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This study examines the influence of peers in the tax compliance setting using a social learning theory approach to investigate the effect of observing a peer's likelihood of reporting income. We also examine the role that gender plays in these decisions. We ask participants to estimate the likelihood of reporting income and to make a binary compliance decision in a setting where they are able to observe what they believe is another's response to a hypothetical tax reporting scenario. Participants who viewed the decision of a noncompliant peer were less likely to report honestly than those who viewed the decision of a compliant peer. This finding provides further evidence of a potential effect for peer influence. Consistent with prior literature, we find that women are more likely to comply than men, but do not find an interactive effect with peer observation. A supplemental experiment indicated that participants who believed their responses would be seen by a peer were less likely to report honestly than participants who believed their responses would remain private. This result, although counter-intuitive, is consistent with Wenzel's (2005a) description of a self–other discrepancy and conformance to a misperceived social norm.

Governmental auditors must report on compliance with laws and regulations if such noncompliance has a material impact on the financial statements. Little is known about what factors impact a governmental auditor’s reporting decisions. This study examines reporting decisions regarding violations of the Louisiana Local Government Budget Act. Study participants included private practitioners and employees of the Legislative Auditor. Subjects were asked where they would report Budget Act violations under differing degrees of noncompliance. Budget variance and employment sector impacted compliance reporting decisions. At higher levels of budget variance, higher levels of reporting were used. Legislative auditors were found to report at higher levels than private practitioners. They apparently viewed non-compliance as black-and-white; any level of noncompliance was reported in the compliance report. Private practitioners, however, applied a materiality test.

The article aims to analyse the perception of the internal users regarding the usefulness of the municipal financial reporting in the context of decision making in the Portuguese local administration.

This research is quantitative and positive, based on a cross‐section analysis through the online application of a questionnaire to the decision makers (politicians and technicians) of the 308 Portuguese municipalities. The approach is based on the paradigm of information usefulness.

The results indicate a high usefulness for the decision making of the municipal financial reporting, in its current form and content. However, this usefulness would increase if information, other than what is mandatory, were introduced. In general, the two different groups of decision makers, politicians and technicians, behave somewhat differently, regarding the usefulness that the financial reporting holds for them. The technical decision makers consider it of greater value. There is no statistical evidence that shows that there is a link between the training area and professional experience of the internal decision makers and the usefulness of the municipal financial reporting. Both types of users show a preference for the information set within the budgetary accounts, although accrual‐based information also proves to be of excellent value.

The main limitations of this study are related to the way information was collected (questionnaire) to obtain empirical evidence. The questionnaire, sent by email, despite reaching a wide‐ranging and dispersed population, does not assess the truthfulness and integrity of the responses. Furthermore, it does not make it possible to really identify the usefulness of the municipal financial reporting. The use of perceptive measures can also represent a threat to the study's internal validity.

The results of this study have important repercussions on the internal decision makers concerning the usefulness of the municipal financial reporting. Particularly, since the general approach towards the usefulness of the reporting could become a solid work basis for the regulatory bodies to enhance the current reporting model in the light of its suitability within the internal decision making.

Research on this study is original as it provides, as far as the authors are aware, the first empirical evidence of the perceptions of internal users on the usefulness of the municipal financial reporting in Portugal, in regard to decision making.

This study contributes to the participative budgeting and budget misrepresentation literature by exploring: (1) whether managers’ judgments of fair behaviors are malleable and context-dependent and (2) if these judgments of fair behavior impact cost reporting misrepresentations. Two experiments investigate these questions. Experiment 1 (n = 42) tests whether the behavior that managers judge to be “fair” differs based on the decision context (i.e., initial economic position [IEP]). Experiment 2 (n = 130) investigates: (1) how managers’ deployment of fairness beliefs influences their reporting misrepresentations and (2) how decision aids that reduce task complexity impact managers’ deployment of fairness beliefs in their misreporting decisions. The study found that managers deploy fairness beliefs (i.e., honesty or equality) consistent with maximizing their context-relevant income. Hence, fairness beliefs constrain misrepresentations in predictable ways. In addition, we find more accounting information is not always beneficial. The presence of decision aids actually increases misrepresentations when managers are initially advantaged (i.e., start with more resources than others). The implications from these findings are relevant to the honesty and budgeting literature and provide novel findings of how managers’ preferences for fairness constrain managers from maximizing their income. The chapter demonstrates that contextual factors can influence the deployment of managers’ fairness beliefs which, in turn, differentially impact their reporting misrepresentation. Another contribution is that providing decision aids, which reduce task complexity, may not always benefit companies, since such aids may increase misrepresentation under certain conditions.

