Document Type

Article

Publication Date

12-2017

Publication Source

Journal of Accounting Literature

Abstract

Voluntary changes in accounting principle represent explicit and fundamental decisions by managers to exercise accounting discretion. This paper develops an organizing framework to review prior literature on voluntary changes, provides descriptive insights on contemporary changes, and identifies opportunities for future research on voluntary changes. The voluntary change literature is robust and has examined many questions using data prior to the Sarbanes-Oxley Act of 2002 (SOX). We find that contemporary voluntary changes often vary across the pre-SOX, post-SOX, and post-SFAS No. 154 periods by the materiality of their income effect, issue type, and justifications provided by managers, suggesting that manager use of voluntary changes has evolved over time. Our future research opportunities consider potential determinants of voluntary changes including strategic incentives, environmental conditions, and manager characteristics, as well as the potential direct or moderating role of corporate governance and auditors on manager use of voluntary changes. They also consider user reactions to voluntary changes. By providing insight into both extant voluntary change research and the contemporary use of voluntary changes, our study informs standards setters who grant managers the ability to exercise this form of accounting discretion, as well as researchers who plan to study accounting choice through voluntary changes.

Inclusive pages

52-81

ISBN/ISSN

0737-4607

Document Version

Postprint

Comments

The document made available for download following the publisher's required embargo is the authors' accepted manuscript, licensed under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/.

Permission documentation on file.

Publisher

Elsevier

Volume

39

Peer Reviewed

yes