CHAPTER 1

Introduction to
Behavioral Accounting

A 1984 profile i)f New York Governor Mario M. Cuomo• described rhe
behind-the-scene activities preceding the governor•s first budget meeting.
Taxes had to be raised to reduce a nearly S300 million excess of spending
and over revenues. Cuomo had promised voters that he would not raise any of the
"big three" taxes: individual income, corporate, or sales tax. 1be govemor•s
advisers presented about 40 revenue options but privately urged Cuomo to
and raise the sales tax. Mr. Cuomo later explained to a visitor that his advisers
were ..budgetem; they don't understand psychology." While an inaease
fa- in one or more of the big three taxes would be simpler to collect. it would
retard the image of stability that Cuomo wan!cd to aute and tarnish Cuomo•s
credibility with his constituency.
,- If Mr. Cuomo's meeting were to be held today-with a new genera- ·
tion of advisers trained in behavioral accounting-he would not make the
statement that "'they don't understand psychology." (Behavioral ac:counting)<c"<..
is rhe interface of accol.!nting and social science. It :s concerned with how ' CJ

human behavior influences accountin data and business decisions and with
how accounting infonnation affects business decisions an v1or.

THE TRADITIONAL
ROLE OF ACCOUNTING _ _ _ _ _ _ _ __
Accounting is a se!'Vice discipline whose funccion is to provide relevant and A<-ci ,
timely infonnation abouc the financial affairs of businesses and not-for-profit l,
entities IQ assist intemai and external users in making economic decisions. ~d . ,
lnt~rnal us~rs of accounting information arc the organization's own line and . ;,
. . th , da .
staff pcrsooneI , w ho vaew accounting reports as e ,oun taon on which
. , nte~
vc,
financing, investing. and operating decisions arc made. Erternal u~rs include
as
- such groups stockholders,. creditors·, labor unions. financial analysts, 'and ·
g o ~ t agcndes. These seemingly diverse groups have in common a .
k~ i~teccst in the financial affairs of business enterprises and not-for-profit
organizations.
A distinction is made between financial accounting and management
accounting. The emphasis in jimincial acco11nti11g is on reporting to external
~; M:.. ... c.i"' \ - • ~,d:.~ r "'" \
;\\<. ov" l • "'j -/~ ""°'"'qi~~ (i-, t · ~ c \
---P ,,...,, , , " ,

. -) ',7t~c,."; <:) ( O' I Q c.c.ry - I t){ ~ c:t\J ~ J ("

 . of Behavioral Accoul'lti
foUOdatiooS Og
part Ont -ny Accepted Acc
(jeOeP" f 011llt.
2 bY th
_,, . gove,,, 'be e rnanner o prescntati"vo
...,ed
• ntc:u 1s rescri
users. The infonnat19n ~ rules (hat p ting) is conccmcd "-'itli
ing Principles (GAAP) uiatioo, etial aCCo'1~gers is not bound b
and the method of0com~int (~ inan!n1ed to eeds of the decision rnal(c Y
. Managem_ent ; : iiJ"~_uon ~ rorrriation nranch of accounting. It '.·
internal reporting. ed'by (he in . jor b d th t
1
GAAP R ther it is govern .. the third rna behavior an e ~ccounting
· a • -,..tin 1s
B· L-viorol ac~K h'p bc!Ween
hurnand ...,anagen·at accounting.
~ 1
concerned with the re a both financia · 1an••·
system. Its domain includes

