What Is Behavioral Accounting?

Daniel Liden

Behavioral accounting is a method of money recording and management that attempts to assign value to a company based on the values and behaviors of those in charge. It is sometimes referred to as "human resource accounting" because it is based in human behaviors and decisions as opposed to other accounting methods, which are typically based only on the expenses and profits associated with running a business. It is, especially for large businesses, impossible to make judgments about the values and behaviors of each individual, so behavioral accounting is generally based on the behavior of the leaders and primary decision makers of a company. The goal of this accounting method is to represent the value of the human aspects of a company to stakeholders, potential investors, and other interested parties.

Man climbing a rope
Man climbing a rope

The importance of behavioral accounting can be most simply described by considering two companies that are identical in every respect in terms of expenses, profits, and all other non-human variables. An individual trying to decide which company to invest in may have a difficult time doing so because, based on conventional accounting methods, both companies look the same on paper. The use of behavioral accounting methods, however, may indicate to the potential investor that one company's leaders tend to demonstrate better decision making and hold better values than the other company. In some cases, this accounting method can reveal a business's value in a way that goes far beyond the cost and expense numbers on paper.

Transparency is an important part of behavioral accounting, as it prevents business decision makers from hiding behind cost reports and numbers on paper. While behavioral accounting can reveal that a company's success occurred because of the excellent and well-informed decisions of the key decision makers, it may reveal instead that a company's success came about in spite of poor decision making. This transparency gives stakeholders and investors a much clearer view and understanding of the company they are choosing to support.

Behavioral accounting is a common area of study in business research because of the importance and difficulty associated with assigning value to the human aspects of a company. Such research is often multidisciplinary in nature, as sociology, psychology, and mathematical methods in accounting are often important and relevant. Researchers in behavioral accounting may, for instance, try to develop effective and useful methods to measure the value of a businessman to a business over time by taking into consideration each major decision he makes.

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