Rules-Based Accounting Standards and Litigation
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
February 9, 2012
Accounting Review, Forthcoming
McCombs Research Paper Series No. ACC-06-10
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.
Number of Pages in PDF File: 61
Keywords: Securities litigation, safe harbor, rules-based standards, principles-based standards
JEL Classification: K22, K41, M41
Date posted: January 5, 2010 ; Last revised: February 11, 2012