Hooks, J. & S. Tooley/FRRaG (Financial Reporting, Regulation & Governance) 2007, 6:1 EXERCISING PROFESSIONAL JUDGEMENT IN AN ERA OF SECTOR NEUTRALITY: A STUDY OF CHOICES MADE BY NEW ZEALAND REPORTING ENTITIES Jill Hooks* and Stuart Tooley** *School of Accountancy, Massey University, New Zealand **School of Accountancy, Queensland University of Technology, Australia Contact Details (Corresponding Author) A/Prof Stuart Tooley School of Accountancy QUT Gardens Point Campus GPO Box 2434 Brisbane, Qld 4001. Email: stuart.tooley@qut.edu.au Tel. +61 7 313 86845 Abstract Since 1992, New Zealand has engaged in a sector-neutral approach to accounting standard setting – where a transaction is accounted for based on its underlying economic nature rather than on the type of entity undertaking it. Underpinned by the premise that GAAP can be generalised across the public/private divide, we examine whether systematic differences exist between accounting policies adopted by reporting entities with different ownership and/or operating objectives. We find evidence of sector preference in the choice of useful life for comparable depreciable assets, and differences in policies for the amortisation of goodwill. We also find evidence of sector convergence in the choice of methods for accounting for valuation of non-current assets, deferred taxation and inventory. It is observed that the two accounting policies indicating sector preference have a more direct impact on the Statement of Financial Performance than the other policies examined. Key words: Accounting policy choice, Accrual accounting, Public sector accounting, Sector neutrality Acknowledgements: The authors thank participants at the 2 nd International Business Research Conference, 5-8 December 2005, Sydney; International Conference on Business and Information, 12-14 July 2006, Singapore; and the Asian Academic Accounting Association 7 th Annual Conference, 17- 19 September 2006, Sydney for their helpful comments on earlier drafts of this paper. 1