The Effects of Out-of-Regime Guidance on Auditor Judgments About Appropriate Application of Accounting Standards

40 Pages Posted: 11 Jan 2012 Last revised: 15 Oct 2015

See all articles by H. Scott Asay

H. Scott Asay

University of Iowa - Department of Accounting

Tim Brown

University of Illinois at Urbana-Champaign - Department of Accountancy

Mark W. Nelson

Cornell University - Samuel Curtis Johnson Graduate School of Management

T. Jeffrey Wilks

Brigham Young University

Date Written: October 14, 2015

Abstract

Accountants making judgments with respect to a particular set of standards are increasingly aware of standards from other reporting regimes that offer additional or conflicting guidance. In fact, IFRS encourages reliance on out-of-regime standards when IFRS lacks guidance. This paper reports the results of two experiments which provide evidence that auditors in such circumstances are vulnerable to contrast effects, whereby reporting judgments under IFRS are systematically influenced away from the accounting treatment supported by standards from another regime (U.S. GAAP). Contrast effects are observed (1) when out-of-regime standards are considered before making a reporting judgment under IFRS and (2) when out-of-regime standards are applied as local GAAP for a subsidiary of a foreign parent that reports under IFRS. We also find that contrast effects are reduced when auditors believe IFRS lacks guidance. These results have implications for financial statement preparers and auditors in the current incomplete-convergence environment.

Keywords: Convergence, Contrast effect, Financial accounting standards, Audit Judgment

JEL Classification: M41

Suggested Citation

Asay, Hamilton Scott and Brown, Tim and Nelson, Mark W. and Wilks, Thomas Jeffrey, The Effects of Out-of-Regime Guidance on Auditor Judgments About Appropriate Application of Accounting Standards (October 14, 2015). Johnson School Research Paper Series No. 7-2012. Available at SSRN: https://ssrn.com/abstract=1982730 or http://dx.doi.org/10.2139/ssrn.1982730

Hamilton Scott Asay (Contact Author)

University of Iowa - Department of Accounting ( email )

S232 Pappajohn Business Building
Iowa City, IA 52242-1000
United States

Tim Brown

University of Illinois at Urbana-Champaign - Department of Accountancy ( email )

1206 South Sixth Street
Champaign, IL 61820
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)

Thomas Jeffrey Wilks

Brigham Young University ( email )

School of Accountancy
526 Tanner Building
Provo, UT 84602 84602
United States
801-422-3930 (Phone)
801-422-0621 (Fax)

HOME PAGE: http://marriottschool.byu.edu/directory/details?id=5337

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