Rules-Based Accounting Standards and Litigation

Donelson, Dain C.; McInnis, John M.; Mergenthaler, Richard

doi:10.2139/ssrn.1531782

Rules-Based Accounting Standards and Litigation

Accounting Review, Forthcoming

McCombs Research Paper Series No. ACC-06-10

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

See all articles by Dain C. Donelson

John M. McInnis

University of Texas at Austin - Department of Accounting

Richard Mergenthaler

Penn State University

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: Suggested Citation

Donelson, Dain C. and McInnis, John M. and Mergenthaler, Richard Dean, 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