Accounting Standards, Implementation Guidance, and Example-Based Reasoning

32 Pages Posted: 11 Dec 2007

See all articles by Shana Clor-Proell

Shana Clor-Proell

Texas Christian University - Department of Accounting

Mark W. Nelson

Cornell University - Samuel Curtis Johnson Graduate School of Management

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Abstract

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.

Suggested Citation

Clor-Proell, Shana and Nelson, Mark W., Accounting Standards, Implementation Guidance, and Example-Based Reasoning. Journal of Accounting Research, Vol. 45, No. 4, pp. 699-730, September 2007. Available at SSRN: https://ssrn.com/abstract=1065881 or http://dx.doi.org/10.1111/j.1475-679X.2007.00248.x

Shana Clor-Proell (Contact Author)

Texas Christian University - Department of Accounting ( email )

M.J. Neeley School of Business
TCU Box 298530
Fort Worth, TX 76129
United States

Mark W. Nelson

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

448 Sage Hall
Ithaca, NY 14853
United States
607-255-6323 (Phone)
607-254-4590 (Fax)

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