With two recent publications, accounting professor Alan Reinstein ranks among the nation’s most prolific authors in accounting’s top professional journals. In 2022 Reinstein published two articles, one in Cost Management and another in The Journal of Accountancy.  

With co-author professor emeritus Akhilesh Chandra from the University of Akron, Reinstein wrote “A Decision Framework to Address Sunk Cost Bias,” which was accepted for publication by Cost Management which publishes research related to systems and methods for companies to use to improve their cost management decision making. 

Abstract 

Decision makers often consider sunk costs at future decision points. Because past expenditures of time, money, energy, or other resources are unrecoverable and nonreversible, the historical nature of sunk costs makes them irrelevant when making future decisions. The irrelevance of sunk costs is well-known; it is covered in every managerial accounting textbook and corporate training module. So why do managers continue to mistakenly account for sunk costs in making future investment decisions? The answer lies in the behavioral biases often exhibited by DMs—biases that cause DMs to consider sunk costs as relevant which may lead to suboptimal decisions. To address these behavioral biases, we have developed a decision support framework to improve DMs’ capital budgeting and other similar decisions.  

Along with Abe Akresh, a retired member of the U.S. Government's Accountability Office, Reinstein also co-wrote “Determining Materiality in Corporate Social Responsibility Engagements." This article was published in the Journal of Accountancy, which features articles on a wide range of topics related to accounting, auditing, taxation, and personal financial planning, among others.

Summary 

A broadening array of stakeholders—beyond investors and creditors—demand that financial statements and sustainability reports disclose environmental, social, and governance (ESG) matters and other sustainability issues. These disclosures include environmental (e.g., climate change), efficiency (e.g., water and energy), social (e.g., workplace diversity), product safety, corporate conduct, and other non-financial information. 

This demand for increased ESG reporting occurs primarily from: (a) shifting social expectations for companies to take greater responsibility and (b) investment and business professionals recognizing that ESG issues materially affect a company’s risks and value. State Street, Vanguard and BlackRock and other investment advisory firms have urged entities to provide sustainability reports or disclosures or other evidence of their commitment to ESG. Investors, creditors, suppliers, customers, local communities, and other stakeholders also often pressure companies to provide ESG disclosures. 

After discussing the extent of ESG reporting, we examine materiality guidance for ESG engagements, how ESG materiality differs from financial statement materiality, and how the practitioner applies materiality in ESG examinations.