The Crash of an Airline - the Role of Accounting Choices

77 Pages Posted: 27 Dec 2004

See all articles by Ann Jorissen

Ann Jorissen

University of Antwerp - Department of Accounting & Finance

David Otley

Lancaster University

Date Written: October 2004


Accounting choices have usually been analysed by large-scale empirical research. However, the generality gained from such an approach is at the cost of understanding the rich and complex nature of such choice decisions in real organizations. This article presents the results of an in-depth analysis of the use of accounting choices by a single group of companies over a ten year time span. It is observed that a variety of accounting choices were made in a way that managed the presentation of financial performance so that it was perceived to be better than it actually was. In addition, a number of real decisions were also taken that allowed a more favourable impression to be created, at least for a period of years. The nature of less choices and their consequences only became fully visible following the bankruptcy of the group concerned. From a theoretical stance, the study indicates that accounting choices may be managed as a total package, rather than individually, and that the same choice may move from having an exogenous to an endogenous role. Such an observation has implications for the design and interpretation of large-scale empirical studies. In addition, it is noted that the impact of accounting choices is not confined to audited financial statements, but that they also affect voluntary disclosures, management control systems, and incentive and reward mechanisms. Finally, the change to more transparent accounting standards, such as IAS, is shown to be open to impression management by both its timing and by alterations in voluntary disclosure. The case study indicates the range and complexity of the variables that need to be considered in assessing the impact of accounting standards.

Keywords: Earnings management, accounting choices, corporate governance, executive compensation

JEL Classification: G34, M41, M43, M45, M49, G33

Suggested Citation

Jorissen, Ann and Otley, David T., The Crash of an Airline - the Role of Accounting Choices (October 2004). Available at SSRN: or

Ann Jorissen (Contact Author)

University of Antwerp - Department of Accounting & Finance ( email )

Prinsstraat 13
Antwerpen, B-2020
00 32 3 220 40 92 (Phone)
00 32 3 220 40 64 (Fax)

David T. Otley

Lancaster University ( email )

The Management School
Lancaster LA1 4YF
United Kingdom
+441 524 593 632 (Phone)
+441 524 652 01 (Fax)

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