Group judgments and decision-making in accounting: enhancing the financial reporting judgments of accountants

Abstract

PurposeInvestors and other stakeholders depend on financial reports prepared by accountants to make informed decisions. During the aftermaths of unprecedented events, such as COVID-19, the need investors have for high-quality financial information is greater than ever. The purpose of this study is to examine whether financial reporting judgments made in groups rather than as individuals result in a better reflection of the economic substance of a transaction.Design/methodology/approachTo examine the benefits that decision-making in groups may have on the reporting judgments of accountants, we conducted an experiment in which experienced accountants, located in Australia, were asked to make a decision over a lease classification. Each of the 87 respondents were either assigned to make their decision individually or as part of a three-member group.FindingsOur results indicate that accountants in groups of three make significantly more accurate judgments than accountants who make judgments individually. The results also support the presumption that accountants in groups are significantly more confident in their judgments than accountants who make judgments individually.Research limitations/implicationsWe contribute to the important discussion that decision-making in groups has the potential to improve the quality of financial reporting by better reflecting economic reality.Originality/valueThis study is one of the first to examine the merits of group judgments and decision-making when interpreting and applying the International Financial Reporting Standards.