IDEAS home Printed from https://ideas.repec.org/a/eee/reacre/v27y2015i1p45-50.html
   My bibliography  Save this article

Principles-based vs. rules-based accounting standards: The effects of auditee proposed accounting treatment and regulatory enforcement on auditor judgments and confidence

Author

Listed:
  • Braun, Gary P.
  • Haynes, Christine M.
  • Lewis, Tom D.
  • Taylor, Mark H.

Abstract

Using an interest capitalization context, this paper examines the impact of accounting standard type (rules-based vs. principles-based) on the auditor's agreement with an auditee's proposed accounting treatment. Contrary to prior studies that have investigated lease classification contexts, results indicate that auditors are more likely to agree with the auditee's accounting treatment under a principles-based than a rules-based standard. The possibility of a Securities and Exchange Commission (SEC) investigation does not affect auditors' agreement with their auditee's accounting treatment. However, auditors are more confident in the rules-based scenario when they have no knowledge of a possible SEC investigation. Thus, the lack of precision inherent in a principles-based, interest capitalization standard may initially persuade auditors to agree with auditee judgments, but this perception may be moderated by a reduced level of confidence. Those interested in the standard setting process should look beyond the traditional lease structuring scenario and consider the possible effects of other principles-based standards on auditors' judgments and confidence.

Suggested Citation

  • Braun, Gary P. & Haynes, Christine M. & Lewis, Tom D. & Taylor, Mark H., 2015. "Principles-based vs. rules-based accounting standards: The effects of auditee proposed accounting treatment and regulatory enforcement on auditor judgments and confidence," Research in Accounting Regulation, Elsevier, vol. 27(1), pages 45-50.
  • Handle: RePEc:eee:reacre:v:27:y:2015:i:1:p:45-50
    DOI: 10.1016/j.racreg.2015.03.005
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1052045715000065
    Download Restriction: Full text for ScienceDirect subscribers only