. Information System
The Accounimg . it m~ur~ and corn.
bce3USC

. I a pie, organizations, SOcial

'lcc.~j a . Accountin 1s called the.~ 1'n'ormation about~.-~ to decision makers
• • 1and ou,.,, 1' • ven,....... ·
. \>v~;"(!'"f mumcatcs f i n ~ t activities, and ~~~nrm~uio system. In most organi.
· -~
\"\..,.,..!<. programs, go~
• ~1" \C.., t,.ccountJng can
also~ vjewed ~ormation system. The aceount.
. antiutive 1111• · fi
zations, accounting is the D11f' qu the environment (the ~ · government
ing system receives infonnataoo from mcasuces the infon:nation, records it,
agencies, suppliers, customers, :-~· the environment. Peop!e act. on the
10
• processes it, and issues reports results of some of these actions, in tum,
basis of the accounting reports. The occssed by the accounting sys1em.
rdcd
are received, measured, ~ • and pr built around the particular Structure
Accounting .informatJon
. . Of the sySl~ ~ A well-<iesigne~ sysLem include$
organ1u11Jn.
and busin:ss actJv1hes . and summarizing economic events; i1
rd
procedures for measuring, ~ iog~ d assets and pr<>mole operational
1
provides internal controls ~ ~ to ;g7
efficiency; and it pennits the rctn=val o n: cvan
t dau for inLemal or cx:ernaJ
reporting. . fT"I (0
~11~;11iH 1r f . x ~
W k 1-: no\ - \01, y,v ~• o.-c_,
Where Accountants or '\... V"~';, o.c(. ~ ~,"' S" 0
Accountants work in business firms, not-for-profit organiz.ations. or in public
accounting fums.
Account.ants who .work io business oc DOl-for--profit organiulions ase
responsible for the design and maintenance of the accounting infomuzion
system, financial planning and control. and the production of rcporu fo< bo<h
::::: internal and external users. The rtporu to internal users provjde informa·
tion needed to maiDlaio IDd improve ~ efficiency and profit.ability.
develop organizational policies and plans, and maJce oonroutinc decisioos.
BtmDCS$ and DO(-for-profit ~ engage public ac.counting finns
to conduct an iodependcai audit of their financial records. An audit involves
the examination of information J)rcsailed in financial statements. Based on
(j) i.. (9-4> "~ \afufqt1 °'"~<""'' 1..- t "-n t r,,ttl
~ ~ c,..vJ.·t~ "j \.o.f \u..v

lc+ ·ci7
-
 -- -.. ---~- ---
.. ---··
-,- -- -.-
rr
Chaplet I Introduction to Behavioral Accoullliog 3-

the results of the curoioatioo, the public ~ting firm issues an audit
report. which expresses an opinion on the «fairness" of pcscntation of the
financial statcmen~. AU states require that the report be signed by a artiji~d
public accountanl (CPA). Public accounting firms also provide their business
and not-for-profit clients with ~. accounting, and management consulting
services.
CPAs who work in public accounting arc considered to be ..indepen-
~ \.(;\dent" of their clients. While they have a ~sibility to their clients, CPAs
~fA f
-,!:1(.1
~ ·)Al". ~- also have a responsibility to the external users of publicly reported financial i~~ ... t-
,.\ "-''' information. This rcspoostl>ility is ·mauifcst in the attest function, whereby the
,v,,
~ .?."
ll\ :1(~(
CPA expresses an opinion on the fairness of prcscnt,ation of publicly reported
·a1 data. It ,s. .unportant to note that the opm,on
. . docs not g:ct•fy . or
financ,
gyarantcc the accuracy or reliability of the data.
The attest function is of pararr.iount importance to external users because
,.-1.<f"<-""'t'..,
it lends ~ to, ano promotes public confidence in, published financial
reports. Since publicly rq,orted financial statements arc used by outsiders as a
basis for major economic decisions, and since lhcsc statemcots are usually the
only financial and operating. information available to outsiders, the need for
the attest function ls evident Its importanc:c to public confidence in reported
financial data and to the smooth functioning of the economy can hardly be
overstated.

Accountioe has traditionally focused on the reporting offinancial infonnation

<m!Y- Over the last several decades, however, managers .ind professional
accountants have recognized the need for additional quantifiable economic
information not presently generated by the accounting system or reported
in the financial statements. It is believed that such additional quantifiable
economic information, oot nec:cssarily financiai in nature, would lend more
meaning to the data presently reported and therefore allow for more-informed
decision making. Part of the nonfinancial, quantifiable information meant to
·complement the financial data falls into the area of beha~ioral a~un~ng: ~e
subfield of accounting that integrates the human behavioral duncns,on with
~ditional accounting.

