GODFREY HODGSON HOLMES TARCA
CHAPTER 13
Behavioural accounting research:
definition and scope
• ‘Positive’ research encompasses
– Capital markets research
• asks how do securities markets react to accounting information
– Agency theory research
• asks what are the economic incentives that determine the choice of accounting methods
Behavioural accounting research:
definition and scope
• Capital markets research looks at the macro
level of aggregate securities markets
• Agency and behavioural research both focus
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,
sociology and organisational theory and
Behavioural accounting research:
definition and scope
Definition
The study of the behaviour of accountants or the behaviour of
non-accountants as they are
influenced by accounting functions and reports.
The study of the behaviour of accountants or the behaviour of
non-accountants as they are
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
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
Why is BAR important?
• It provides useful information to accounting
regulators
• It leads to efficiencies in the work practices of
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
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
The Brunswik lens model
• Used as an analytical framework and the basis
for most judgement studies involving
– prediction (e.g. bankruptcy)
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
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
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, illness or distraction
• An important limitation is that it is not a good
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
Probabilistic judgement
• Useful where initial beliefs about a prediction
or evaluation need to be revised as new data arrives
Lens model studies – the
evidence
• accuracy of humans’ predictions of business
failure
• model of human behaviour
• information overload literature
Process tracing studies – the
evidence
• Brunswik lens models and process tracing
style studies are different technologies with the same objective of modelling decision
Format and presentation of
financial statements
• Libby (1976) – 3 options for improved decision
making
– changing the presentation and amount of
information
– educating decision makers
Format and presentation of
financial statements
• Little research has been undertaken regarding
ideal presentation formats
– e.g. graphs versus tables
– e.g. colour versus black & white
• Mixed results
Probabilistic judgement studies
– the evidence
• Three rules of thumb (heuristics)
– representativeness – availability
– anchoring and adjustment
Probabilistic judgement studies
– the evidence
Representativeness
• When judging the probability that a particular
item comes from a particular population of
items, people’s judgement will be determined by the extent to which the item is
Probabilistic judgement studies
– the evidence
Availability
• The assessment of the probability of an event
Probabilistic judgement studies
– the evidence
Anchoring and adjustment
• An initially given response serves as an
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
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
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
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
Summary
• If we are to have a better understanding about how people
use accounting information, 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
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
