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Standard precision and aggressive financial reporting: the influence of incentive horizon.

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conference contribution
posted on 05.10.2021, 05:25 by K Hunter, R Jacob, ATM TariquzzamanATM Tariquzzaman, J Thibodeau
The extant literature on precision in accounting standards suggests that financial statement preparers are less likely to make aggressive financial reporting decisions under less precise, principles-based accounting standards as compared to under more precise, rules-based accounting standards. We extend this line of research by examining how the incentive horizon of financial statement preparers influences earnings management behaviour. Consistent with prior literature, we find evidence that more precise standards lead to more income-increasing earnings management behaviour than do less precise standards when the incentive horizon is short-term in nature. However, when the incentive horizon is long-term, more precise standards are associated with financial reporting decisions that reduce current income relative to less precise standards. Importantly, the findings demonstrate that the effects of standard precision are changed by the incentive time horizon, and the effects of standard precision on financial decision makers cannot be fully understood when precision is studied without considering the timing of management incentive structures.

History

Preferred citation

Hunter, K., Jacob, R., Tariquzzaman, A. T. M. & Thibodeau, J. (2019, January). Standard precision and aggressive financial reporting: the influence of incentive horizon. In Accounting and Business Research 2019 International Accounting Standards Board Research Forum in Conjunction with the Journal of International Accounting Research, New Jersey, USA. (pp. 1-19). Informa UK Limited. https://doi.org/10.1080/00014788.2021.1952059

Conference name

2019 International Accounting Standards Board Research Forum in Conjunction with the Journal of International Accounting Research

Conference start date

28/10/2019

Conference finish date

29/10/2019

Title of proceedings

Accounting and Business Research

Contribution type

Unpublished Paper

Publication or Presentation Year

01/01/2019

Pagination

1-19

Publisher

Informa UK Limited

Publication status

Unpublished

ISSN

0001-4788

eISSN

2159-4260

Place of publication

New Jersey, USA.