Accounting Standards, Implementation Guidance, and Example-Based Reasoning
Journal of Accounting Research, Vol. 45, No. 4, pp. 699-730, September 2007
32 Pages Posted: 11 Dec 2007
This paper examines interpretation of accounting standards that provide implementation guidance via affirmative or counter examples. Based on prior psychology research, we predict that practitioners engage in example-based reasoning such that they are more likely to conclude that their case qualifies for the same treatment as the example. We test our predictions in two experiments in which participants judge the appropriateness of income-statement recognition. Experiment 1 uses Masters of Business Administration (MBA) students and varies example type (affirmative, counter) and case (revenue recognition, expense recognition) in a 2 x 2 design. Experiment 1 supports our predictions. Experiment 2 uses more experienced practitioners, and varies example type (affirmative, counter, both) in a 1 x 3 design. Experiment 2 supports the use of example-based reasoning, and indicates that practitioners in the both condition respond as if they had only received an affirmative example. These results have implications for understanding how guidance that accompanies accounting standards can result in aggressive or conservative application of standards.
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