Rethinking Decision Usefulness

Abstract

"Decision usefulness" has been the organizing criterion for accounting policy and accounting scholarship for over forty years. Its authority however, was not gained over time through explicit theory development or argumentation, but was instead "born full grown" (Staubus, 1999, p. 163)as a conceptual "takeover in the dead of night" (p. 338). In essence, the concept of decision usefulness assumed a central place as the rationale for accounting choice by stealth rather than by careful argument or based on empirical evidence. The lack of an extended period of argumentation and debate over the meaning of decision usefulness meant its conceptual weaknesses were allowed to remain remarked upon but never resolved.In this paper we argue that as the central focus defining and guiding accounting policy, decision usefulness has not proven any more useful than earlier, allegedly normative theories of accounting did. The recent debates on IFRS versus GAAP provide vivid testament to the inadequacy of decision usefulness as a criterion for selecting among alternative accounting choices. We briefly examine the history of decision usefulness and its emergence as the chief criterion for selecting policy. We then argue that in light of recent developments in our understanding of human decision-making and the shortcomings of conventional economic understanding, decision usefulness cannot be defined in a manner that allows its application to policy choice at either the micro (individual decision-maker) level or the macro, economy-wide level. . We find that the current concept of decision usefulness is incoherent because policy makers and scholars have not seriously dealt with deeply-flawed ontological assumptions inherent in its definition and justification. We also describe how the decision usefulness criterion applied in the policy realm seriously undermines the current dominant methodology employed in accounting research to understand financial reporting phenomena. In our conclusions we argue for a root metaphor for accounting policy and research that is more consistent with the regulatory function of accounting in society, i.e., a more explicit return to accountability for understanding accounting and for making accounting policy.3

How much is enough? An investigation of nonprofessional investors information search and stopping rule use

“…The SEC provides tools for investor education including information about the importance of a 10K and how to use EDGAR to research investments (Securities and Exchange Commission, SEC, 2015). However, our results suggest that most of the investors in this study do not include any financial information in their information search, which is consistent with recent research questioning the decision usefulness of financial information (Young, 2006;Williams and Ravenscroft, 2015). We provide evidence that the amount of financial information gathered is dependent on the stopping rule used.…”

“…Our study responds to this call with evidence that investors use very little financial information. If so little financial information is gathered, the decision usefulness of financial information for individual investors is called into question (Young, 2006;Williams and Ravenscroft, 2015).…”

Commentary on phase A of the revised conceptual framework: Implications for global financial reporting

“…According to Williams and Ravenscroft (2015) financial reporting policy-making and related academic research has focused for more than forty years on decision usefulness, which is based on certain belief rather than empirical evidence. Williams and Ravenscroft (2015) identify three issues in the concept of decision usefulness.…”

“…Williams and Ravenscroft (2015) identify three issues in the concept of decision usefulness. First, they cite the failure of the conceptual framework to prove decision usefulness when the emphasis is on individual decision makers, as the "individual's rational resource allocation decision depends entirely on that individual's 'utility ', context, culture, emotional state, intellect, intuitions, values, native language, sex, etc."…”

The Accounting Court: Some Speculations on Why Not?

“…In 2007, the Institute of Management Accountants submitted a comment letter to the SEC Advisory Committee Standard Setting Subcommittee that advocates for the accounting court to resolve issues between firms and the SEC noting the "…diminished use of professional judgement" in the accounting profession. In 2009, the accounting court was again suggested as an a means to an end-the end being a "…simpler financial reporting model based on principles" (Sunder 2009). …”