Rethinking Decision Usefulness

Abstract

“Decision usefulness” has been the organizing criterion for accounting policy and accounting scholarship for over forty years. Its authority however, was not gained over time through explicit theory development or argumentation, but was instead born full grown as a conceptual “takeover in the dead of night” (Staubus, 1999, p. 338). The lack of an extended period of argumentation and debate over the meaning of decision usefulness meant its conceptual weaknesses were allowed to remain remarked upon but never resolved. We argue that decision usefulness has not proven any more useful than earlier, allegedly normative theories of accounting did. The recent debates on IFRS versus GAAP provide vivid testament to the inadequacy of decision usefulness as a criterion for selecting among alternative accounting choices. We briefly examine the history of decision usefulness. In light of recent developments in our understanding of human decision-making and the shortcomings of conventional economic understanding, decision usefulness cannot be defined in a manner that allows its application to policy choice at either the micro (individual decision-maker) level or the macro, economy-wide level. Policy makers and scholars have not seriously dealt with two deeply-flawed ontological assumptions inherent its definition and justification. Finally, the research model used to test for decision usefulness relies on a flawed data set. In our conclusions we argue for a root metaphor for accounting policy and research that is more consistent with the regulatory function of accounting, i.e., a more explicit return to accountability for understanding accounting and for making accounting policy.