Behavioural Aspects of Decision Making

Behavioural aspects of decision making

The central purpose of accounting is to produce information which will influence behaviour. Unless accounting reports have the potential to influence decisions and actions, it is difficult to justify the cost of preparing such reports. Traditionally, accounting reports have been addressed to shareholders and investors. In Part 4, the behavioural aspects of investor decision making will be discussed and the role of accounting information in that context will be examined. In particular, the response of the Stock Exchange to the disclosure of accounting information by the reaction of share prices will be seen to be one way in which the influence of accounting reports on investors may be judged. In Part 5, the behavioural aspects of decision making within organizations will be examined and the role of management accounting information as an influence in this respect will be discussed.

Since, from a management point of view, the purpose of accounting information is to enable the organization to attain its goals, it must follow that the effectiveness of accounting information is evidenced in the manner in which it affects behaviour. In this sense, we may say that unless accounting information serves to produce the desired action, it has served no purpose at all. Research has shown, for example, that even when managers have all the information which they need, they do not always make the right decisions. Hence, the human process which leads managers to recognize or fail to recognize the significance of accounting information deserves a better understanding, and accountants need to be aware of the role of accounting information in enabling managers to identify their mistakes and to learn from them. Feedback information, for example, plays an important part in this process.

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Read on: Accounting Information and the Allocation of Resources

Accounting information and the allocation of resources

The various groups of information users which we have just discussed share a common concern, which is to make decisions about the allocation of scarce resources between competing ends. Students of economics will find such a statement echoes a popular definition of the subject matter of economics. The importance of accounting information is that it makes such an allocation possible in a market economy, where individuals and organizations are largely free to allocate the resources which they control between competing ends. Therefore, the theoretical... see: Accounting Information and the Allocation of Resources