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    Rethinking Decision Usefulness.
    research summary posted September 15, 2015 by Jennifer M Mueller-Phillips, tagged 01.0 Standard Setting, 01.02 Changes in Audit Standards, 15.0 International Matters 
    Rethinking Decision Usefulness.
    Practical Implications:

    This study provides critical insights of how standard setters develop new standards and that this process lacks potent theories. In rethinking decision usefulness to make it a useful concept and not an empty slogan for regulating financial reporting, the authors believe a return to the older notion of accountability is worth considering. Providing economic “facts” pertaining to the relationships between corporations and the citizenry that must make decisions about them, rather than “decision useful” information, may be a more useful way to think about the mission for a public regulatory body.


    Williams, P.F., and S.P. Ravenscroft, 2015. Rethinking Decision Usefulness. Contemporary Accounting Research 32 (2): 763-788.

    financial auditing standards, development & legitimacy, usefulness of information
    Purpose of the Study:

    Financial reporting policy-making is centered amongst decision usefulness. Policy makers mandate reporting based on which technique they believe will produce the most useful information for economic decision making by certain designated users. Both the IASB and FASB enunciate the position in statement of financial accounting concepts in similar vein “…provide useful information to investors, creditors and other stakeholders in making decisions...”. At its core regulatory standards are intended to control conditions linked to the purpose of the legislation that the regulatory agency is established to execute. That is if A signifies a certain act and X signifies the risk, than the agency takes X to count in favor of doing A. Any agency to whom it transfers authority, such as the IASB, face an equal situation. They must determine whether X provides evidence in favor of doing A where A is to act to set a standard that enforce firms to prime their financial reporting in particular ways and proscribes others. The standard setters must “translate” decision useful information into standards. Unfortunately in accounting criterion guidance lacks specificity and verifiability. Currently, in their foundational concept statements both the FASB and IASB identify “decision usefulness” as just an X. Accounting setters reflect a normative judgment about protecting stakeholders and insuring fair dealing in securities as desirable ends of financial reporting. But to be a justifiable criterion, accounting standard setters’ X also must contain a factual element. Accounting standard setters should be able to establish objectively that property of accounting information which procure a legitimate matter for releasing a standard.

    This study investigates whether decision usefulness currently articulates a sufficient coherent basis for accounting as social, regulatory practice.

    Design/Method/ Approach:

    This article is a commentary. The authors adopt a number of references to enhance the debate around decision usefulness. These references can be classified into: [1] articles that provide insights in the (juridical) position of audit standard setter, [2] articles that relate to individual differences of users [micro realm], [3] articles that can be classified in holistic (economic) theories [macro realm] and lastly [4] theoretical support for different metaphor(s) in accounting standard setting.   

    • The authors conviction is that currently the decision usefulness serves more as a legitimating myth rather than providing a coherent rationale for making public policy.
    • The authors provide useful insights in the “gap” of explicitly stated “decision usefulness”. Several leading academics promote the notion that decision usefulness implied a move from normative basis of accounting to a descriptive or positive grounding that was amenable to empirical validation. Practitioners are not entirely convinced about these arguments.
    • The authors stated that when considering the substantial research about human decision making and the complexity and unpredictability of open systems such as global economy, they demonstrate the remoteness of the possibility of ever identifying any X that definitively counts in favor of A versus any other potential A.
    • Accountability is more descriptive of what accountants actually do 1 and the manner by which accounting rules are actually promulgated. Rather than classify accountability under decision usefulness the converse might appear to be more intellectually defensible.
    International Matters, Standard Setting
    Changes in Audit Standards