Definition and Scope

Behavioral accounting goes beyond the traditional accounting role of col-
lecting. measuring. recording, and reporting financial information. It is that
 . £ .,_.,..vioral Accou0 ,;
4 Part One foundat100S O DU"' ""&

di~nsion of accounting concerned with human beh3vior and i~ rel~tionship

~ th the design, construction, and use of an efficient acco_unh~ mforma.
lion system. Behavioral accounting, by considering the rela~ons~up be_tween
human behavior and the accounting system, reflects the social dunens1on of
~ organization and be.comes, (hereby. a vital supplement to-the financiaJ
mfonnation that accountants currently report.
i. \lf i, t - The scope of behavioral accounting is -u~,te~-r-oa_d.,, It includes: the
\\,: .:r ·~\ application o VIO science concepts to !he design and construction of
~C.tC\J accounting systems; the study of human reaction lo the ,onnat
' and content of
accounting reports; the ways in which infonnation is p r ~ for dec'.sion
making; the development of reporting iechniques to coaunun1ca~e behav1oraJ
data to users; and the development of strategies to motivate and uilluence the
behavior, aspirations, and goals of the people who ron the organization. The
scope of behavioral accounting can be broken down into three geocral areas;

~ c) The effect of ~uman behavi~r on 1he desi!n· cons1ru~1io_n, and 11st

of,~ accounling syliem. l111s area of behavioral aocounong 1s conccmcd
with ~~ the anirudes and philosophies of management affect the narure of
accounting controls and the functioning of the organizatioo. For example,
managcis who an: averse 10 risk will demand different rypes of financial
control systems than managers who are more inclined 10 take risks. Thus,
che looseness or rigidity of accouniing controls are influenced by human
behavior.
Similarly, interaction paneros within the firm lead 10 development of a group
perspective toward the accounting system. This perspective is characterized
by worlcer attitudes toward the control sysrem, their behaviors in operating
!he system. and the consistency of enforcement.
_: 2)11ze ~Jftd of the _acc_ounling system on human behavior. This arca of
\...., ~v~ acoounu~~ 1s co~med wiu, liow tl-.e accounting system affects
moc1va1JOO, product1V1ty. ~1s1on ~al:ing, job satisfaction. and cooperarion.
For- example, a ~dgel lhal IS 100 -i,ghr- may lead people 10 believe tha1 the
goals arc 00( ~tta1oable and lha1 then: is no sense in trying 10 achieve them.
A budget that 1s loo Mloose" may rc:sufl in careless-"
produaioo • ffiICleOCICS
•~ and Ille · · ID·

: ~ u,·rd
\J Me11wds ;of predicl
• and strategies to change human L-J,.a v1or.
· ·
TI11s
UC
area
1 behavioRI accounting is co----_.
O '°" wiu,
-... how the accoun11ng
•~1 .
rrol can be used lo influenc.e
system . behavior. for- example, the accoun11ng
· ,
coo ~ can be 11gh1enod or loosened. compensarion plans can bel
a.leered, or performance evaluation rcporu can be modified.

Applicatio~ oi Beh~vioral Accounti~g ~

The-ec:ooomic
. and human L- I o f recogmzmg
uc-nefits .. the behavioral
accounong ue numerous The , • •• • aspects o
. . ,o11owing dccmon situations delineate
the m . some

-- - - - -- µ
,
-
Qiap{er I introduction to Behavi<Yal Accounting s
Company X, after a careful cost-benefit analysis, concludes that a new
aocouating information systiem should be ioswJed. How should that
decision be implcmcatcd? C.an the fann simply buy the hardware,
develop the softwan:, train its wortc force, and warch cxpea.ses dwindle?
Or will the company, after buying the hard~ developing the soft-
ware, and tniniog its work force, later discoYU" that the system docs
not woa as anticipated bcausc of employee resistance to change?
Research suggests that if the behavioral aspects of such decisions are not
investigated lhoroughly, and if immediate corredive action is not taken when
dysfunctiooaJ attitudes arc detedcd, the second alternative is the more likely
outcome.
In such a case, managers who are aware of the behavioral aspects of
accounting would call for an investigation of how people view the innovation,
whether ·they favor or oppose it, and what their fears about it are. The
investigation should also asc.ertain whether or no< people have misinfonnation
or misconc:eptioos about the sys<cm, bow they paccive their roles in operating
it, and bow they are likely to react if the system is installed. Further, the
behavioral accountant should det.cnnine whether people's apprehensions about
the system are based on real security issues (e.g. . compensation or job
security) or simply reflect fear of the unknown.
Thus. If people have no fear of the system and eagerly anticipate its installation.
human · management may then proceed with its plan, relatively confident that human
problems will not preclude expected results. If, however, people fear and
group resist the iMOvation, managemc.ot must discov« .~e basis of these attitudes
. ed
and detennine how people's outlooks can be changed so that the installathn
raring of the new system will be SUCCC:S5ful.
Consider the behavioral implications of the following situation.
arc.a of .,
a.If~ A few yeus ago. Company Y adopted a new standard cost system and
instituted a formal budgeting process. The objective was to increase
productivity and improve cost control. Each year, however, acrual
opccating results deviated widely from planned, or "budgeted," results.
Arc these problems due to unrea.listic budgets? Or can the deviations
be tr.lCcd to the employees who arc responsible for achieving budgeted
goals?

