Using the fuzzy-analytic-hierarchical-process to select the optimum mechanism for developing accounting standards

Purpose – Recent corporate failures such as Enron, WorldCom, Global Crossing and K-Mart and auditing failures such as Arthur Andersen have sparked great public concern, including the passage of the Sarbanes-Oxley Act of 2002. This paper aims to address the development of accounting standards. Design/methodology/approach – The approach is to use the fuzzy-analytical-hierarchical-process (FAHP), recently developed by de Korvin and Klyele. Uncertainty in assigning priorities and the use of semantic variables lead naturally to the inclusion of fuzzy sets in the structure of the AHP paradigm. The hierarchy of decisions, constructed sequentially, consists of three levels of attributes. Findings – The paper shows that applying the highly sophisticated mathematical FAHP model is needed to select the optimum mechanism for establishing accounting and auditing standards. The FAHP application results lead to a rational ranking of the four bases to develop accounting standards. Originality/value – This paper helps to explain the ambiguous and vague nature of the attributes of financial reporting and to apply a recently developed mathematical methodology to help accounting policy makers select the optimum mechanism for developing accounting standards.