Strategic Accounting Choice and the Effects of Alternative Financial Reporting

In this paper, I evaluate the effects of mandatory changes in accounting standards on firms' disclosure decisions. Several issues are addressed, including the relation between mandatory reports and voluntary disclosures, the effects of imposing "consistency" in accounting choice, the consequences of increasing firms' discretion in accounting procedures, and the implications of requiring firms to issue "more detailed" accounting reports. The analysis of each of these issues depends critically on the firm's motivation for choosing among financial reporting techniques. Throughout this paper, I assume that a firm's choice among reporting requirements is influenced by how that choice alters its ability to protect its proprietary information. Since this is not a common assumption, some comment on its appropriateness is warranted.