ang If it is detennined that employee auitudes and behavior are responsible

Qn be for the budget problems, Company Y should investigate the behavioral aspect$
of ~is sitll}ltion. Questions such ~ the ~follo~ing_would _h;i.ve to be ~nswered:
How do people currently behave during the budget-making pr~ss? Are they
constllJCtively and hannoniously relating td each other? How do employc~
perceive the process as a whole, their rol_es in it, and their individual goals in
of relation to organizational ·goals? A behavioral accountant would also want to
of know the cause of the attitudes and behavior and the likelihood that the same
behavior will be repeated in the future. Obviously, if the undesirable behavior

I
 . ( Behavioral Accounting
6 Part One Foundations o
. . . . the budget-making
is likely 10 be repealed thus perpctua1ing inefficaenc,es ~n to change existing
Process. the behavioral •accountant wou Id suggest strategi.::s . .
. . al funcuomng.
.
behavror ·tti th organ1z.at1on .
10 make it compatible w1 smoo f the ;nfonnalJon con.
0
1ne next situation highlights .dJe incomp,'ele~ -nortS. Although the
· •
tamed m traditional external and mrem
· al accounting •-r-
. . ample is more I e Y lo
J"k I
additional infonnation called for in the following exooard of directors of an
10 th
be rcponcd internally 10 top management or ; the seope of the auditor's
organization. there have been suggestion~ 10 expan ·a1 reports 10 outside users.
attest function to inc.lude such infonnation in {inane• ·
·a1 _.,..,,,,.,, earnings his-
. ·1 ·n financ• su---• f I
Companies Z-11111d Z-2 arc s1m 1ar 1 . . Even me most care u
. k h
1ory, and relauve mar ct s ares 1 ·n dleJr 111dustrY
. · vide any clues as to
. . .
scrurmy of rhelf f"mancJaJ staremen
u wall nor .
prol)ecause the financt"aJ
. . . ent aJtemauve,
which finn 1s the better mveson . . . . befWOCl1 (he firms.
h · the s1mJfanues
statements themselves emp as•~ mGd with the fun.ire prospects
How can a po<eotial investor who JS conce .,__; •on?
. r: _..,. • vesanent .......,,s1 .
of these companies make an in,om""' JD • •
.. ·w · nonfioanc1al m nature, about
In such a si1ua1ion, addi_tJon_al I
onna1Jon. . al choices. ·P.ut of thi
the firms may help prospective mvestors make ralJoo . . . s
· infonnalJon
nonfinancial • might
· · ra1 and mi....,t
l>e beha v,o ~
1od1catc, for example •
that Z-1 's work force ,s · · and b.
· cnrhus1as1,c hly motivated and that
~-r--c:r-:--:-:cc=. •
abscntc:cism
•· :
is very low. In fum Z-2. on the other hand, the work force 1s charactcnzcd
by l_?~rale, high absc~recism. and c~~iY..e-:t uroovcr. !he behavioral
accountant might also provide information on the d1ffeccoces m managcmem
styles of the rwo companies. It could be uscfu; for potential inves~.>rs to know
something about the risk perceptions, economic outlooks, experience, and
backgrounds of lhe·cwo management teams.
The behavioral ac.ountant's tasks in this situation are- lo investigate how
people currently behave and how they view their work, their firm, and their
c.o-_worlcers. fr is then up to the users of this behavioral information to make
:::,e; own assess~ents of how _people are likely to behave in the futu~ and
these t>ehav,or patterns w,11 affect the relative potential future earnings
o f each company For inl al .
Provide management . em purposes. the behavioral accountant would
not only w"th · , ·
also wilb the reasons why J t . m,onnat,o n a bout how people behave, bur
changing behavior thar is
The .
:(°/i
e ~have as they do and recommendations for
ys unctional
. J>fttcding lhRC examoJes d ·
· accountmg .is 10 measure • cmon stra re thar the goat of behaTioral
• ,L and evaluate rele•,.,..,, ~" ·
_mumcare uic results lo • • ..... ~-aav1oraJ factors and com-
.nfi .. IOIClllal and CJCI .. al d
, orm_a11on, accounting cc1s1on makers. Without such
. -~rn
DO< bcmg provided ..::.L repons arc incomplete and dcci · __..
di . "'"' all rcJevan1 da • s1on ,,_._en ue
of the fmn c
mens,on ta. lnfoonation on the behaviof1J
nomic decision makers w~~lements the financial data and . cco-
"1C>R well-rounded . provides
v,ew of the organiz.atioo.