    File URL: https://libkey.io/10.1016/j.racreg.2015.03.005?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Maines, Laureen A., 2007. "Spotlight on principles-based financial reporting," Business Horizons, Elsevier, vol. 50(5), pages 359-364.
    2. Bruce Bennett & Michael Bradbury & Helen Prangnell, 2006. "Rules, principles and judgments in accounting standards," Abacus, Accounting Foundation, University of Sydney, vol. 42(2), pages 189-204, June.
    3. Jim Psaros & Ken T. Trotman, 2004. "The Impact of the Type of Accounting Standards on Preparers’ Judgments," Abacus, Accounting Foundation, University of Sydney, vol. 40(1), pages 76-93, February.
    4. Krische, Susan D. & Sanders, Paula R. & Smith, Steven D., 2012. "Lease transaction structuring, earnings management, and management credibility," Research in Accounting Regulation, Elsevier, vol. 24(1), pages 33-39.
    5. Sniezek, Janet A. & Henry, Rebecca A., 1989. "Accuracy and confidence in group judgment," Organizational Behavior and Human Decision Processes, Elsevier, vol. 43(1), pages 1-28, February.
    6. McEnroe, John E. & Sullivan, Mark, 2013. "An examination of the perceptions of auditors and chief financial officers regarding principles versus rules based accounting standards," Research in Accounting Regulation, Elsevier, vol. 25(2), pages 196-207.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Rajat Deb & Joydeep Das, 2018. "IFRSs Convergence and Expectation Gap: Vindication from Practitioners," Metamorphosis: A Journal of Management Research, , vol. 17(2), pages 86-99, December.
    2. Xu, Yin & Doupnik, Timothy, 2016. "The impact of different types and amounts of guidance on the implementation of an accounting principle," Research in Accounting Regulation, Elsevier, vol. 28(2), pages 66-76.
    3. Lawson, Bradley P. & Muriel, Leah & Sanders, Paula R., 2017. "A survey on firms' implementation of COSO's 2013 Internal Control–Integrated Framework," Research in Accounting Regulation, Elsevier, vol. 29(1), pages 30-43.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Tanja Lakovic & Jayne Fuglister, 2013. "The International Accounting Standards Board’s Progress in Promoting Judgement Through Objectives-Oriented Accounting Standards," International Journal of Business and Social Research, LAR Center Press, vol. 3(7), pages 28-42, July.
    2. Mark Penno, 2022. "Concepts‐based Accounting Standards," Abacus, Accounting Foundation, University of Sydney, vol. 58(2), pages 209-232, June.
    3. Guilherme Belloque & Martina K Linnenluecke & Mauricio Marrone & Abhay K Singh & Rui Xue, 2021. "55 years of Abacus: Evolution of Research Streams and Future Research Directions," Abacus, Accounting Foundation, University of Sydney, vol. 57(3), pages 593-618, September.
    4. Tanja Lakovic & Jayne Fuglister, 2013. "The International Accounting Standards Board’s Progress in Promoting Judgement Through Objectives-Oriented Accounting Standards," International Journal of Business and Social Research, MIR Center for Socio-Economic Research, vol. 3(7), pages 28-42, July.
    5. Peipei Pan & Chris Patel, 2018. "The Influence of Native Versus Foreign Language on Chinese Subjects’ Aggressive Financial Reporting Judgments," Journal of Business Ethics, Springer, vol. 150(3), pages 863-878, July.
    6. Anna Bedford & Martin Bugeja & Nelson Ma, 2022. "The impact of IFRS 10 on consolidated financial reporting," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(1), pages 101-141, March.
    7. Roland W. Scholz & Ralf Hansmann, 2007. "Combining Experts' Risk Judgments on Technology Performance of Phytoremediation: Self‐Confidence Ratings, Averaging Procedures, and Formative Consensus Building," Risk Analysis, John Wiley & Sons, vol. 27(1), pages 225-240, February.
    8. Kohler, Hervé & Pochet, Christine & Le Manh, Anne, 2021. "Auditors as intermediaries in the endogenization of an accounting standard: The case of IFRS 15 within the telecom industry," Accounting, Organizations and Society, Elsevier, vol. 91(C).
    9. Koriat, Asher, 2008. "Alleviating inflation of conditional predictions," Organizational Behavior and Human Decision Processes, Elsevier, vol. 106(1), pages 61-76, May.
    10. Demont, Matty & Rutsaert, Pieter & Ndour, Maimouna & Verbeke, Wim & Seck, Papa Abdoulaye & Tollens, Eric, 2012. "Experimental auctions, collective induction and choice shift: Willingness-to-pay for rice quality in Senegal," 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil 126861, International Association of Agricultural Economists.
    11. Keller, Jonas & von der Gracht, Heiko A., 2014. "The influence of information and communication technology (ICT) on future foresight processes — Results from a Delphi survey," Technological Forecasting and Social Change, Elsevier, vol. 85(C), pages 81-92.
    12. Julia A. Minson & Jennifer S. Mueller & Richard P. Larrick, 2018. "The Contingent Wisdom of Dyads: When Discussion Enhances vs. Undermines the Accuracy of Collaborative Judgments," Management Science, INFORMS, vol. 64(9), pages 4177-4192, September.
    13. Peter Carey & Brad Potter & George Tanewski, 2014. "Application of the Reporting Entity Concept in Australia," Abacus, Accounting Foundation, University of Sydney, vol. 50(4), pages 460-489, December.
    14. Lukas Meub & Till Proeger, 2018. "Are groups ‘less behavioral’? The case of anchoring," Theory and Decision, Springer, vol. 85(2), pages 117-150, August.
    15. Laurence Aitchison & Dan Bang & Bahador Bahrami & Peter E Latham, 2015. "Doubly Bayesian Analysis of Confidence in Perceptual Decision-Making," PLOS Computational Biology, Public Library of Science, vol. 11(10), pages 1-23, October.
    16. Hervé Kohler & Christine Pochet & Anne Le Manh, 2021. "Auditors as intermediaries in the endogenization of an accounting standard: The case of IFRS 15 within the telecom industry," Post-Print hal-03337420, HAL.
    17. Khushbu Agrawal & Chanchal Chatterjee, 2015. "Earnings Management and Financial Distress: Evidence from India," Global Business Review, International Management Institute, vol. 16(5_suppl), pages 140-154, October.
    18. Benbasat, Izak & Lim, John, 2000. "Information Technology Support For Debiasing Group Judgments: An Empirical Evaluation," Organizational Behavior and Human Decision Processes, Elsevier, vol. 83(1), pages 167-183, September.
    19. Anna-Maija Lantto, 2014. "Business Involvement in Accounting: A Case Study of International Financial Reporting Standards Adoption and the Work of Accountants," European Accounting Review, Taylor & Francis Journals, vol. 23(2), pages 335-356, June.
    20. Christos C Ioannou & Gabriel Madirolas & Faith S Brammer & Hannah A Rapley & Gonzalo G de Polavieja, 2018. "Adolescents show collective intelligence which can be driven by a geometric mean rule of thumb," PLOS ONE, Public Library of Science, vol. 13(9), pages 1-17, September.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:reacre:v:27:y:2015:i:1:p:45-50. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: https://www.journals.elsevier.com/research-in-accounting-regulation .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.