Incentives and Institutions in Accounting: Thinking Beyond Standards

Abstract

The report explains why accounting is not a purely mechanical activity, but is affected by the incentives of those involved in the accounting process and by surrounding institutions, which help shape incentives and facilitate and constrain managers' actions. It looks at the principal factors that affect financial reporting outcomes, considers some of the institutional changes involved in globalisation and how they affect accounting, and reports some of the key findings of research on how differences in incentives and institutions affect financial reporting outcomes. An appendix to the report includes a discussion of the relevance of new institutional economics to accounting research and notes that 'institution' in this context has a wide and variable range of meanings.