-
...
--·- .
 ----- - .. .
C hapter I .(otrodudioo Co Behavioral ACCQUDling 1

Behavioral Accounting: A Logical Extension of

Accounting's Traditional Role
Decision makers who use accoonting reports are better infonned when
those rcpodS contain as much relevant infonnation as possible. Accountants
acknowledge this fact through a time-honored ~ n g principle known
as full disclosur~. This principle ICqUirtS not only supplementary explana-
tions and additional details supporting the reported financial data. but also the
reporting and explanation of critical oonfmancial organizational events. This
additional information is reported either wichin lhc framework of the financial
statements or in notes accompanying the statements.
To fuichec sharpen the economic picturc of a finn, a logical and neces-
sary application of lhc full disclosure priociple would require the inclusion of
behavioral information to supplement the financial and other data presently
· reported. It would be difficult to argue c;onvincingly that decision makers
would not be interested in and benefit from access to such additional relevant
infonnatiOD. In fact, behavioral information about major business organiza-
tions is standard fare in the business press. Business newspapers. newsletters,
and magazines frequently report on existing managerial philosophies in par-
ticular firms, the morale of middle-level managers, the relative success of
innovative approaches to ma~agement or operations, and the effects of man-
agerial activities and outlooks on such topics as operations, earnings. labor
negotiations, and work force attitudes. The business press also reports on the
implications of these behavioral phenomeoa for future organizational success.
These ~ n g practices indicate an inteccst in and a demand for behav-
w
ioral data. Unfortunately, the behavioral information reported in the business
Ind
press is no! yet presented in a way that allows for meaningful interfinn (i.e . .
)W
Company X vs. Company Y) and intrafinn (i.e., Di~sion A vs. Division
B in Company Z) rumparison. Adv3!}CCS in mcasun:mcnt techniques in the
eir
kc behavioral sciences now permit more accurate measurement of behavioral
:id processes and allow accountants to expand the reporting function to include
gs
the behavioral dimension of organizations.
Id Few would argue with the assertion that infonnation on the behavioral
JI dimension of organizations is useful to a variety of internal and external

----
>r decision makers. Open Co discussion, however, i L . ~ r accountants should
assume the cask of such investigating and reporting. There are many other
professions chat may lay claim . to the domain of measuring and reporting
,1
behavioral phenomena. Sociologists and industrial psythologists. for e;;:.ample.
have worked in this area for decades. Market rescarch.fums and survey
research medlodologists regularly measure certain aspects of behavior and
report the rcsulcs to their clients. The list of professionals engaged in these
activities ooald go op.
I&~~~
ll!i,i-::;-
iiiF!' ~ ..
8 Part One Foundations of BehavioraJ Accoun1i11
"' .:.-.-.-
~- - -
The accountant's claim to the investigation of bchaviocaJ pbenomeni
is based on the nature of accounting; it always has been and still is au
organization's major information system. The accounting information system
reports on the organization's economic activities, of which the behavioraJ
phenomenon is but one dimension. Accountants might claim that through
ccnn.:ries of eJtperience they have become familiar with the infonnation Deeds
of both outside users and internal managers, the process of business decision
making, and the kinds of financial data and reports that are relevant to various
types of decision situations. lbereforc, accountants would be most quaJified
to select behavioral phenomena for investigation because they know which
behavioraJ data would most meaningfully supplement financial data. Further,
accountants are the single group that could most logically incorporate the
behavioraJ information into the existing business reports.
It should be emphasized, however, that accountants arc not rigorously
trained behavioraJ scientists. A course in behavioral accounting, along with
three or four behavioral science courses, wiU provide accountants with a basic
working knowledge of behavioral science concepts, an appreciation for the
potential and limitations of behavioral science applications in accounting, and
the ability to recognize quality research. A few behavioral science courses,
however, do not make an accountant a behavioral scientist, just as three
or four accounting courses do not make a person an accountant. Therefore,
accountants who are interested in wor)cjng in the behavioral area should consult
with competent behavioral science researchers when designing behavioraJ
resear.::h projects and analyzing their results.

