Articlegreen2008

On the Optimal Relation between the Properties of Managerial and Financial Reporting Systems

175 citations0/0 files storedJournal of Accounting Research

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Accounting and Organizational Management Auditing, Earnings Management, Governance Accounting Theory and Financial Reporting

Abstract

ABSTRACT We develop a theoretical model of the firm that links properties (stewardship vs. valuation focus) of financial reporting regimes with the informational properties of optimal managerial accounting systems. We show that, contrary to the standard textbook proposition, properties of management and financial accounting systems are not independent. Significantly, we provide an explicit connection between exogenous and observable properties of a firm's financial reporting system and the quality of the managerial accounting system on which manager(s) base real economic decisions. As the quality of those economic decisions can also be inferred from publicly available data, our theory generates new opportunities for empirical managerial accounting research on large nonproprietary samples. Further, by being able to identify enhanced performance due to improved managerial accounting information, our theory provides opportunities to gain a better understanding of the link between particular managerial accounting practices and the quality of the information produced.

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References

2005Performance matched discretionary accrual measures 1997The conservatism principle and the asymmetric timeliness of earnings1 1987Relevance Lost: The Rise and Fall of Management Accounting 1999The Boundaries of Financial Reporting and How to Extend Them 1999Have Financial Statements Lost Their Relevance?1997Changes in the value-relevance of earnings and book values over the past forty years 2001The relevance of the value-relevance literature for financial accounting standard setting 2000The changing time-series properties of earnings, cash flows and accruals: Has financial reporting become more conservative?

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