GODFREY

HODGSON
HOLMES
TARCA

CHAPTER 13
BEHAVIOURAL RESEARCH IN
ACCOUNTING

Behavioural accounting
research: definition and
Positive research encompasses
scope
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

asks how do people actually use and
process accounting information
2

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 firms

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 generally
makes no assumptions about how
people behave
4

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

Behavioural accounting
research: definition and
The major type of BAR is
scope
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
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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
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Why is BAR important?

It provides useful information to
accounting regulators
It leads to efficiencies in the work
practices of accountants and other
professionals

Development of
behavioural accounting
HJT research began in 1954
research

The term BAR appeared in 1967

Last 30 years has seen an explosion in
BAR
especially auditing
importance of judgement
the Brunswik lens model

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 Bayess
theorem

10

The Brunswik lens model

Used as an analytical framework and
the basis for most judgement studies
involving
prediction (e.g. bankruptcy)
evaluation (e.g. internal control)

11

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
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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

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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 descriptor of how people
actually make decisions
so process tracing methods developed
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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
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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
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Format and presentation

of financial statements

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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
No well developed and tested theory

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Probabilistic judgement
studies the evidence
Three rules of thumb (heuristics)
representativeness
availability
anchoring and adjustment

Expert judgement and rules of thumb

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Probabilistic judgement
studies the evidence
Representativeness
When judging the probability that a
particular item comes from a
particular population of items,
peoples judgement will be
determined by the extent to which
the item is representative of the
population
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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

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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
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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
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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
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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

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 model, process tracing methods
and the probabilistic judgement model
There are significant limitations in BAR
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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

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