Behavioural accounting research:
definition and scope
• ‘Positive’ research encompasses
– Capital markets research
• asks how do securities markets react to accounting
– Agency theory research
• asks what are the economic incentives that determine
the choice of accounting methods
– Behavioural accounting research
• asks how do people actually use and process accounting


Behavioural accounting research:
definition and scope
• Capital markets research looks at the macro
level of aggregate securities markets
• Agency and behavioural research both focus
on the micro level of individual managers and


sociology and organisational theory and generally makes no assumptions about how people behave 4 . Behavioural accounting research: definition and scope • Capital markets and agency research are both based on economics and assume everyone is a rational wealth maximiser • Behavioural research is based on psychology.

Hofstedt Hofstedt&&Kinard Kinard 5 . reports. Behavioural accounting research: definition and scope Definition The The study study of of the the behaviour behaviour ofof accountants accountants or or the the behaviour behaviour ofof non-accountants non-accountants as as they they are are influenced influenced by by accounting accounting functions functions and and reports.

Behavioural accounting research: definition and scope • The major type of BAR is – Human judgement theory (HJT) or – Human information processing (HIP) • Looks at the judgement and decision making of accountants and auditors and the influence their output has on users’ judgements and decision making – aim is to explain and predict behaviour and improve decision making 6 .

Why is BAR important? • It discovers how people use and process accounting information • It provides valuable insights into the ways different types of decision makers produce. process and react to particular items of accounting information and communication methods 7 .

Why is BAR important? • It provides useful information to accounting regulators • It leads to efficiencies in the work practices of accountants and other professionals 8 .

Development of behavioural accounting research • HJT research began in 1954 • The term BAR appeared in 1967 • Last 30 years has seen an explosion in BAR – especially auditing – importance of judgement – the ‘Brunswik lens model’ 9 .

An overview of approaches to understanding information processing • Three major research approaches – Brunswik lens model • the dominant approach – process tracing • build representative decision trees – probabilistic judgement • probability statements based on Bayes’s theorem 10 .

bankruptcy) – evaluation (e.g.The Brunswik lens model • Used as an analytical framework and the basis for most judgement studies involving – prediction (e. internal control) 11 .g.

The Brunswik lens model • Has provided valuable insights regarding – patterns of cue use evident in various tasks – weights that decision makers implicitly place on a variety of information cues – the relative accuracy of decision makers of different expertise levels in predicting and evaluating a variety of tasks – the circumstances under which an expert system and/or ‘model of human behaviour’ outperforms humans 12 .

The Brunswik lens model • Valuable insights (continued) – the stability (consistency) of human judgment over time – the degree of insight decision makers possess regarding their pattern of use of data – the degree of consensus displayed in a variety of group decision tasks 13 .

illness or distraction • An important limitation is that it is not a good descriptor of how people actually make decisions – so process tracing methods developed 14 .The Brunswik lens model • The model usually has good predictive powers – it removes much of the random error due to human things such as tiredness.

Process tracing methods • Provides an explanation about how a decision is made – ‘process tracing’ or ‘verbal protocol’ – produces a ‘decision tree’ to represent the decision process – ‘classification and regression trees’ (CART) 15 .

Probabilistic judgement • Useful where initial beliefs about a prediction or evaluation need to be revised as new data arrives Posterior odds = Likelihood ratio x Prior odds • Found use of rules of thumb to simplify complex judgment tasks 16 .

Lens model studies – the evidence • accuracy of humans’ predictions of business failure • model of human behaviour • information overload literature • judgement confidence literature 17 .

Process tracing studies – the evidence • Brunswik lens models and process tracing style studies are different technologies with the same objective of modelling decision processes as completely as possible 18 .

Format and presentation of financial statements • Libby (1976) – 3 options for improved decision making – changing the presentation and amount of information – educating decision makers – replacing decision makers with a model of themselves or with an ideal cue-weighting model 19 .

Format and presentation of financial statements 20 .

Format and presentation of financial statements • Little research has been undertaken regarding ideal presentation formats – e. colour versus black & white • Mixed results • No well developed and tested theory 21 . graphs versus tables – e.g.g.

Probabilistic judgement studies – the evidence • Three rules of thumb (heuristics) – representativeness – availability – anchoring and adjustment • Expert judgement and rules of thumb 22 .

people’s judgement will be determined by the extent to which the item is representative of the population 23 .Probabilistic judgement studies – the evidence Representativeness • When judging the probability that a particular item comes from a particular population of items.

Probabilistic judgement studies – the evidence Availability • The assessment of the probability of an event is based on the ease with which instances of that event come to mind 24 .

Probabilistic judgement studies – the evidence Anchoring and adjustment • An initially given response serves as an anchor. and other information is used to adjust that response 25 .

Accounting and behaviour • The techniques adopted and the subsequent interpretation of reported information are matters of perspective • Accounting is a direct function of human behaviour and activity • Two-way influence 26 .

Limitations of BAR • Frequent contradictions between the findings of similar studies • Human information processing is far more complex than the development of current research theories and methods • Research settings fail to adequately replicate real- world settings • Should policy be influenced by research on individual decision makers 27 .

Limitations of BAR • The major limitation is the lack of a single underlying theory to unify diverse research questions and findings – has borrowed from a multitude of disciplines and contexts and so no common framework • A single theory is unlikely in the foreseeable future 28 .

Issues for auditors • The process of auditing is often treated as a ‘black box’ – what are the characteristics of better auditors – what are the factors that affect auditors’ judgement – research challenges in balancing realism and simplicity in research design 29 .

process tracing methods and the probabilistic judgement model • There are significant limitations in BAR 30 . then we need to study peoples’ actual behaviours and decision processes • BAR can be used to explain and predict behaviour and improve decision making • Research in this area has relied heavily on the Brunswik lens model.Summary • If we are to have a better understanding about how people use accounting information.

Key terms and concepts • Behavioural accounting research (BAR) • Human judgement theory (HJT) • Human information processing (HIP) • Brunswik lens model • Process tracing methods • Classification and regression trees (CART) • Probabilistic judgement • Rules of thumb (heuristics) • Representativeness • Availability • Anchoring and adjustment 31 .

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