The effects of social influence pressure source and reporting consequence on financial statement preparers' fair value estimate choices

This paper investigates whether the source of social influence pressure interacts with reporting consequence to influence financial statement preparers' judgements of fair value estimates. Results from an experiment suggest that accounting professionals recognise that fair value estimates based on Level 3 inputs are subjective and unreliable and are hesitant to choose a Level 3 estimate for financial reporting. However, superior pressure (one type of social influence pressure) and a positive reporting consequence increase preparers' likelihood of choosing a questionable estimate. In addition, social influence pressure source interacts with reporting consequence to influence preparers' intention to choose a questionable estimate. Specifically, superior pressure has a greater impact on the likelihood of choosing a questionable estimate if the estimate allows the company to report positive earnings than if the estimate results in zero earnings. More interestingly, mediation analysis shows that preparers' perceptions about the fair value estimate partially mediate the effect of source of social influence pressure on preparers' decisions. This suggests that superiors exert influence through their position power, resulting in compliant behaviour from preparers, and through personal power, leading to changes in preparers' attitudes towards the Level 3 estimates.