Rules or Consequences: Which Matter More to CPA-Practitioners?

Denise Dickins, Steven Platau


The last decade is rife with highly publicized audit and tax failures descriptive of CPA-practitioners either ex ante ignoring the possibility of personal adverse economic consequences or weighting more greatly adherence to rules. This leads us to question whether CPA-practitioners consider possible adverse consequences, or just follow the rules. This question has implications for small businesses as approximately half of all accounting firms are comprised of fewer than six accounting professionals (AICPA, 2011), and therefore may be described as small businesses. Further, many small businesses retain CPA-practitioners to assist with record-keeping, financial statement preparation, and regulatory reporting (e.g., income tax returns, payroll tax returns). If accounting firms increasingly fail, business owners will have fewer accounting firms from which to choose, which may lead to higher prices for accounting services. Results of a between-subjects experiment suggest CPA-practitioners are more likely to retain clients who represent the threat of an economic loss, compared to clients whose accounting practices violate a rule. Hence, current events, such as the shift to less rules-based accounting standards, may lead to an increase in accounting firm failures.

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