Internal reporting is a key activity of management accountants. Usually, managers make decisions and later receive a report about the favorable or unfavorable results of their decisions. In this context, we investigate how the favorability of the report affects how these managers evaluate the task performance of the management accountant preparing the report. Using an experiment, we predict and find that the favorability of the reported news biases managers' private assessments of the management accountant. Furthermore, we find that the bias is context-dependent: managers' evaluations of task performance are biased while their assessments of task-unrelated performance dimensions are not. Many internal reporting situations exist in which a decision-maker evaluates another employee who communicates the results of a decision to the decision-maker. Our study shows that subjective performance evaluations provided by these decision-makers can be biased. The results and implications for theory and practice are discussed.
JEL Classifications: M12; M41; D91.