lllSTORICAL DEVEWPMENT OF
BEHAVIORAL-; ACCOUNTING _ _ _ _ _ _ __
The accounting profession's awareness of and interest m· th beha •
d . · 1· be
of the 1sc1p me gan lo develop in the early 1950 I J
e v10ral aspects
trollership Foundation of Ame · s. n une 195 I. the Con-
nca sponsored a ~
the impact ~ o people The stud . study that e;,cplored
of the School of Busmcss and Pubr AJ ~~ ~ed out u ~ the direction
Professor Schuylcc ~..an Holett was•~ m•~•~~•on of Cornell Univcrsi1y .
Argyris the research assoc· . e proJect director and Professor Cbri
research rcsultod in anun:~; : charg~ of the ficl_d work. This explora10;
pitfalls in budgets and bud e1in ten~uve conclus1ons about the behavioral
tions foe possi51e remedies~ ! and m ~umerous thought-provoking sugges-
The n:seardJ wis •'---
u,cu Used by Ouis Ac ·
- -
1953 hndmart HarvarrJ 8 • . ~ as the foundation fi •'--
9.u1-,,"1 """:..1.. IISUk!ss Review art,cJe ..H
""ii...... • ..,uu, mtroduccd th . •
u..,
wnan PiobJcmsorw,.th
· -• d. · e problem area •---' • .
10141 IIDellSIOD, to a broade b . • GUI.I w,th rt accouotin • bch
r USmess audience. Of considera . gs av-
. blc mtercst is the

....
-:::::======~ --=---
---- --
 . .~ ....... ...

Chapter I Introduction to Behavioral Accounting 9

fact that both of lhcse events preceded the works of Maslow 3• McGregor ◄•
and LlkcrtS. which many consider to be the pioneering studies of behavioral
science applications in business.
Beginning in the late 1%0s and continuing into the 1980s, increas-
ing num~ of behavioral.articles have appeared in professional accounting
journals. lhesc articles arc quire diverse. Early articles attempted to define
behavioral accounting; later articles discussed ccrtaio beJ_tavioral science con-
cepts and theories in tenns of their relevance to accounting and their impli-
cations for accounting principles and practices. Some articles dealt with the
effects of the accounting system and accounting reports on decision making;
still others reported the results of behavioral experiments in an effort to learn
about the relationship between the accounting system and improvements to
organizational effectiveness and efficiency.
The impetus to behavioral accounting has come chiefly from the academic
branch of the accounting profession. Practically aJI of the behavioral studies
have been published in academic journals and authored by academicians.
These studies have produced interesting insights into the nature and causes
of human behavior and may have influenced the way practicing accountants
design their information systems. It is very likely that behavioral accounting
research will have considerable impact on accounting theories and practices
in th~ future.
·· Workshops. conferences, and symposiums on behavioral accounting are
frequently held throughout the United Sc.ates and Canada. Jnoovative courses
in behavioral accounting are slowly being introduced. into the cuniculums
of major universities. A bimonthly joumal , Accounting, Grganil.Qtions, and
Society, was established in 1976 as an outlet for academic research for
scholars engaged in the study of behavioral accounting. Within the past few
years, a new special-interest subsection of accountants· interested in behav-
ioral accounting was established and officially recognized by the American
Accounting Association. This special-interest section is sponsoring a second
behavioral accounting journal to be called Behavioral Reuorch in Accounting .
All of these events indicate that behavioral accounting is not a passing
fad; the accounting profession's awareness of and interest in the behavioral
dimension ;ire here-· to stay. This development presents lhe potential for dra-
matic changes in the scope of accounting services and the future information
content of accounting reports. These events also compelled the writing of this
behavioral textbook .

