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Avoiding Accounting Fixation: Determinants of Cognitive Adaptation to Differences in Accounting Method

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  • DAVID T. DEARMAN
  • MICHAEL D. SHIELDS

Abstract

Much research over the last 30 years has provided evidence that individuals display accounting fixation; that is, their cognitive process does not appropriately adapt to cross†sectional or temporal differences in an accounting method. This paper presents the results of a quasi†experimental test of the hypothesis that cognitive adaptation to a change in accounting method is an ordinal interactive function of three person characteristics: relevant accounting knowledge, general problem†solving ability, and intrinsic motivation to appropriately engage in the decision task. Based on a product†pricing decision task in which participants are provided with product costs reported by two generally employed product†costing methods (activity†based costing [ABC] and volume†based costing), the results show that the majority of participants did not change their cognitive behavior when there was a change in the costing method. Further, those participants who did adapt to the change in accounting method, and thus avoided accounting fixation, did so by debiasing costs reported by volume†based costing but not by ABC. Finally, these adapters generally exhibited high values for all three of the person characteristics compared with those who did not adapt.

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  • David T. Dearman & Michael D. Shields, 2005. "Avoiding Accounting Fixation: Determinants of Cognitive Adaptation to Differences in Accounting Method," Contemporary Accounting Research, John Wiley & Sons, vol. 22(2), pages 351-384, June.
    • Handle: RePEc:wly:coacre:v:22:y:2005:i:2:p:351-384
    DOI: 10.1506/RQ40-UR50-5CRL-YU8A
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