Accounting Commons^™

Risk Consumption, Sridhar Ramamoorti, Rick Stover

Accounting Faculty Publications

Understanding the difference between risk appetite and risk tolerance can deter organizations from digesting too much risk.

The concepts of risk appetite and risk tolerance were introduced in 2004 in The Committee of Sponsoring Organizations of the Treadway Commission’s (COSO’s) Enterprise Risk Management–Integrated Framework. Specifically, COSO defines risk appetite as “the amount of risk — on a broad level — that an entity is willing to accept in pursuit of value.” Naturally, organizations will have different risk appetites depending on their industry, management philosophy, operating style, culture, and objectives. Therefore, a range of appetites potentially exist for distinct risks, which …

Anticipation And Reaction To Going Concern Modified Audit Opinions By Sophisticated Investors, Marshall A. Geiger, Abdullah Kumas

Accounting Faculty Publications

The purpose of this paper is to examine whether institutional investors (i) anticipate a distressed firm's receipt of a first‐time going‐concern modified audit opinion, and (ii) react to a first‐time going‐concern modified opinion by engaging in abnormal net selling of firm shares. Using a proprietary database of US institutional investor trades, we find that institutional investors are net sellers of first‐time going‐concern opinion firms beginning 6 months before the release of the report and remain net sellers through the subsequent 3 months. We also find that the severity of the reasons auditors modify their opinions is associated with increased trading …

Instructional Case: Can Management Accounting Help Aid Associations Make Tough Choices In Haiti?, Daniel Gyung Paik, W. Darrell Walden, Kip R. Krumwiede

Accounting Faculty Publications

Based on an actual situation, this case explores the use of management accounting analysis in a difficult make-or-buy decision in the real world of humanitarian aid. An aid organization produces a specially designed, highly nutritious peanut butter medicine to save the lives of Haiti’s malnourished children. The challenge is deciding whether to source the peanuts from Haitian farmers and pay more or from foreign suppliers and pay less. Students perform both quantitative and qualitative cost-benefit, break-even, operating leverage, and product costing analysis. Performance measurement, incentive issues, short-term versus long-term thinking, micro and macroeconomics, and ethical issues are also considered. The …

Market Ambiguity And Individual Investor Information Demand, Rajib Hasan, Abdullah Kumas, Joyce Van Der Laan Smith

Accounting Faculty Publications

We examine whether ambiguity in the market leads to an increase in information demand by individual investors. Drawing on the asset-pricing model proposed by Mele and Sangiorgi (2015), which incorporates market ambiguity, we measure individual information demand using daily Google searches and measure market ambiguity using a metric based on the market trades of institutional investors. We find that individual investors increase their information demand during periods of greater market ambiguity. We also provide evidence that information demand from individual investors spikes around earnings announcement days primarily when market uncertainty is driven by net-selling activity. Overall, these results suggest that …

A Study Of Long-Lived Asset Impairment Under U.S. Gaap And Ifrs Within The U.S. Institutional Environment, Philip K. Hong, Daniel Gyung Paik, Joyce Van Der Laan Smith

Accounting Faculty Publications

This paper explores whether differences in accounting standards influence reporting behavior within the U.S. institutional environment where both IFRS and U.S. GAAP are used for reporting purposes. We focus on the accounting for impairment of long-lived assets, an area where significant differences exist between U.S. GAAP and IFRS. We identify all U.S.-listed firms who have recognized long-lived asset impairment losses during the 2004–2012 period. From these firms, we identify firms following IFRS, then develop a matched sample of U.S. GAAP firms, using a propensity score matching procedure. We examine the relation between impairment loss and unexpectedly high or low earnings …

Acquired In-Process Research Development And Earnings Management, Daniel Gyung Paik, Junyoup Lee, Eun Suh Lee, Kevin H. Kim

Accounting Faculty Publications

New accounting standards, namely SFAS 141 and 142, were adopted in 2001. The release of these two regulations offers a unique opportunity to explore how managers have changed their earnings manipulation behavior by using IPR&D costs. In this study, we examine whether and how the amount of IPR&D at the acquisition deals is associated with discretionary accruals, which serve as a proxy for earnings management. We use a sample of firms reporting acquired IPR&D over the period of 1993 to 2007 with a matched group based on size and industry. Our results provide evidence that managers strategically use the IPR&D …

The Association Between Audit Fees And Accounting Restatement Resulting From Accounting Fraud And Clerical Errors, Daniel Gyung Paik, Taewoo Kim, Kip Krumwiede, Brandon B. Lee

Accounting Faculty Publications

Restatements of financial reporting arise from many sources including changes in accounting rules, changes in reporting entity, accounting errors, and fraud (or “irregularities”). Theory predicts that audit effort (measured by audit fees) and financial report restatements should be negatively associated because more audit effort means that auditors should be more likely to find errors or other issues that could lead to later restatement (Shibano 1990; Matsumura and Tucker, 1992; Lobo and Zhao, 2013). However, other studies have found either a positive association or no association between audit fees and subsequent restatements (Kinney et al., 2004; Stanley and DeZoort, 2007; Cao …

A Study Of Long-Lived Asset Impairment Under U.S. Gaap And Ifrs Within The U.S. Institutional Environment, Daniel Gyung Paik, Keejae Hong, Joyce Van Der Laan Smith

Accounting Faculty Publications

This paper explores whether differences in accounting standards influence reporting behavior within the U.S. institutional environment where both IFRS and U.S. GAAP are used for reporting purposes. We focus on the accounting for impairment of long-lived assets, an area where significant differences exist between U.S. GAAP and IFRS. We identify all U.S.-listed firms who have recognized long-lived asset impairment losses during the 2004 to 2012 period. From these firms, we identify firms following IFRS, then develop a matched sample of U.S. GAAP firms, using a propensity score matching procedure. We examine the relation between impairment loss and unexpectedly high or …