Rules-Based Accounting Standards and Litigation

61 Pages Posted: 5 Jan 2010 Last revised: 11 Feb 2012

Dain C. Donelson

University of Texas at Austin - McCombs School of Business

John M. McInnis

University of Texas at Austin - Department of Accounting

Richard Mergenthaler Jr.

University of Iowa - Henry B. Tippie College of Business

Date Written: February 9, 2012

Abstract

Some claim that rules-based accounting standards shield firms from litigation, while others argue that violations of detailed rules give plaintiffs a “roadmap” to successful litigation. We inform this debate by investigating whether rules-based standards are associated with the incidence of securities class action litigation. Overall, our results suggest that rules-based accounting standards are associated with a lower incidence of litigation. These results are of interest in the debate regarding the switch from a more rules-based U.S. GAAP to a more principles-based IFRS.

Keywords: Securities litigation, safe harbor, rules-based standards, principles-based standards

JEL Classification: K22, K41, M41

Suggested Citation

Donelson, Dain C. and McInnis, John M. and Mergenthaler, Richard, Rules-Based Accounting Standards and Litigation (February 9, 2012). Accounting Review, Forthcoming; McCombs Research Paper Series No. ACC-06-10. Available at SSRN: https://ssrn.com/abstract=1531782 or http://dx.doi.org/10.2139/ssrn.1531782

Dain C. Donelson

University of Texas at Austin - McCombs School of Business ( email )

Austin, TX 78712
United States
512-232-3733 (Phone)

John M. McInnis (Contact Author)

University of Texas at Austin - Department of Accounting ( email )

Austin, TX 78712
United States
512-232-6791 (Phone)

Richard Dean Mergenthaler Jr.

University of Iowa - Henry B. Tippie College of Business ( email )

108 Pappajohn Business Building
Iowa City, IA 52242-1000
United States
319-335-0848 (Phone)

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