Abstract

The article focuses on the behavioral implications of generally accepted accounting principles, which can condition the decisions of managers as well as measure their performance. Unfortunately, this does not always lead to desirable results. A number of these principles have a built-in bias which motivates managers under certain circumstances to adopt them in preference to alternative principles that may better reflect the operating results and financial condition of their company. In addition, other generally accepted accounting principles may induce managers to adopt specific operating policies, even though these policies may not necessarily be the most appropriate. The Accounting Principles Board and its predecessor, the Committee on Accounting, have reduced the number of behaviorally undesirable accounting principles, but some still persist. The goal of the counting and management professions should be to eliminate these remaining objectionable practices and to create a set of generally accepted principles that will motivate managers to make sound economic and reporting decisions. If this is not possible, the corporate reporting system should at least not encourage managers to act against what appear to be the best interests of their stockholders and society.