This paper aims to examine differential perceptions of lenders and investors on (1) the use, perceived usefulness, importance and adequacy of annual reports, (2) the importance of qualitative characteristics (QCs) and (3) the perceived impact of International Financial Reporting Standards (IFRS) on financial reporting quality (FRQ) in Sri Lanka.

A questionnaire survey study of practising professionals consisting of Sri Lankan investors (N = 214) and lenders (N = 235).

In relation to (1), lenders and investors rank three out of ten information sources ahead of the remaining seven: both include annual reports and personal knowledge. However, the highest average response for lenders is direct communication with clients, and for investors, it is stock market publications. Within annual reports, both decision-makers identify financial statements as the most useful part. Concerning (2), they both identified understandability as the most important QC followed by timeliness. Relevance ranked last, surprisingly. In relation to (3), both groups perceived that the new IFRS reporting environment improved the FRQ compared to the previous Sri Lanka Accounting Standards regime.

Ranking understandability as the most important QC in terms of decision usefulness contradicts IASB's categorisation. The authors provide empirical data on the perceived degree of success of adopting IFRS in a developing economy.

The authors design a decision-oriented (lending vs investing) and context-specific (IASB's financial reporting framework) questionnaire to examine the perceptions of key capital providers separately on the issues mentioned above in “Purpose” within a developing economy. The survey fits into two aspects of the decision-useful theory: useful to make what decisions and useful to whom.

The purpose of this paper is to explore the impact on communication of changes in an accounting standard arising from the transition to International Financial Reporting Standards. It investigates inter and intragroup differences in measured connotative meaning of the old and new definitions of “cash”, as held by three key groups of parties to the accounting communication process (preparers, auditors and users); and determines the effect of changes in connotative meaning on decision behaviour (outcomes).

The study adopted a between‐participants 2×3 factorial design whereby the first factor reflected the definition type: old vs new definition of the concept “cash”; while the second reflected three financial reporting groups: preparers, auditors and users. The semantic differential technique developed by Osgood, Suci and Tannenbaum was used to measure connotative meaning.

The study finds that the three financial reporting groups do not share the same meaning of the concept “cash” and that the introduction of the new definition has changed the interpreted connotative meaning for these three groups. A link between measured meaning and the decisions made by the participants was also established.

The explanatory power of the typical three (evaluative, potency and activity) factor structure should be acknowledged; these factors typically explain 50 per cent of the total phenomena known as “meaning”. The study's findings make an important contribution to the earnings management and creative accounting literature.

The findings are particularly relevant to standard‐setters and regulators as a lack of shared meaning may lead to unnecessary misunderstandings and tensions among the many parties to the reporting process.

The study extends prior measurement of meaning studies in accounting through first, the inclusion of all three major groups of parties to the accounting communication process; second, examination of an accounting concept which is defined differently by two accounting standards in the same jurisdiction; and last, investigation of the impact on decision behaviour (outcomes) resulting from changes in meaning brought about through the introduction of a new standard across the three groups.

There has been much discussion regarding the necessity of moving away from precise (rules-based) standards toward less precise (principles-based) standards. This study examines the impact of the proposed shift by using a controlled experiment to evaluate the influence of rule precision and information ambiguity on reporting decisions in the presence of monetary incentives to report aggressively. Using motivated reasoning theory as a framework, we predict that the malleability inherent in both rule precision and information ambiguity amplify biased reasoning in a manner that is consistent with individuals’ pecuniary incentives. In contrast, consistent with research exploring ambiguity aversion we predict that high levels of ambiguity will actually attenuate aggressive reporting. Our results support these predictions. Specifically, we find an interactive effect between rule precision and information ambiguity on self-interested reporting decisions at moderate levels of ambiguity. However, consistent with ambiguity aversion, we find decreased self-interested reporting decisions at high levels of ambiguity relative to moderate ambiguity. This study should be of interest to preparers, auditors, and regulators who are interested in identifying situations which amplify and diminish aggressive reporting.

