Accounting Commons^™

The Prospect Of Indonesian Government Retail Sukuk: From The Perspective Of Sharia Financial Knowledge, Education, And Behavior, Fajri Adrianto

DLSU Business & Economics Review

As a source of government financing, the Indonesian government’s retail Sukuk is still not as popular as conventional government bonds. The Indonesian government has issued serial retail Sukuks with the code SR to get funds from retail investors, especially those concerned with Sharia values. Sharia financial literacy is expected to determine the success of this Sukuk. This study fills the gap of previous research on financial literacy by investigating the Sharia financial literacy in the investment decision. This study investigates the descriptive analysis of Sharia financial literacy in Indonesia and its relationship with the prospect of retail Sukuk issued by …

Reinforcing The Role Of Intellectual Property In The Battle Against The Pandemic: The Vowel Framework, Daniel S. Hofilena

DLSU Business & Economics Review

The intellectual property (IP) system plays a vital role in public health crises as everyone should have access to medicines and equipment to protect themselves. Thus, the State can utilize the system for the greater good. An IP-centric approach can be summarized using the simple letters of the vowels: Awareness – for the populace to respect IP rights, they must first be educated as to its value; Enforcement – for infringers to be discouraged, IP holders should have an avenue for the easy enforcement of their rights; Incentivize – for businesses to be encouraged to invest in certain forms of …

Blockchain Technology: A Survey Of Croatian Business Leaders, Dražen Zec, William G. Heninger

Faculty Publications

Blockchain or distributed ledger technology emerged over ten years ago as the underlying technology of bitcoin. Blockchain is a special kind of database with individual records or blocks linked together in a sequential list called chain of blocks. These records are validated by multiple nodes in peer-to-peer networks and they are immutable. It is a decentralized system, with no need for intermediaries where all decisions are made using different consensus mechanisms. High expectations from blockchain technology, combined with a lack of deeper knowledge about the technology are expressed in the results from the survey conducted on a sample of Croatian …

Measuring Credit Risk Using Qualitative Disclosure*, John Donovan, Jared Jennings, Kevin Koharki, Joshua A. Lee

Faculty Publications

We use machine learning methods to create a comprehensive measure of credit risk based on qualitative information disclosed in conference calls and in management’s discussion and analysis section of the 10- K. In out-of-sample tests, we find that our measure improves our ability to predict future credit events (future bankruptcies, future interest spreads, and future credit rating downgrades) relative to existing credit risk measures developed by prior research (e.g., z-score). We also find our measure based on conference calls explains within-firm variation in future credit events; however, we find little evidence that the existing measures of credit risk developed by …

Beyond Borders: Uncertainty In Supragovernmental Tax Enforcement And Corporate Investment, Zackery D. Fox, Martin Jacob, Jaron H. Wilde, Ryan J. Wilson

Faculty Publications

Amid growing globalization, many countries have offered tax incentives to attract corporate investment. Prior research studies the role such incentives play in firms’ location and investment choices. However, we have limited evidence on the role that uncertainty about the intensity of future tax enforcement plays in those decisions. In 2013, the European Commission (“E.C.”) abruptly began investigating tax ruling practices of several countries in response to allegations that certain firms received preferential tax treatment (“state aid cases”). We use this setting to study the economic consequences of increased uncertainty about future tax enforcement. We find evidence consistent with significant reductions …

Analyst Non-Gaap Reporting: When Do Equity Analysts Adjust Gaap Earnings – An Application Of Text Based Firm Complexity, Patrick Chen

CMC Senior Theses

Equity analysts adjust GAAP earnings to report non-GAAP figures that they believe better represent a firm’s current and future performance. The importance of such non-GAAP(street) figures has been determined and accepted by the literature, but the process in which analysts arrive at such figures is less understood. I apply a newly defined measure of firm complexity using text based analysis of firm annual reports and investigate its effect. When complexity increases, it becomes harder to individuate different components of a system. When that system is a firm, complexity then increases the difficulty in determining an accurate measure of performance. The …

Intellectual Capital's Impact On Corporate Performance During The Age Of Digitalization And The Covid-19 Pandemic, Chance Sears

CMC Senior Theses

The purpose of this paper is to examine the relationship between intellectual capital and firms’ financial and market performance during the peak levels of digitalization, focusing on the COVID-19 Pandemic. Utilizing the recently validated Value Added Intellectual Coefficient (VAIC), alongside its necessary controls, I conduct an empirical analysis on North American firms over the period of 2010-2020 using fixed effects and pooled ordinary least squares analysis. Findings from the empirical analysis provide evidence that intellectual capital is a driving factor in enhancing firms’ financial and market performance. Additionally, results indicate that the COVID-19 pandemic increased the impact of intellectual capital …

