TY - JOUR
T1 - Explaining Rules-Based Characteristics in U.S. GAAP
T2 - Theories and Evidence
AU - Donelson, Dain C.
AU - Mcinnis, John
AU - Mergenthaler, Richard D.
N1 - Publisher Copyright:
© 2016 The Accounting Research Center at the University of Chicago Booth School of Business.
PY - 2016/6/1
Y1 - 2016/6/1
N2 - Despite debate on the desirability of rules-based standards, no studies provide evidence on why accounting standards take on rules-based characteristics. We identify and test five theories from prior research (litigation risk, constraining opportunism, complexity, transaction frequency, and age) that could explain why some U.S. accounting standards contain rules-based characteristics. Litigation risk and complexity are most consistently related to cross-sectional and time-series variation in rules-based characteristics. We find more limited evidence that frequent transactions, age, and desires by regulators to constrain opportunistic reporting are related to rules-based standards. We note, however, that our findings are necessarily descriptive because standards arise endogenously from market and political forces, limiting causal interpretation. Further, it is difficult to perfectly separate rules-based characteristics of the standard from both the complexity of the standard and the characteristics of the underlying transaction, including the complexity of the transaction.
AB - Despite debate on the desirability of rules-based standards, no studies provide evidence on why accounting standards take on rules-based characteristics. We identify and test five theories from prior research (litigation risk, constraining opportunism, complexity, transaction frequency, and age) that could explain why some U.S. accounting standards contain rules-based characteristics. Litigation risk and complexity are most consistently related to cross-sectional and time-series variation in rules-based characteristics. We find more limited evidence that frequent transactions, age, and desires by regulators to constrain opportunistic reporting are related to rules-based standards. We note, however, that our findings are necessarily descriptive because standards arise endogenously from market and political forces, limiting causal interpretation. Further, it is difficult to perfectly separate rules-based characteristics of the standard from both the complexity of the standard and the characteristics of the underlying transaction, including the complexity of the transaction.
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U2 - 10.1111/1475-679X.12112
DO - 10.1111/1475-679X.12112
M3 - Article
AN - SCOPUS:84962135682
VL - 54
SP - 827
EP - 861
JO - Journal of Accounting Research
JF - Journal of Accounting Research
SN - 0021-8456
IS - 3
ER -