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Incentives and institutions in accounting: thinking beyond standards

We look at the principal factors that affect financial reporting outcomes and the degree to which these are the product of the surrounding institutions and on the incentives that affect individual firms and their managers.

What forces determine financial reporting outcomes at the level of the individual enterprise? Our overall intention in this report is to improve understanding of how accounting works, by emphasising that it is not simply the mechanical application of a recipe book written by standard setters, but to a significant degree the product of the surrounding institutions and on the incentives that affect individual firms and their managers.

We look in more detail at the principal factors that affect financial reporting outcomes; consider some of the institutional changes involved in globalisation and how they affect accounting. This report examines some key findings of research on how differences in incentives and institutions affect financial reporting outcomes, and discusses the implications of these findings. Our conclusions pose challenges for policy makers, accounting researchers and others who are interested in public policy debates on accounting requirements, in particular on the need to focus on the incentives and institutions that support financial reporting quality as well as on accounting standards.

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