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The kinds of decisions people make or how they react to certain situations could differ according to the society, atmosphere or environment those people come from. Studies about the influence of human behaviors on economics, business and actions were initiated by analyzing human behaviors and those studies carry on into behavioral finance and behavioral accounting.

In previous years, the models used were based on the assumption that people behave rationally while making decisions. These models lost validity recently and behavioral accounting started to search for the influences affecting human behaviors. They started considering not only the people who prepare accounting data but also the people who take advantage of this data. People’s environment, cultural differences, psychological and sociological factors have entered into the accounting’s field of interest as factors that have an influence on behavior.

The aim of this study is to try to analyze the theoretical bases and extent of behavioral accounting, which focuses on the human behavior factors being observed while creating or using financial reports. The authors also aim to contribute to the literature by including the neuroaccounting dimension into the analysis.

Decision-making rationality is said to be bounded by managers’ cognitive capabilities. Recent studies indicate that accounting functions evolved to augment the cognitively bounded human brain in handling complex economic exchanges. The neuroscience discipline suggests that human brains have the ability to implement “automatic” processes of positive versus negative emotional stimuli to make rational decisions. Neuroscientific evidence shows that the activations in the ventral striatum decrease with negative emotional information/motives and increase with positive emotional information/motives. The authors, hence, argue that our understanding of the decision-making rationality in financial and managerial decisions could be enhanced by using a functional neuroimaging approach.

Decision-making rationality has been focal in debt covenant violation and earnings management research. The contracting theory predicts a relationship between managers’ decisions and the proximity of violating debt covenants. However, no prior research has investigated brain activities associated with the evaluation of debt covenant violation and earnings management. Meanwhile, in another strand of research, there is an extensive prior literature concerning the consequences of managers’ decisions and the use of accounting information in relation to their evaluative style, i.e., supervisory style. The authors argue that the relationship between the proximity to debt covenants violation and earnings management incentives is contingent upon managers’ supervisory style. However, no previous research has examined the impact of the supervisory style on earnings management in the context of the proximity to debt covenants violation and other earnings management incentives.

In this research note, we argue that neuroaccounting could be relied on to examine the relationship between the proximity to debt covenants and earnings management, contingent upon managers’ supervisory style, by capturing brain activities. The adoption of the neuroscience functional neuroimaging approach in this field should contribute to the understanding of managers’ behaviors and provide implications for research and practitioners. The goal of this research note is to provide a new avenue for future research in this field.