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The impact of professional standards on accounting judgments: The role of availability and comparative information

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  • Fatemi, Darius
  • Hasseldine, John
  • Hite, Peggy

Abstract

Given scant research on the influence of the AICPA’s Code of Conduct, this study examines the effects of professional standards for advocacy and integrity on a financial reporting decision. Based on the availability and priming literature, we test whether the current wording of two AICPA professional standards influence financial reporting decisions. Prior accounting research has documented cases where professionals were inclined toward a conservative or skeptical bias (Francis & Krishnan, 1999; Jenkins & Lowe, 1999) while other studies have documented an inclination toward a client-confirming bias (Hackenbrack & Nelson, 1996; Roberts, 2010). Our study examines whether using AICPA ethical standards as primes results in a neutral, unbiased financial reporting decision in a context in which there is substantial, yet inconclusive, evidence. Roberts (2010) documents the tendency for professionals to view integrity and advocacy as segregated objectives: one for promoting unbiased reporting, associated frequently with accounting-related decisions, and the other condoning client advocacy, typically associated with tax-related judgments. Hence, we test for availability effects based on separately-stated standards. However, the literature on comparative analysis explains that a combined concept containing counterbalancing features allows the participant to form causal relationships between the distinguishing components. This type of mental process brings the causal knowledge into working memory. Hence, a joint presentation of countervailing standards should result in a more balanced judgment, reflecting neither a conservative nor pro-client tendency.

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  • Fatemi, Darius & Hasseldine, John & Hite, Peggy, 2014. "The impact of professional standards on accounting judgments: The role of availability and comparative information," Research in Accounting Regulation, Elsevier, vol. 26(1), pages 26-39.
    • Handle: RePEc:eee:reacre:v:26:y:2014:i:1:p:26-39
    DOI: 10.1016/j.racreg.2014.02.003
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    1. 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.

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