《会计学外文文献及翻译问责资产减值的决定.doc》由会员分享，可在线阅读，更多相关《会计学外文文献及翻译问责资产减值的决定.doc（20页珍藏版）》请在三一办公上搜索。
1、THE EFFECTS OF PRIOR INVOLVEMENT ANDACCOUNTABILITY ON ASSET IMPAIRMENT DECISIONSRandall W. RentfroNova Southeastern Universityrentfrohuizenga.nova.eduABSTRACT This study examines whether long-lived asset impairment decisions are biased when the decision maker was also involved in the original decisi
2、on to invest in the asset. In addition, the study tests whether accountability for impairment decisions attenuates bias in the judgments made by individuals who were involved in the investment decision. The theoretical bases for the studys research question and hypothesis come from the accountabilit
3、y and escalation of commitment literatures as well as a psychological theory previously untested in the accounting domain, the Catastrophe Theory of Attitudes (CTA). The studys findings suggest that CTA may have potential to explain certain behaviors of accountants. Furthermore, accountability appea
4、rs to mitigate bias stemming from prior involvement in the investment decision.INTRODUCTION This study examines (1) whether long-lived asset impairment decisions are affected by decision-makers involvement in the decision to invest in the asset and (2) whether accountability for the asset impairment
5、 decision mitigates biases in the decision-makers judgment resulting from that prior involvement. The motivation for the study stems from the decision-making process required by Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets
6、(Financial Accounting Standards Board, 2001). The decision-making process begins with the accountant scanning the environment for indicators of asset impairments. If the accountant determines that an indicator is present, the accountant performs a recoverability test, which involves forecasting futu
7、re net cash flows from the asset, to determine if the asset is impaired. If the test shows that the asset is impaired, the accountant writes down the asset to its fair value. Throughout this process, the accountant must exercise significant professional judgment. As a result, the accountants asset i
8、mpairment decisions may be affected by the accountants biases. This study looks at one source of bias suggested in the escalation of commitment literature: involvement in the original decision to invest in the asset. The escalation of commitment literature demonstrates that when an accountant is res
9、ponsible for an investment decision, subsequent judgments made by the accountant concerning the asset may be affected. For example, the accountant will increase his or her commitment to a failing investment when given the chance (see, for example, Schulz and Cheng, 2002). Similarly, an accountants a
10、sset impairment judgments may be affected when he or she is involved in the investment decision. The accountability literature suggests that, under certain conditions, accountability may attenuate bias(Lerner and Tetlock, 1999). If an asset impairment decision has a material impact on the financial
11、statements, an accountants decision that an asset is (is not) impaired likely will be questioned by an external auditor. The accountant must justify the decision, which is one form of accountability pressure (DeZoort, Harrison, & Taylor, 2006). This study considers whether justifying asset impairmen
12、t decisions mitigates biases resulting from involvement in the investment decision. This study uses an experiment to examine the effects of involvement and accountability on long-lived asset impairment decisions. Participants in the experiment were asked to make a series of asset impairment decision
13、s relating to an investment in an entertainment complex. The experiment uses a case setting to provide participants with information about the complex over a five-year period. The participants assessed the probability that the assets of the entertainment complex were impaired at the end of each year
14、 in the five-year period. The results of the study suggest that accountability attenuated biases resulting from prior involvement in the investment decision. In addition, the decisions made by participants in the involvement condition follow a pattern that is consistent with a psychological model of
15、 attitude formation and change: the Catastrophe Theory of Attitudes (Latane & Nowak, 1994). As a result, the study helps to link the escalation of commitment literature with a psychological theory which, up to now, has not been applied in an accounting domain. The remainder of the paper is organized
16、 as follows. The next section provides a brief summary of SFAS No. 144. The third section provides a review of the relevant literature and develops the research question and the hypothesis examined in this study. The fourth section explains the experiment and is followed by a section presenting the
17、results of the statistical analyses. The final section provides discussion and conclusions.Recognition and measurement process for potential asset impairments SFAS Statement of Financial Accounting Standards No. 144 requires a three-step recognition and measurement process for potential asset impair
18、ments. In the first step, accountants review an entitys operations and scan the environment to determine if any indicators of potential asset impairments exist. SFAS No. 144 provides examples of impairment indicators (see Table 1); however, the Financial Accounting Standards Board (FASB) did not int
19、end for the list of impairment indicators to be exhaustive.TABLE 1Example Asset Impairment IndicatorsStatement of Financial Accounting Standards No. 144 (FASB, 2001)aA significant decrease in the market price of a long-lived asset (asset group)bA significant adverse change in the extent or manner in
20、 which a long-lived asset (asset group) is being used or in its physical conditioncA significant adverse change in legal factors or in the business climate that could affect thevalue of a long-lived asset (asset group), including an adverse action or assessment by a regulatordAn accumulation of cost
21、s significantly in excess of the amount originally expected for theacquisition or construction of a long-lived asset (asset group)eA current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses ass
22、ociated with the use of a long-lived asset (asset group)FA current expectation that, more likely than not, a long-lived asset (asset group) will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. Identifying the presence of impairment indicators is
23、 critical to the recognition of asset impairments.Unless the accountant determines that an indicator is present, no further action will be taken. To complicate matters, some impairment indicators may be unfamiliar to the accountant because they are non-financial in nature and may come from sources e
24、xternal to the accounting organization. As a result, this step relies heavily on the judgment of the accountant, which may be biased. This study focuses on this step in the decision-making process. The remaining two steps of the asset impairment process are as follows. If the accountant determines t
25、hat one or more impairment indicators are present, the accountant then conducts a recoverability test. This test involves forecasting the future net cash flows expected to be generated by the asset and comparing the sum of the undiscounted future cash flows with the carrying amount of the asset. If
