Date of Award
PhD in Accountancy
Department of Accountancy
Jay C. Thibodeau
The U.S. SEC has formally advocated for the creation of a single set of global accounting standards. As the SEC considers converging U.S. GAAP with IFRS, there is heightened interest in how the precision of accounting standard influences the quality of the financial reporting process. My dissertation consists of three studies that seek to address how accounting standard precision interacts with different behavioral factors to influence aggressive financial reporting decisions and auditor judgment. Paper one presents evidence of a significant interactive effect of standard precision and preparer incentive horizon. Specifically, we find evidence that when the incentive horizon is long term, more precise standards are associated with decreased aggressive financial reporting. This is notable as it shows that the effects of standard precision are moderated by incentives and that standard precision cannot be fully understood when studied in isolation. Paper two reports the results of an experiment that investigates whether decision processing mode (either intuitive or deliberative) and standard precision impact the decision to report aggressively. While I do not find evidence that supports an interaction between standard precision and decision processing mode, I find evidence of two main effects. That is, consistent with prior literature, less precise accounting standards are associated with less aggressive financial reporting decisions. In addition, I also find evidence that intuitive processing is associated with less aggressive reporting decisions. Paper three reports the results of an experiment which investigates how the precision of an accounting standard influences auditor judgment. Opponents of the transition to IFRS argue that less precise standards threaten audit quality through their influence on several elements of audit judgment: reduced ability to constrain aggressive reporting, increased susceptibility to management influence and reduced comparability in auditor judgment. I find that less precise standards are associated with greater constraint of aggressive financial reporting. Further, I find no evidence that less precise standards are associated with greater influence by management or a reduction in comparability. These findings are important, as they suggest that the SEC’s proposed migration towards a less precise standard system may not necessarily have consequences for audit quality.
Hunter, Kara E., "The Influence of Cognitive Factors on the Relationship between Accounting Standard Precision and Aggressive Financial Reporting". 2017. 3.