Prepared by Arabella Volkov University of Southern Queensland

1. Prepared by Arabella Volkov University of Southern Queensland

2. References • Text – Chapter 11 Behavioural researchin accounting

3. Learning Objectives At the conclusion of this lecture, you should have an appreciation of: • the behavioural perspective and the nature of behavioural accounting research • the contribution to our understanding of the role of accounting information provided by studying behaviour • the influence of accounting information on behaviour and on decision processes

4. Learning Objectives At the conclusion of this lecture, you should have an appreciation of: • the fact that organisations are complex environments and accounting disclosures are trade-offs between competing perspectives and interests • the inherent constraints on behavioural research

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

6. BAR: definition & scope • Major type of BAR • Human judgement theory (HJT) • Human information processing (HIP) • Explaining and predicting behaviour

7. BAR: definition & scope Why is BAR important? • How people use and process accounting information • Valuable insights into different types of decision makers produce, process and react to particular items of accounting information and communication methods

8. Behavioural accounting research (BAR) Why is BAR important? • Potentially provide useful information to accounting regulators • AASB • Researchers • Report to standard setters • Methods • Disclosure • Lead to efficiencies in work practices of accountants and other professionals

9. Behavioural accounting research (BAR) Development of behavioural accounting • 1967 BAR • 1954 HJT research • 30 years • Especially auditing • Importance of judgement • Growth of BAR • Technique ‘Brunswik lens model’ represented in psychology literature

10. Approaches to understanding information processing • The Brunswik lens model • Process tracing methods • Probabilistic judgement

11. Approaches to understanding information processing The Brunswik lens model • Analytical framework and the basis for most judgement studies involving: • Prediction (bankruptcy) • Evaluation (internal control)

12. An overview of approaches to understanding information processing The Brunswik lens model • 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

13. An overview of approaches to understanding information processing The Brunswik lens model • Valuable insights regarding (cont’d): • The circumstances under which an expert system and/or ‘model of human behaviour’ outperforms humans • The stability (consistency) of human judgement over time

14. An overview of approaches to understanding information processing The Brunswik lens model • Valuable insights regarding (cont’d): • 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

15. An overview of approaches to understanding information processing

16. An overview of approaches to understanding information processing Brunswik lens model • Very good predictive powers • Not good descriptor of how people make decisions Process tracing methods • Explanation about how a decision is made • HIJ modelling ‘process tracing’ or ‘verbal protocol’ • ‘decision tree’

17. An overview of approaches to understanding information processing • Probabilistic judgement • Initial beliefs need revision • Use of ‘rules of thumb’ by accountants and auditors • Representativeness • Availability • anchoring and adjustment • Expert judgment and rules of thumb

18. 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.

19. Format and presentation of financial statements • Libby (1976) – options for improved decision making • changing presentation and amount of information • educating decision makers • replacing decision makers with a model of themselves or with an ideal cue-weighting model

20. Format and presentation of financial statements • Little research has been undertaken regarding ideal presentation formats • e.g. • Graphs versus tables • Colour versus black & white • Mixed results • No well developed and tested theory

21. Approaches -issues • Research mostly undertaken in an experimental setting • Generality to real world? • Weaknesses • Non-accounting influences –removed • Too far removed from real world • Strengths • Simulate conditions which do not currently exist-what if • Isolation of specific variables affecting a subject’s decision • Making setting more real world – uncover r/ships between variables (not readily observable in the real world)

22. Accounting and behaviour • techniques adopted and subsequent interpretation of reported information are matters of perspective • accounting is a function of human behaviour and activity

23. Limitations of BAR • Much more to learn in this area • Complexity of human information processing • Maines • Lack of a single underlying theory • Multitude of disciplines and contexts • No common framework

24. Summary • Human judgement theory can be used to explain, predict and improve decision making • Research in this area has relied heavilyon the Brunswik lens model and the Probabilistic judgement model • Must consider the complex environment

25. Key terms and concepts • Behavioural accounting research (BAR) • HJT • HIP • Brunswik lens model • Probabilistic judgement

26. Where to get more information • Other courses • List books, articles, electronic sources

28. Format and presentation of financial statements

29. Probabilistic judgement studies –the evidence • Representativeness • Availability • anchoring and adjustment • Expert judgement and rules of thumb