IDEAS home Printed from https://ideas.repec.org/a/bla/abacus/v58y2022i2p209-232.html
   My bibliography  Save this article

Concepts‐based Accounting Standards

Author

Listed:
  • Mark Penno

Abstract

While comparability across firms and consistency over time are generally held to be fundamental goals of financial reporting, I provide an analytic representation of a concept that explains why concepts‐based accounting standards cannot assure comparability and why their induced consistency may not always be desirable. While the term ‘concepts‐based accounting standards’ has not caught on in the academic and professional literatures, its use here emphasizes the foundational role that language‐based concepts play in constructing accounting standards. I appeal to the academic literature in machine learning, neural networks, and especially cognitive science—all of which may represent concepts by S‐curve (sigmoid) signatures. I then show how S‐curves can explain an accounting standard's (1) precision, (2) comparability across firms, (3) demands placed on judgement, and (4) consistency across time. Accordingly, an S‐curve formulation may guide both analytical modelling of accounting standards and add structure to empirical research designs.

Suggested Citation

  • Mark Penno, 2022. "Concepts‐based Accounting Standards," Abacus, Accounting Foundation, University of Sydney, vol. 58(2), pages 209-232, June.
  • Handle: RePEc:bla:abacus:v:58:y:2022:i:2:p:209-232
    DOI: 10.1111/abac.12240
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/abac.12240
    Download Restriction: no

    File URL: https://libkey.io/10.1111/abac.12240?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
    ---><---

    References listed on IDEAS

    as
    1. Hronsky, Jane J. F. & Houghton, Keith A., 2001. "The meaning of a defined accounting concept: regulatory changes and the effect on auditor decision making," Accounting, Organizations and Society, Elsevier, vol. 26(2), pages 123-139, March.
    2. Ralf Ewert, 1999. "Auditor Liability and the Precision of Auditing Standards," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 155(1), pages 181-181, March.
    3. Jim Psaros, 2007. "Do principles‐based accounting standards lead to biased financial reporting? An Australian experiment," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 47(3), pages 527-550, September.
    4. Maines, Laureen A., 2007. "Spotlight on principles-based financial reporting," Business Horizons, Elsevier, vol. 50(5), pages 359-364.
    5. Ittonen, Kim & Tronnes, Per C. & Wong, Leon, 2017. "Substantial doubt and the entropy of auditors’ going concern modifications," Journal of Contemporary Accounting and Economics, Elsevier, vol. 13(2), pages 134-147.
    6. Dan Ariely & George Loewenstein & Drazen Prelec, 2003. ""Coherent Arbitrariness": Stable Demand Curves Without Stable Preferences," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 118(1), pages 73-106.
    7. 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.
    8. Steven E. Salterio, 2012. "Fifteen years in the trenches: Auditor–client negotiations exposed and explored," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 52, pages 233-286, October.
    9. Ronald A. Dye, 2002. "Classifications Manipulation and Nash Accounting Standards," Journal of Accounting Research, Wiley Blackwell, vol. 40(4), pages 1125-1162, September.
    10. Shana Clor‐Proell & Mark W. Nelson, 2007. "Accounting Standards, Implementation Guidance, and Example‐Based Reasoning," Journal of Accounting Research, Wiley Blackwell, vol. 45(4), pages 699-730, September.
    11. Doupnik, Timothy S. & Richter, Martin, 2003. "Interpretation of uncertainty expressions: a cross-national study," Accounting, Organizations and Society, Elsevier, vol. 28(1), pages 15-35, January.
    Full references (including those not matched with items on IDEAS)

