My nominee for the “most incorrect belief” of accounting experts is: if accounting standard-setters have accounting expertise, constituent feedback, and political independence, they will reliably produce high-quality standards. I define “high-quality” standards as standards with social benefits that exceed their social costs.1 I argue that accounting standard-setters cannot reliably produce net beneficial standards because they lack sufficient knowledge about the causal relationships between standard-setter policy tools and social and economic outcomes of interest: hereafter, the “knowledge problem.” Judgment-based cost/benefit analysis, the way standard-setters currently deal with the knowledge problem, is a fundamentally limited solution because it relies on expertise where it is least valuable: situations involving extreme complexity and in which feedback about prior judgments is limited and unreliable.

Research could potentially solve the knowledge problem, but accounting standard setting is a task for which relevant observational research opportunities are scarce and usually involve compromises that limit their...

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