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Does every accounting issue need a solution?

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  • Katharina Hombach
  • Thorsten Sellhorn

Abstract

We discuss the concept and costs of resolving accounting issues. We first characterise the (degree of) resolution of an accounting issue as a continuous concept, arguing that an accounting issue is unresolved where an established solution is either uncertain or produces financial information with undesired consequences. We then describe standard setters and market participants as possible institutions that can contribute to such resolution. A series of standard-setting cases illustrates different settings as well as sources and degrees of resolution. We then review extant studies that speak to two important cost factors shaping the supply of accounting solutions: costs of learning about accounting solutions and opportunity costs arising from reduced incentives for innovations in accounting. We conclude with suggestions for future research and implications for standard setting.

Suggested Citation

  • Katharina Hombach & Thorsten Sellhorn, 2022. "Does every accounting issue need a solution?," Accounting and Business Research, Taylor & Francis Journals, vol. 52(5), pages 540-561, July.
    • Handle: RePEc:taf:acctbr:v:52:y:2022:i:5:p:540-561
    DOI: 10.1080/00014788.2022.2079736
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    Cited by:

    1. Rolf Uwe Fülbier & Thorsten Sellhorn, 2023. "Understanding and improving the language of business: How accounting and corporate reporting research can better serve business and society," Journal of Business Economics, Springer, vol. 93(6), pages 1089-1124, August.
    2. Xu, Jingjing & Huang, Haijie & Lee, Edward & Petaibanlue, Jirada, 2023. "Does goodwill pressure drive business restructuring based on subsidiary disposal?," International Review of Financial Analysis, Elsevier, vol. 86(C).

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