FORMAT OF THE BOOK _ _ _ _ _ _ _-,--_

The book is divided into three parts. The chapters in Pan One, "Foundations

rI
of Behavioral Accounting," provide background material in the behavioral
sciences and familiarize the reader with the historical and contempora.'Y
 10 ndations of Behavioral Accounting
P.ut One Fou
. ed business disciplines. In P.itt
behavroral assumptions of accounting and re1at f ti will ..__
One, the role and fur.ction of the behavioral aspects O accoun ng VI:
delineated. . ..
n..- T
f"'' wo, "Behav1ora
· I I mp1·,ca11·ons of Management•
Accounting.
. •
con.
centraies on major operational activities, such as planning. ~on~llrng, ~Od
decision making. The chapters in Part Two highlight the applrcattons and _un- .
plications of behavioral accounting in such operational activities as budgeting,
internal communications centralized and decentralized performance measure-
ment, imemal control, ~d auditing. These chapters emphasize the impor-
tance of recognizing various behavioral considerations when designing and
implememing a cost accumulation system. choosing a transfer price, selling
perfonnance standards, or uying to overcome employee resistance to change.
The chapters in Part Three, ~Behavioral Aspects of Financial Accounting
and Reporting," create an awareness of the behavioral aspects of generally
accepted accounting concepts and principles and how they affect management
decisions and behavior. The behavioral ramifications of accounting as an
organization's infonnation and communication system are discussed. The
topics of human resource accounting and social accounting are also introduced.
The chapters. themselves are built around the three elements that make
up the scope of behavi~ral accounting: how people affect the accounting sys-
tem, how yte system affects people, and how dysfunctional behavior can
~ correct~d. _The c~apters in Parts Two and Three begin with a hypothet-
ical o:gamzat,onaJ drlemma, proceed with the introduction of the relevant
behavioral_ concepts, ~nd conclude with the application of those concepts to
the resolu!1on of the dilemma. Suggested readings. discussion quest· d
'· ., ded rons, an
cases ~ •~-tu a~ lhe end of each chapter. Technical tenns are defined
rhroughout th~~k ,n the chapters in which they appear.
·~:· \_
. I
REFEJ._IBN~FjS---_:__ _ _ _ _ _ _ __
I ,.:
New :or~~_.,':April 16, 1984, pp. 53-56.
2
~ - ~ns .. ~Human Problems with Bud cts .. H .
January-February 1953. g · orvard 811s1 ,,ess Review.
JMasfmv. Abraham H. Motivation and Personality N V .
1954. · cw , o ne Harper & Row
~ .
McGregor Douglas n, H s ·tk
1960. • . c uman , of &terpriu. New York: McGraw-Hill
S Llkcrt, Rcnsis. New Patterns in Monagcment N ~
. cw . one: M cG ra~-Hill. 1961.
SUGGESTED READINGS . -fa' ~
Caplan, &twin ff. ManiJioiimt ~ - -
Addison-Wesley 1971' . ;: . ·t
------------=---
'"I and lkhaviora( Science R ad"
· :·. ii · c mg. Mass:

-- ---- - --
 (hapter I Introduction to Behavionl Accounting

Collins. Fcanlc. Paul Munter, and Doa W. Finn. -nie Budgeting QameS People Play."
Accounting RMCW, JltlUKY 1987. fi>· 29-49.
t,ibby , Robert. and Barry L Lewis. ·Human Jnfonnation•processing Research in
Accounting: 1be Stale of the Art io 1982." Accounting, Organizations, and
Socitty, 1982. pp. 23J-28S.
Schiff. Michael and.Arie Y. _lcwin. &havioral Aspects of Accounting. Englewood
Cliffs. NJ.: Prcotioc-Hall, 1974.
Young. M~ S.• "'1bc Organizatiooal Context of Accounting." Accounting, Orgoni·
v,tioru, and Society, Q 1983, pp. 111-129.

DISCUSSION QUESTIONS--------
ing I . What behavioral infonnatioo would be relevant to invesanent bankers? To bank
ge. loan officers? To murual fund managers? To a chief ncgociator for a labor union?
ing How might this behavioral data be used? .
lly 2. Why should accountants concern themselves with reporting behavioral informa-
nl tion, sioce it may already be reported by journalists. industrial psychologists. or
an
survey researchers?
3. Given that accountants arc not rigorously lr3ined in the behavioral sciences, how
much credence can be placed io behavioral information measured and reported
ake by accountants?
4. Give some examples of behavioral information reported in a recent business
-r-·
can newspaper or magazine. ·
Cl·
5. How do you see behavioral accounting developing over the next five or ten years?
an!
lo
and
ned

ow,

ill,

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