    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. 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.
    2. Hellmann, Andreas & Patel, Chris & Tsunogaya, Noriyuki, 2021. "Foreign-language effect and professionals’ judgments on fair value measurement: Evidence from Germany and the United Kingdom," Journal of Behavioral and Experimental Finance, Elsevier, vol. 30(C).
    3. Jens Wüstemann & Sonja Wüstemann, 2010. "Why Consistency of Accounting Standards Matters: A Contribution to the Rules‐Versus‐Principles Debate in Financial Reporting," Abacus, Accounting Foundation, University of Sydney, vol. 46(1), pages 1-27, March.
    4. Sami El Omari & Mohamed Taieb Hamadi & Wafa Khlif, 2016. "La diversité des sources d'interprétation et d'application des normes comptables internationales ; un frein à la convergence de la pratique," Post-Print hal-01900554, HAL.
    5. 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.
    6. Hellmann, Andreas & Patel, Chris, 2021. "Translation of International Financial Reporting Standards and implications for judgments and decision-making," Journal of Behavioral and Experimental Finance, Elsevier, vol. 30(C).
    7. Parmod Chand & Michael White, 2006. "The Influence of Culture on Judgments of Accountants in Fiji," Australian Accounting Review, CPA Australia, vol. 16(40), pages 82-88, November.
    8. Minlei Ye & Dan A. Simunic, 2013. "The Economics of Setting Auditing Standards," Contemporary Accounting Research, John Wiley & Sons, vol. 30(3), pages 1191-1215, September.
    9. Pantic, B., 2016. "Comparability of financial reports: A literature review of most recent studies," Working Papers 6451, Graduate School of Management, St. Petersburg State University.
    10. Bradbury, Michael E. & Schröder, Laura B., 2012. "The content of accounting standards: Principles versus rules," The British Accounting Review, Elsevier, vol. 44(1), pages 1-10.
    11. Barbara Weißenberger & Gero Holthoff, 2013. "Cognitive style and connotative meaning in management accounting communication," Metrika: International Journal for Theoretical and Applied Statistics, Springer, vol. 24(1), pages 1-25, May.
    12. Thunström, Linda & Nordström, Jonas & Shogren, Jason F., 2015. "Certainty and overconfidence in future preferences for food," Journal of Economic Psychology, Elsevier, vol. 51(C), pages 101-113.
    13. Botond Kőszegi & Matthew Rabin, 2006. "A Model of Reference-Dependent Preferences," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 121(4), pages 1133-1165.
    14. George Deltas & Thanasis Stengos & Eleftherios Zacharias, 2011. "Product line pricing in a vertically differentiated oligopoly," Canadian Journal of Economics, Canadian Economics Association, vol. 44(3), pages 907-929, August.
    15. James Agarwal & Wayne DeSarbo & Naresh K. Malhotra & Vithala Rao, 2015. "An Interdisciplinary Review of Research in Conjoint Analysis: Recent Developments and Directions for Future Research," Customer Needs and Solutions, Springer;Institute for Sustainable Innovation and Growth (iSIG), vol. 2(1), pages 19-40, March.
    16. Sebastian Kronenberger & Volker Laux, 2022. "Conservative Accounting, Audit Quality, and Litigation," Management Science, INFORMS, vol. 68(3), pages 2349-2362, March.
    17. Dan Ariely & Kristina Shampan'er, 2006. "How small is zero price? : the true value of free products," Working Papers 06-16, Federal Reserve Bank of Boston.
    18. Yizhao Jiang, 2022. "The Influence of Payment Method: Do Consumers Pay More with Mobile Payment?," Papers 2210.14631, arXiv.org.
    19. Laaksonen, Jenni, 2022. "Translation, hegemony and accounting: A critical research framework with an illustration from the IFRS context," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 89(C).
    20. Bartels, Lara & Kesternich, Martin, 2022. "Motivate the crowd or crowd- them out? The impact of local government spending on the voluntary provision of a green public good," ZEW Discussion Papers 22-040, ZEW - Leibniz Centre for European Economic Research.

    More about this item

    Statistics

    Access and download statistics

    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:bla:abacus:v:58:y:2022:i:2:p:209-232. 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: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0001-3072 .

    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.