A Two-Stage Model of Decision-Making over Financial Reporting Regimes and Techniques: Analysis and UK Case Studies

Yu-Lin Hsu and Gavin Reid

Working Papers from Centre for Business Research, University of Cambridge

Abstract: This paper develops a new two-stage decision model to explain the choices of financial reporting regimes (e.g. IFRS or UK GAAP) and techniques (e.g. valuing intangibles, by cost, income or market methods) for UK companies. The theoretical framework is based on the choice theory of orderings (Lex and CoLex) and is expressed in decision trees which capture firms’ actions, based on calibrated benefits and costs. The decision-making processes are examined through three UK empirical case studies (one private and two public firms), that expound their decision trees, and explain their decisions. We probe the rationale of their decisions using field-work investigation methods, through which we develop a ‘stated preference’ metric of choice, which allows us to interpret how decisions are made, and how they differ: over time (notably when regime changes are being implemented e.g. the emergence of New UK GAAP post-2015); and across firms (where factors like ease of execution and the quality and quantity of information needed for decisions, are shown to play a large part).

Keywords: IFRS; case studies; decision making; preferences; accounting (search for similar items in EconPapers)
JEL-codes: D21 D22 G38 M21 M41 (search for similar items in EconPapers)
Date: 2021-04
New Economics Papers: this item is included in nep-acc
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