The effect of accounting and performance indicators on public accountants' perceptions of organizational decline

This study explores the reliance public accountants place on information about an organization's financial indicators, fiscal control system, technology, and human resources when making assessments about organizational decline. Case scenarios, which systemically varied the presence/absence of a fixed set of decline determinants, were given to 44 partners and managers from 12 different accounting offices. The accountants were asked to provide their assessment of each case organization's likelihood of declining. Consistent with the study's basic research assumption, information about an organization's financial indicators, human resources, technology, and fiscal control system helped to explain public accountants' perceptions of organizational decline. Furthermore, support was found for the study's primary research proposition that public accountants' assessments of organizational decline are principally determined by the quality of the organization's financial indicators (e.g., return on assets, liquidity, etc.). This behaviour, however, may result in the provision of incorrect information to the investment community. Financial indicators are best viewed as either wanting signals of further organizational decline (for organizations which are still infected with such seeds of decline as poor fiscal control systems, technology, and/or human resources) or historical reminders of the organization's past decline (for organizations which have only recently exorcised the seeds of decline from their system). Public accountants appear to misunderstand this causal sequence.