Reliance On Algorithmic Evidence: The Joint Influence Of Measurement Uncertainty And Algorithm Adaptability, Jenny Ulla

Theses and Dissertations--Accountancy

Artificial intelligence (AI) systems’ capability is rapidly expanding to perform complex tasks once reserved only for humans. With machine learning algorithms, AI can learn and adapt as it encounters more data, which has enabled these systems to improve the quality of accounting estimates that traditionally have been more difficult for humans. Although AI systems’ capability to adapt has potential benefits, these systems also have become increasingly complex, making it difficult for individuals to understand the processes or algorithms these systems use to produce advice. Practitioners worry that when algorithms behave like “black boxes” this opacity may lead to a lack …

Earnings Conference Calls And Lazy Prices, Chuancai Zhang

Theses and Dissertations--Accountancy

Changes to the language and construction of financial reports are indicative of firms’ future returns and operations. Investors, however, are often inattentive to these changes; consequently, price reactions to these changes are delayed—resulting in “lazy” prices. This study explores two possible channels through which earnings conference calls may mitigate lazy prices: (1) the topic overlap channel and (2) the comparison language channel. Specifically, I examine whether the topic overlap between conference call transcripts and 10K/10Q filings or the comparison language used on earnings conference call transcripts helps investors understand the nature of the overlapped topics and triggers investors’ attention to …

Critical Audit Matters Requirements And Auditor Reporting Behavior: Early U.S. Evidence, Valbona Sulcaj

Theses and Dissertations--Accountancy

In this study, I examine two research questions related to the reporting requirements of critical audit matters (CAMs) introduced in the Audit Standard (AS) 3101. First, I examine whether auditor’s perceived litigation risk and client’s financial reporting quality are associated with the number and textual attributes of CAMs. Second, I examine whether the number and textual attributes of CAMs are associated with audit effort and costs.

Consistent with the litigation hypothesis (Skinner, 1994), I find a positive association between litigation risk and the number of CAMs in the audit report, suggesting that auditors try to preempt negative consequences from shareholder …

Earnings Announcement Delays And Implications For The Auditor-Client Relationship, Kimball Chapman, Michael S. Drake, Joseph Schroeder, Timothy Seidel

Faculty Publications

We examine whether delays in the expected release of annual earnings have implications for the future auditor-client relationship. Managers have strong incentives to release earnings on schedule and auditors play an important role in helping their clients avoid costly earnings announcement delays. We find an increased likelihood of subsequent auditor-client realignments after earnings announcement delays. We further find that clients changing auditors realign with audit firms that better meet their earnings announcement timing demands without any evidence of a significant compromise to the reliability of the financial statement numbers in the earnings announcement. Our results help inform regulatory concerns about …

Anonymous Equity Research, Travis Dyer, Eunjee Kim

Faculty Publications

Crowdsourced financial information platforms often allow content contributors to publish equity research anonymously. This study examines whether investors value or discount information in anonymous equity research. In the short window around research releases, we find that investors’ stock price reaction to anonymous research is muted in comparison to nonanonymous research. Consistent with credibility concerns influencing investor response, we document that this discount to anonymous research dissipates as the monitoring of content contributors intensifies and as authors develop a reputation for high-quality reporting. In addition, we perform a content analysis on the research reports and find that the muted market reaction …

Factors Affecting The Outcomes Of Legal Claims Against Auditors, Karen D. De Meyst, D. Jordan Lowe, Mark E. Peecher, Jeffrey Pickerd, Andrew Reffett

Faculty Publications

Maksymov, Pickerd, Lowe, Peecher, and Reffett (2020b) draw insights based on interviews with 27 prominent audit litigation attorneys about the factors affecting the initiation of legal claims against auditors and how such factors affect settlement outcomes. We summarize their key findings and discuss important implications for audit practitioners. Specifically, we focus on the key factors that affect plaintiff attorneys’ willingness to pursue legal claims against auditors, including the merits of the claim, size of alleged economic damages, auditors’ ability to pay, and the expected cost to pursue the claim. We also discuss the reasons why most audit disputes settle (as …

The Effects Of High Estimate Uncertainty In Auditor Negligence Litigation*, Jeffrey Pickerd, M. David Piercey

