Introduction to Information in Markets

Abstract

In their book on cost deterination, Demski and Feltham (1977) characterize accounting as playing both decision-facilitating and decision-influencing roles within organizations. In its decision-facilitating role accounting reports provide information that affects a decision maker’s beliefs about the consequences of his actions, and accounting forecasts may be used to represent the predicted consequences. On the other hand, in its decision-influencing role, anticipated accounting reports pertaining to the consequences of a decision maker’s actions may influence his action choices (particularly if his future compensation will be influenced by those reports).