Rules-Based Accounting Standards and Litigation
Donelson, Dain C., McInnis, John M., Mergenthaler, Richard D.
The Accounting Review · 2012 · Volume 87 · Issue 4
Abstract
Some claim that rules-based accounting standards shield firms from litigation, while others argue that violations of detailed rules give plaintiffs a “roadmap” to successful litigation. We inform this debate by investigating whether rules-based standards are associated with the incidence and outcome of securities class action litigation. Overall, our results suggest that rules-based standards are associated with a lower incidence of litigation but are not associated with litigation outcomes. These results are of interest in the debate regarding the switch from a more rules-based U.S. GAAP to a more principles-based IFRS. JEL Classifications:K22, K41, M41.
Keywords
securities litigation, safe harbor, rules-based standards, principles-based standards
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