Faculty Publications

We examine how jurors’ negligence judgments and attorneys’ out-of-court settlements are differently impacted by two features of a materially misstated accounting estimate—the amount of estimate uncertainty and whether the misstated account is disaggregated into its own line-item or aggregated with other accounts into a single financial statement line-item. We predict and find that jurors and attorneys react to estimate uncertainty in opposite directions under common conditions. This finding is important because when jurors’ judgments and attorneys’ settlements differ, research into juror judgments alone may not capture a complete picture of auditor liability because the vast majority of audit litigation is …

Corporate Governance And Tax Avoidance: Evidence From Governance Reform, Jon Kerr, Richard Price, Francisco J. Román, Miles A. Romney

Faculty Publications

Prior literature struggles to find evidence in U.S. settings to support the Desai and Dharmapala (2006) theory on how corporate governance affects tax avoidance. Most studies rely on equity incentive compensation as their governance proxy. We use a Mexican setting to examine this association and find firms with stronger governance engage in less tax avoidance. We rely on both a hand-collected governance index and governance reform to show improved corporate governance pushes tax avoidance toward a new equilibrium. Supplementary analyses show associations between governance and tax avoidance are greatest for tax-cost-sensitive familyowned firms and non-cross-listed firms with naturally weaker governance. …

Accruals Earnings Management Proxies: Prudent Business Decisions Or Earnings Manipulation?, Theodore E. Christensen, Adrienna Huffman, Melissa F. Lewis-Western, Rachel Scott

Faculty Publications

Over the last 5 years, the top accounting journals have published 388 articles that incorporate an empirical proxy for accruals-based earnings management. Researchers use these proxies to measure diverse managerial activities that represent fundamentally different constructs (from beneficial earnings management at one end of the spectrum to earnings manipulation at the other). We present a simple framework that defines the specific construct of “earnings manipulation” and places it within the context of the broader concept of “earnings management.” At the construct level, one distinguishing characteristic of earnings manipulation is that accruals reversals cause future earnings to be lower than earnings …

Does Visibility Of An Engagement Partner’S Association With Recent Client Restatements Increase Fee Pressures From Non-Restating Clients?, Wuchun Chi, Ling Lei Lisic, Linda A. Myers, Mikhail Pevzner, Timothy Seidel

Faculty Publications

We examine whether engagement partners who have recently been associated with client restatements experience increased audit fee pressures from their non-restating clients. Using data from the United States (U.S.) and Taiwan, we find evidence of lower audit fees among non-restating companies whose audit engagement partner was recently associated with another client’s restatement. These findings are generally strongest when the partner-associated restatement is more prominent or severe, and in the U.S., when non-restating clients are in the same industry as the restating client. Although we find very limited evidence that fee pressures lead to lower quality audits for these partners’ other …

How Has The Change In The Way Auditors Determine The Audit Report Date Changed The Meaning Of The Audit Report Date? Implications For Academic Research, Steven M. Glover, James C. Hansen, Timothy Seidel

Faculty Publications

Archival research in accounting often relies on the audit report date to capture the constructs of audit efficiency, audit timeliness, audit effort, or audit completion. Auditors’ view of what constitutes sufficient appropriate evidence to support the audit opinion, and consequently the date of the audit report, previously coincided with the substantial completion of audit fieldwork, which would be days or weeks before a 10-K filing. However, this view has shifted to coincide with the timing of the public issuance of clients’ financial statements (i.e., the 10-K filing date) following several regulatory actions, audit practice changes, and professional standard setting changes …

Prior Audit Experience And Cfo Financial Reporting Aggressiveness, Eric R. Condie, Kara M. Obermire, Timothy Seidel, Michael S. Wilkins

Faculty Publications

In this study, we investigate the financial reporting behavior of chief financial officers (CFOs) with significant prior audit experience. Our tests indicate that, on average, CFOs who were former audit managers or partners report less aggressively than CFOs without prior audit experience. Thus, the mindset that auditors develop during their time in public accounting – which should value objective, transparent, and conservative financial reporting – appears to persist when auditors take high-level positions in industry. However, we also find that the reporting behavior of prior-auditor CFOs becomes more aggressive over time as the salience of their audit experience decays. Further, …

Perceptions Of Tone At The Top From The Inside: Insights Into Audit Pricing, Jace Garrett, Rani Hoitash, Douglas F. Prawitt

Faculty Publications

Tone at the top plays an important role in entities’ internal control over financial reporting (ICFR) and in auditors’ planning and risk assessment decisions. Using a novel measure based on employee perceptions, we find that strong tone at the top is associated with reduced audit pricing and that this relation holds even for firms that report effective ICFR. This relation is stronger when employees’ tone perceptions are more consistent throughout the organization, when accounting is more complex, and when earnings manipulation risk is higher. We also find that strong tone is negatively associated with the incidence of reported material weaknesses …