An Empirical Study of the Role of Accounting Data in Performance Evaluation

TLDR

Abstract

Accounting systems are often the most important formal sources of information in industrial organizations. They are designed to provide all levels of management with timely and reasonably accurate information to help them make decisions which are in agreement with their organization's goals. It is therefore surprising to find reports that managers, in adapting to accounting systems, deliberately falsify the data and make decisions which may be detrimental to the long-term interests of the organization. Yet there are many such reports in the accounting literature. Many of the documented examples of falsification and dysfunctional decision making were an outgrowth of attempts to make the accounting reports a more favorable reflection of the manager's or the worker's performance. Whyte has described the ingenious attempts of a group of workers to obtain easier standards when their payments included a bonus based on these standards.1 Other investigators have noted the tendency of managers to pad their budgets either to make the reported variances more favorable or in anticipation of cuts by either superiors or accountants.2 Perhaps of even more concern to accountants are the numerous examples in the literature of managers making decisions in response to the accounting system, even though the decisions are contrary to the goals of the