Work

Towards a Positive Theory of the Determination of Accounting Standards.

Year: 1978

Type: article

Abstract: ABSTRACT: This article provides the beginnings of a positive theory of accounting by exploring those factors influencing management's attitudes on accounting standards which are likely to affect corporate lobbying on accounting standards. Certain factors are expected to affect a firm's cashflows and in turn are affected by accounting standards. These factors are taxes, regulation, management compensation plans, bookkeeping costs, and political costs, and they are combined into a model which predicts that large firms which experience reduced earnings due to changed accounting standards favor the change. All other firms oppose the change if the additional bookkeeping costs justify the cost of lobbying. This prediction was tested using the corporate submissions to the FASB's Discussion Memorandum on General Price Level Adjustments. The empirical results are consistent with the theory.

Source: The Accounting Review

DOI: 10.2308/tar-4500569

Authors: Ross L. Watts, Jerold L. Zimmerman

Institutions: University of Rochester, Massachusetts Institute of Technology

Language: English

Topic: Auditing, Earnings Management, Governance

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

Open Access status: green

OpenAlex ID: W40198218

FWCI: 96.5

Cites: 23

Cited by: 2,658

Related to: 20