26、the undiscounted future cash flows will not recover the carrying amount of the asset, the asset is considered to be impaired.The final step in the process is to measure the amount of the impairment loss and reduce the carrying amount of the asset to its fair value. Like the first step in the process
27、, each of these steps relies heavily on the potentially biased judgment of the accountant.LITERATURE REVIEW AND DEVELOPMENT OF RESEARCH QUESTION AND HYPOTHESIS The idea that prior involvement in an investment decision could affect subsequent judgments made by a decision maker was explored by Brown a
28、nd Solomon (1987). In a study examining the effects of outcome information on evaluations of managerial decisions (specifically, a decision made by a capital budgeting committee), Brown and Solomon found that evaluations made by subjects who had prior involvement in the committees decision process d
29、id not reflect the outcome information. For subjects who were not involved in the committees decision, outcome information affected the evaluation of the decision. Jeffrey (1992) examined the effect on auditors loan evaluation judgments of personal involvement in sequential audits. The study provide
30、d evidence that involvement in a previous evaluation of a loan affects subsequent evaluations of the same loan when those evaluations are made by inexperienced auditors.Using the escalation of commitment literature as a theoretical basis, Jeffrey observed that previous involvement in the loan evalua
31、tion process may induce a tendency to make subsequent decisions conform to a prior evaluation (p. 805). In a recent study of personal responsibility and escalation of commitment, Schulz and Cheng (2002) find a significant positive relationship between high personal involvement and escalation of comm
32、itment to a project, even in the face of negative project information. In this capital budgeting context, Schulz and Cheng also find that reducing information asymmetry does not work as a de-escalation strategy. Staw (1976) presented evidence of the escalation of commitment phenomenon in an investme
33、nt decision context. In the study, subjects who were responsible for a prior investment decision that had produced negative consequences increased their level of commitment to that failing course of action when given the opportunity. However, this escalating commitment to a previously chosen course
34、of action did not occur for actions that had produced positive consequences. Staw concluded that subjects were not merely trying to remain consistent in their choices of action. Using research on self-justification as a basis, Staw argued that individuals take concrete actions to reduce negative con
35、sequences for which they are responsible in the hope of restoring an appearance of rationality to the previous choice of action. While the escalation of commitment phenomenon has been documented in many studies (see Staw & Ross 1987 for a review), Brockner (1992) notes that there is much theoretical
36、 controversy over the explanation of escalation. Brockner argues that self-justification theory provides an important, but only partial explanation of the escalation behavior. He notes that to explain escalation more completely, other theoretical perspectives (e.g., expectancy theory and prospect th
37、eory) must be considered. One theory which may offer insight into behaviors such as escalation of commitment is catastrophe theory. Catastrophe theory helps explain why smooth or continuous changes in inputs to a system canresult in discontinuous responses by the system (Zeeman, 1977). For example,
38、economic indicators may change in a smooth, somewhat linear manner over time, but stock market indices may exhibit sudden jumps or discontinuities in response to economic news. Catastrophe theory provides a basis for studying such occurrences because it helps model psychological and other phenomena
39、where changes in system responses (e.g., behavior) are not linear In nature. Flay (1978) proposed a series applications of catastrophe theory to attitudes and social behavior. Flay based many of the applications on one particular model of catastrophe, the cusp catastrophe. As explained by Flay, the
40、model is a three-dimensional representation of how the behavior of a system can change. The top surface of the model (labeled the “Behavior or Response Surface”) represents the systems response to changes in inputs known as normal factors. The back edge of the response surface is smooth and illustra
41、tes a continuous, linear change in behavior in response to changes in the normal factor.For example, as the normal factor changes (represented by movements to the left or right in the model),the behavior of the system changes in linear fashion (represented by movements up or down along the vertical
42、axis). In contrast, the front edge of the surface has a fold or inaccessible region, which illustrates a discontinuous, abrupt change in behavior in response to smooth changes in the normal factor. The factor which determines where on the response surface the system will operate is known as the spli
43、tting factor. Changes in the level of the splitting factor are represented by movements from the back of the model to the front and vice versa. Thus, as the level of the splitting factor increases (represented by movement toward the front of the model), the systems responses will become more abrupt
44、and discontinuous. By incorporating normal factors and splitting factors, the cusp catastrophe model can be used to explain changes in attitudes and behavior that are primarily linear in nature as well as changes that exhibit varying degrees of hystersis (i.e., stickiness). For example, a normal con
45、trol variable for an investment behavior might be the favorability of information about the project or investment. As the information about the project becomes more unfavorable (e.g., negative consequences are being incurred), one would expect the commitment of resources to the project (i.e., the be
46、havior) to decrease linearly in response to the greater unfavorability of the information. In this happens, changes in behavior are dependent on the magnitude of the normal factor, and those changes occur in a continuous fashion. However, observed behaviors do not always conform to this expectation.
47、 According to the cusp catastrophe model, the reason why such changes in behavior are not always observed is that splitting factors can cause a bifurcation (or discontinuity) in behavior. An example of a splitting factor for an investment decision might be the degree of responsibility felt by the in
48、dividual for any negative consequences resulting from past investment decisions (as in the escalation of commitment phenomenon). As the magnitude of the splitting factor increases (e.g., as the degree of personal responsibility increases), hystersis in the behavior results. This hystersis causes the
49、 individual to remain committed to the previously chosen course of action. Only when unfavorable information is consistently received and, therefore, becomes overwhelming, will the individual change his or her commitment to that action. Furthermore, when change does occur, the change may be catastrophic with a shift to a contrasting position. In terms of the model, the change occu
