strategy for Dealing with Fraud

Jamal

2008

Accounting Perspectives

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“…Their findings suggest that violations of rules-based standards are less likely to result in a lawsuit filing, thus supporting the protection theory (Donelson et al , 2012). On the contrary, in another study from the preparers’ perspective, Jamal and Tan (2010) find that standards that are more principles-based standards are more likely to result in improved financial reporting quality only when there is shift in the mindset of the auditors toward being more principles-based. They use a lease accounting example to demonstrate how rules-based standards do not decrease managements’ tendency to structure transactions to report matters off-balance sheet, thus suggesting that rules-based standards do not enhance financial reporting quality (Jamal and Tan, 2010).…”

Section: Hypothesis Developmentmentioning

confidence: 86%

The Big-4’s influence on rules-based accounting standards

Lysak

2020

JFRA

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Purpose This study aims to evaluate whether the Big-4’s commenting efforts influence the characteristics of Financial Accounting Standards Board’s (FASB’s) Final_Standards using the content of their comment letters. Whether auditors lobby standard-setters to help their clients or to help themselves and whether they are successful are questions highly relevant to issues of auditor independence and audit effectiveness. Design/methodology/approach Based on components of Mergenthaler (2009), this study develops a rules-based continuum change score to measure how much more (less) rules-based a Final_Standard is compared to its exposure draft to evaluate the influence of the Big-4 on the FASB’s standard-setting for 63 accounting standards. Findings The findings show that extensive comment letters and increased uncertainty language are associated with increases in the rules-based attributes included in Final_Standards. These results suggest the Big-4 prioritize a reduction in their own litigation risk over the possible preferences of their clients for less rigid standards. Moreover, the results are consistent with their comment letters influencing the FASB’s decision to include more rules-based attributes in Final_Standards. Originality/value This study develops a potential proxy for audit risk by assessing the changes in the rules-based characteristics of proposed accounting standards and using the content of the comment letters to evaluate whether the Big-4 accounting firms may influence the FASB’s Final_Standards. Overall, this study provides a unique perspective on the influence of constituents on the FASB’s standard-setting.

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Effect of Principles-Based Versus Rules-Based Standards and Auditor Type on Financial Managers’ Reporting Judgments

Cited by 13 publications

References 21 publications

Judgment and Decision-Making Research in Auditing and Accounting: Future Research Implications of Person, Task, and Environment Perspective

Judgment and Decision-Making Research in Auditing and Accounting: Future Research Implications of Person, Task, and Environment Perspective

Mandatory Audit of Financial Reporting: A Failed Strategy for Dealing with Fraud

The Big-4’s influence on rules-based accounting standards

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