Accounting Reporting Complexity Measured Behaviorally

(2019). Internal Auditing & Risk Management, 4, 56, 35-47.

8 Pages Posted: 23 Oct 2019 Last revised: 29 Dec 2019

See all articles by Dirk Beerbaum

Dirk Beerbaum

Aalto University - Department of Accounting and Finance; Aalto University - School of Business

Maciej Piechocki

affiliation not provided to SSRN

Julia M. Puaschunder

Columbia University; New School for Social Research; Harvard University; The Situationist Project on Law and Mind Sciences

Date Written: October 14, 2019

Abstract

We propose a new measure of accounting reporting complexity (ARC) based on customized extensions XBRL elements in relation to the number of reporting tags (NRT), expressed as the relative Extension Rate (ER) as a behavioral economics solution to improve markets. Behavioral insights have recently gained attention in different scientific and applied fields. Thereby behavioral economists set out to improve market conditions to aid practitioners and consumers make wiser and more informed decisions that have a positive impact over time. XBRL extensions reduce comparability of financial disclosures and complicate financial analysis and investor decision making. We find that ER is negatively associated with market capitalization and profitability. ER is on average higher in industries perceived as complex. The preparation and disclosure of more accounting items deviating from the base taxonomy is more complex for consumers of financial and non-financial information. Increasing ER imply comparability among peers is less enabled. In comparison to commonly used measures of operating and linguistic complexity, the associations between ARC and these outcomes are more consistent, exhibit greater explanatory power, and have stronger economic significance. The ER resulting from IFRS-filers, i.e. companies which prepare their financial statements under International Financial Reporting Standard (IFRS) are on average significantly higher than US GAAP filers, i.e. companies which prepare their financial statements under United States General Accepted Accounting Principles (US GAAP). This article is based on the “transparency technology XBRL (eXtensible Business Reporting Language)” (Sunstein, 2013), which should make data more accessible as well as usable for private investors. Overall, the findings contribute to the emerging behavioral economics trend with a novel application in data science and accounting.

Keywords: Accounting Reporting Complexity, Behavioral Economics, Behavioral Insights, Customized Extensions Elements, Financial reporting quality and inductive method, IFRS Taxonomy, Nudging, Relative Extension Rates, XBRL.

Suggested Citation

Beerbaum Dr., Dirk and Piechocki, Maciej and Puaschunder, Julia M., Accounting Reporting Complexity Measured Behaviorally (October 14, 2019). (2019). Internal Auditing & Risk Management, 4, 56, 35-47., Available at SSRN: https://ssrn.com/abstract=3469887 or http://dx.doi.org/10.2139/ssrn.3469887

Dirk Beerbaum Dr. (Contact Author)

Aalto University - Department of Accounting and Finance ( email )

P.O. Box 1210
Helsinki, 00100
Finland

Aalto University - School of Business ( email )

Finland

Maciej Piechocki

affiliation not provided to SSRN

Julia M. Puaschunder

Columbia University ( email )

3022 Broadway
New York, NY 10027
United States

New School for Social Research ( email )

6 East 16th Street
New York, NY 10003
United States

Harvard University ( email )

24 Oxford Street
Cambridge, MA 02138
United States

The Situationist Project on Law and Mind Sciences ( email )

24 Oxford Street
Cambridge, MA 02138
United States

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