The dangers of management bias and the resulting increased need for auditors to be cognizant of environmental characteristics may be particularly acute in the area of accounting estimates. Accounting estimates pose relatively unique auditing problems because it is an area where management has significant discretion (to set estimates) and there is limited ability to apply traditional accounting controls. Thus auditors have difficulty obtaining conclusive evidence to challenge management′s estimates. Research examining auditors′ accounting estimate judgments, however, has been scant, especially with regard to the relationship of auditors′ assessment of materiality and risks of fraudulent financial reporting. Reports the results of an empirical study examining the reporting decisions of audit seniors and audit managers related to a client′s decision to change four accounting estimates relative to the prior year. The auditor′s task was to review the changes and to indicate whether audit adjustments proposed by the audit staff were necessary to preserve an unqualified opinion. Three environmental red flags related to management lifestyle, bonus compensation programme and internal audit department strength were manipulated between subjects. The results indicated that the direct effect of the red flags on reporting decisions was limited. The findings provided greater support for an indirect model. In the indirect model, red flags affected auditors′ assessments of management intent, which, in turn, influenced auditors′ reporting decisions in combination with assessed materiality and level of auditor experience.

Corporate social responsibility (CSR) reporting is a widely accepted procedure for firms to disclose their performance in multiple domains, including environmental protection, labour welfare, protection of human rights, community services, contribution to society and pursuit of product safety. This study aims to investigate whether and how board interlocks affect firms’ decisions with respect to CSR reporting. This study argues that board interlocks act as an important source of social pressure and firms are influenced by their peer firms to adopt CSR reporting.

This paper sampled listed companies on China’s Shanghai and Shenzhen Stock Exchanges from 2009 to 2015. The data were collected from Runling database and China Stock Market and Accounting Research database. A multi-period logit model was used to conduct the main regression analysis and the propensity score matching method was used in the robustness checks.

A study based on a sample of Chinese publicly listed firms from 2009 to 2015 confirms the argument and shows that sharing a common director on the board with a previous CSR reporter facilitates the firm’s engagement in CSR reporting. Furthermore, this study shows that the influence of board interlocks on CSR reporting depends on the following three characteristics: status of the interlocking director, size of the linked CSR reporter and performance implications of previous CSR activities.

The interpretation of the current findings should be considered in light of these limitations. First, while board interlocks are an important social aspect of institutional pressure, other types of social pressure exist. Second, the focus is on CSR reporting decisions. However, CSR reporting can also be symbolic, with little substantive quality to improve CSR-related activities. Third, this study argues that both regulatory and social pressures influence the decision to report on CSR. However, this study was unable to determine the weight of each pressure. Future research should follow this direction. Finally, the influence of certain behaviours through interlocks is stronger in the initial stage of the institutionalisation process.

The findings of this study have important implications for practitioners. First, the messaging role of interlocking directors suggests that director selection should consider the effectiveness of information transfer. Knowing and analysing specific interlock and its links with the firm’s strategy is very important. Meanwhile, firms should be vigilant that the balance between the access to information and loss of autonomy because searching for information related to firms’ strategic decisions might challenge current strategy. Second, the results of the study suggest that to effectively urge companies to engage in CSR reporting, government and policy makers should consider beyond institutional pressure, but also be sensitive to the social pressure exerted upon the companies.

The positive role of board interlocks on corporate voluntary CSR reporting can not only make valuable contributions to the Chinese society but also, as an important participant of global economy and trade, the Chinese interlocking directors’ contribution to CSR reporting have global benefits.

This study extends the institutional perspective on CSR reporting by uncovering the effect of social pressure. It advances the literature on the antecedents of CSR reporting by linking board interlocks to CSR reporting. Finally, the study enriches the broader interlock literature by delineating three specific characteristics of interlocks that influence CSR reporting.

Attribution bias can be costly to firms because it hinders decision makers’ ability to infer the real cause of prior events and take corrective action to improve future performance. This study extends prior research by examining whether and how the presence of variance reporting from accounting systems affects firm profitability through a labor cost management decision that is highly susceptible to attribution bias. Our results support the prediction that the presence of variance reporting (process feedback) increases the likelihood of belief revision and corrective action related to the systematic error, and thus increases overall profitability for the firm. The findings of our study propose a solution to attribution and learning problems observed when decision makers are responsible for both cost management and bids as documented in prior literature.