Discretion in financial reporting: tied hands or freedom of choice? statistical and case study evidence on the adoption of IFRS and UK GAAP

Yu-Lin HSU, Gavin Reid

Research output: Contribution to conferencePaper

Abstract

In this paper we have taken a new approach to decision-making in the firm, using choice theory to explain how decisions are made about financial reporting regimes, and the techniques used to support them. The methodology adopted is the ‘mixed method’, using both quantitative and qualitative methods side by side (Tashakkori and Teddlie eds. 2003). Our evidence is UK based, and examines a random sample of twenty one firms, using Datastream and Bloomberg sampling frames. For these firms, we discover two things. First, if a formal metric for choosing is developed, using net utility or ratio utility, we discover that public firms who must adopt IFRS, as a matter of policy compliance, find that this imposed choice (i.e. tied choice) is perceived to be unbeneficial. This finding is shown to be statistically significant, using a non-parametric test methodology. Second, if choices are tied, in the sense that firms know what they want to do, but find that they are constrained in choice (by a policy prescribed regime, for example), they may adapt their behavior. Using seven selected firms as paradigm cases, we do indeed observe adaptive firm behaviour, with choice then being exercised at a different level. Thus, constrained (i.e. tied) choice at the consolidated accounts level encourages more free choice at the subsidiary level. To illustrate, a firm with a tied choice of IFRS, for consolidated accounts, may feel impelled to adopt UK GAAP for subsidiary accounts.
Original languageEnglish
Publication statusUnpublished - 2014
Event37th Annual Congress of the European Accounting Association - Tallinn, Estonia
Duration: 21 May 201423 May 2014

Conference

Conference37th Annual Congress of the European Accounting Association
CountryEstonia
CityTallinn
Period21/05/1423/05/14

Keywords

  • financial reporting
  • case study

Fingerprint Dive into the research topics of 'Discretion in financial reporting: tied hands or freedom of choice? statistical and case study evidence on the adoption of IFRS and UK GAAP'. Together they form a unique fingerprint.

Cite this